Article
State and local tax changes for 2026: What Seattle businesses need to know
Nov. 25, 2025 · Authored by Adam Cline
A Seattle business and occupation (B&O) tax update, Proposition two, was passed by voters in the November general election. The city B&O rate and threshold increases will take effect Jan. 1, 2026.
What changes with proposition two?
The Seattle B&O tax is a gross receipts tax imposed on the privilege of doing business in the city. The tax is measured by the value of products, gross proceeds of sales, or gross income derived in whole or in part from such business activities. The city B&O tax is not the same as the Washington state B&O tax and must be filed separately.
Proposition two will increase the B&O threshold along with B&O tax rates for tax periods beginning after Jan. 1, 2026. The changes are as follows.
The Seattle B&O tax is a gross receipts tax imposed on the privilege of doing business in the city. The tax is measured by the value of products, gross proceeds of sales, or gross income derived in whole or in part from such business activities. The city B&O tax is not the same as the Washington state B&O tax and must be filed separately.
Proposition two will increase the B&O threshold along with B&O tax rates for tax periods beginning after Jan. 1, 2026. The changes are as follows.
B&O tax threshold increased from $100,000 to $2 million
Seattle businesses with less than $2 million won’t owe any B&O tax. Businesses with gross receipts over $2 million will only pay taxes on the receipts over the threshold, creating a new standard deduction of $2 million. This is an increase from the prior gross receipts threshold of $100,000, and the introduction of a standard deduction for city B&O tax.
B&O tax rate increased through 2032
The manufacturing, retail, and wholesale classifications B&O tax rate will increase from 0.222% of taxable gross receipts to 0.342% through 2029, with an option for the Seattle city council to extend through 2032. In 2033, the rate will reduce to 0.273%.
The transportation freight for hire and service and other classifications B&O tax rate will increase from 0.427% of taxable gross receipts to 0.658% through 2029, with an option for the Seattle city council to extend through 2032. In 2033, the rate will reduce to 0.526%.
Credits are available for some hospitals and healthcare centers to offset the B&O tax increase.
Who’s affected by proposition two?
Approximately 90% of Seattle businesses that currently pay the B&O tax will see reduced taxes, and roughly 75% of Seattle B&O taxpayers will no longer owe the tax.
Approximately 90% of Seattle businesses that currently pay the B&O tax will see reduced taxes, and roughly 75% of Seattle B&O taxpayers will no longer owe the tax.
An estimated 2,300 businesses will see an increase in their B&O tax rate. Proposition two targets Seattle’s largest businesses and is forecasted to generate about $80 million annually.
Looking forward
These changes to Seattle’s B&O tax become effective Jan. 1, 2026. Manual filers will see the changes on tax forms starting Feb. 1, and FileLocal users will see the changes by April 1.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.