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B&O Tax Classifications

Auburn City Code Chapter 3.53.040
The gross receipts B&O tax is primarily measured on gross receipts of sales or gross income for the reporting period. For purposes of the gross receipts tax, businesses have been divided into several classifications which are discussed below. Businesses conducting multiple activities will report in more than one tax classification.

Gross receipts B&O tax threshold:
B&O tax is due for businesses with Companywide Gross receipts more than $500,000 annually. If you report quarterly using estimated annual gross proceeds, you may reconcile at year-end. If you ended up under an annual $500,000 B&O tax threshold for this year, you may submit an amended return and provide a proof. City may request additional information and exam your records, per ACC 3.54.080.

Gross receipts tax classifications:

Manufacturing/Processing for Hire
Manufacturing is the business of producing articles for sale from raw or prepared materials by giving these materials new forms or qualities, such as fabricating, processing, refining, mixing, packing, canning, etc. The amount of the tax with respect to such business shall be equal to the value of the products, including by-products, manufactured within the city, multiplied by the rate of 0.100 of one percent (0.001). The measure of the tax is the value of the products, including by-products, so manufactured, regardless of the place of sale or the fact that deliveries may be made to points outside the city. Processing for hire means the performance of labor and mechanical services upon materials or ingredients belonging to others so that as a result a new, different or useful product is produced for sale or commercial or industrial use.

Extracting/Extracting for Hire
Extracting is the taking of natural products, such as logging, mining, quarrying, etc. The amount of the tax with respect to such business shall be equal to the value of the products, including by-products, extracted within the city for sale or for commercial or industrial use, multiplied by the rate of 0.100 of one percent (0.001). The measure of the tax is the value of the products, including by-products, so extracted, regardless of the place of sale or the fact that deliveries may be made to points outside the city. Extractor for hire means a person who performs under contract necessary labor or mechanical services for an extractor.

Wholesaling
Sellers of products to persons other than consumers are considered to be wholesalers. The amount of tax with respect to such business shall be equal to the gross proceeds of such sales multiplied by the rate of 0.180 of one percent (0.0018).

Retailing
Businesses that sell products and specific services to consumers are defined as retailers. Taxable retail services include those generally performed on property, such as repair, but not personal or professional services, such as services performed by doctors, attorneys, or accountants. The amount of tax with respect to such business shall be equal to the gross proceeds of such sales multiplied by the rate of 0.050 of one percent (0.0005).

Retail Service
Businesses engaged in Amusement and recreation services including but not limited to golf, pool, billiards, skating, bowling, swimming, bungee jumping, ski lifts and tows, basketball, racquet ball, handball, squash, tennis, batting cages, day trips for sightseeing purposes, and others, abstract, title insurance, and escrow services; credit bureau services; automobile parking and storage garage services; landscape maintenance and horticultural services; service charges associated with tickets to professional sporting events; and the following personal services: physical fitness services, tanning salon services, tattoo parlor services, steam bath services, Turkish bath services, escort services, and dating services; the term shall also include the renting or leasing of tangible personal property to consumers and the rental of equipment with an operator. The amount of tax with respect to such business shall be equal to the gross proceeds of sales multiplied by the rate of 0.150 of one percent (0.0015).

Printing/Publishing
Publishers of newspapers, magazines and periodicals are taxable under this classification, as well as persons who both print and publish books, music, circulars, etc. Printing includes letterpress, offset-lithography, and gravure processes as well as multigraph, mimeograph,
autotyping, and similar activities. The amount of tax on such business shall be equal to the gross income of the business multiplied by the rate of 0.100 of one percent (0.001)
*Firms engaging in photocopying documents should report under the Retailing classification.

Services and Other Activities
Businesses that provide personal and professional services, such as lawyers, doctors, financial institutions, real estate brokers, insurance brokers and solicitors, and accountants, persons engaged in the business of developing, or producing custom software or of customizing canned software, producing royalties or commissions are subject to the B&O tax under this classification. Also, any business that is not subject to another B&O tax classification must report under this “catch-all” category. The amount of tax on account of such activities shall be equal to the gross income of the business multiplied by the rate of 0.100 of one percent (0.001).

Services and Other Activities Apportioned
Effective Jan. 1, 2020, the method used to apportion service revenue between jurisdictions has changed to comply with the Revised Code of Washington 35.102.130 under House Bill 1403 in 2019. This new method utilizes a market-based sourcing approach to determine how taxable service income is apportioned among multiple jurisdictions. Essentially, the new apportionment method redefines "customer location" for purposes of apportionment.

Gross income derived from all activities other than those taxed as service or royalties under ACC 3.53.040(A)(7) shall be allocated to the location where the activity takes place and shall be apportioned to the city by multiplying apportionable income by a fraction, the numerator of which is the payroll factor plus the service income factor and the denominator of which is two. In the case of sales of tangible personal property and digital products, the activity takes place where delivery to the buyer occurs.

The apportionment of service income allows businesses to divide their taxable revenue and their taxes proportionately among the Washington cities in which they do business. Examples of businesses that report service income include accountants, lawyers, architects, engineers and many other professional service firms. Businesses that report revenue under the classification of "Service and Other Business Activities" on their City of Auburn business tax return will calculate apportionment of this revenue.

Customer Location
To calculate service income apportionment, it will be important to have record of the customers' location. The definition of "customer location" depends on whether the customer is a business.

For customers engaged in business, the "customer location" is:
1. Where the services are ordered from;
2. The customer's billing/mailing address, if the location from which the services are ordered is not known; or
3. At the customer's commercial domicile if none of the above is known.

For customers who are not engaged in business, a homeowner for example, the "customer location" is:
1. If the service requires the customer to be present, it is where the service is performed;
2. If the customer is not required to be physically present, it is the customer's residence; or if the location of the customer's residence is not known, it is the customer's billing/mailing address.

Information you will need
Before you begin to calculate the apportionment of your service income, gather the following information:

  • Total service receipts
  • Total service payroll costs
  • Total Seattle service payroll costs
  • Location of each of your customers (see definition above.)

Calculating the Service Income Apportionment
Please download a Schedule A worksheet from the B&O Tax page to calculate service income apportionment when you file your taxes on paper.

Coming Soon! You will soon be able to calculate service income apportionment on our online portal, FileLocal.

Alternative apportionment
Taxpayers may apply and request an alternative apportionment method, but they must be able to clearly demonstrate that the alternative method better reflects their business activities than the prescribed two-factor method that is specified in the ACC 3.53.080 income. Download Alternative Apportionment Method (PDF).