How To Start a Business in Washington
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Starting a business in Washington state is a straightforward process. It can be as simple as a single application to the Department of Revenue, or it may require filing with the Secretary of State. Regardless of the nature of your business, however, you’ll find the process approachable as long as you are alert to which rules apply to you.
Small businesses have made a strong showing in Washington in recent years. Though the number of small business jobs fell between July 2018 and July 2019, Washington ranks 7th in the country for wage gains, according to Paychex. Small businesses comprise 99.5% of Washington’s economy, with most firms employing fewer than 100 people.
Washington is unusual among U.S. states, in that it does not have a corporate or personal income tax. While this could simplify tax time for small businesses, businesses in Washington will pay other types of taxes and fees, including federal taxes. Those starting businesses in the state will need to read up on how taxes work and register with the appropriate authorities to make sure they stay compliant.
- How to establish a business entity in Washington
- Costs of starting a business in Washington
- Getting help with costs
How to establish a business entity in Washington
The first step in starting your business in Washington is planning it. It’s important to have a clear idea of what, when, and how you will approach this process. There are organizations that can help you in the planning stages including the Washington Center for Women in Business and the Washington Small Business Development Center.
Name your business
Naming your business is also part of this early phase. It’s important to ensure that the name you have in mind isn’t already being used by someone else.
Use the official Business Lookup tool; make sure to try various spellings, different spacing or punctuation, and suffixes like LLC and Inc. to make sure your business name will be unique. You can also search the Washington Secretary of State Corporations Registration Data Search to see corporation and LLC names on file and the U.S. Patent and Trademark Commission to find federally registered names. You could register your own trademark — the application fee for federal trademark ranges from $225 to $400. You may also choose to trademark your business name with the state of Washington for an application fee of $50.
Find a location
Figuring out your business location is also a key part of planning. Regardless of whether you have a storefront or you’re working online out of your home office, you will need a physical address to register your business. When looking for a location, make sure the zoning is appropriate for your activities and look into whether your town or city requires any special permits to do what you want to do in that space.
If you work out of your home, are there any restrictions imposed by your city, county, or homeowners’ association? Some business owners may be reticent about using a home address on publicly available business documents; in that case, you can use an alternate address, such as the place where your records are maintained. Or, depending on your business entity, you can look for a registered agent whose address you can use as your official business address and who will be authorized to receive legal documents and communications for you. Whichever address you choose, it must be a street address; P.O. boxes are not permitted.
Register your business
Once you’ve planned out the details of your business, it’s time to consider registering your business with the Washington Department of Revenue (DOR) and, in some situations, the Washington Secretary of State (SOS). What you’ll need to do to register your business depends on which business structure you are using.
You need to register with the DOR if one of the following statements is true.
- You are making $12,000+ per year gross income
- You operate under a name other than your own legal name
- You intend to hire employees in the next 90 days
- You sell taxable services or products
- You have specialty licenses through the Business Licensing Service
You need to register with the SOS and pay $180 if your business is a:
- Limited liability company
- Limited partnership
There are no hard-and-fast rules about which business entity you should start; there are advantages and disadvantages to each, and the right one will depend on your situation. Consult a tax attorney to get a better sense of which structure is most appropriate for what you have planned.
Apply for any necessary licenses
A good place to start is with the Business Licensing Wizard, a guide that can show you which licenses might apply to you, how to apply for those licenses and any forms you’ll need. If these apply to you, you’ll need to pay an application fee of $19.
If your business does require a specialty license — a liquor, architecture, or limousine license, for example — file for those licenses with the DOR’s Business Licensing Service with supporting documentation and your Unified Business Identifier (UBI) number. Each license will require payment of a fee, ranging from $30 to $895 depending on the business activity.
Costs of starting a business in Washington
In addition to the fees you’ll need to pay as you register with the Secretary of State or Department of Revenue and file for specialty licenses, there are a variety of other costs you’ll need to manage when starting a business in Washington.
Washington business owners will need to federal income taxes on their business activities. How you pay this depends on your business structure. As far as state income tax, Washington does not levy a personal or business income tax. Instead, businesses pay the state’s business and occupation (B&O) tax, sales and use taxes, property taxes and some industry-specific taxes. Registering your business with the Washington DOR is what notifies the state that your business may have a tax obligation.
The taxes you’ll pay are composed of the following line items:
- Business and occupation (B&O) tax: A tax on gross revenue.
- Sales tax: Businesses must collect and remit sales taxes on retail products, construction work, and some services.
- Use tax: Businesses must pay tax for purchases on which sales tax was not collected, such as items bought in sales-tax-exempt neighboring Oregon.
- Property taxes: Property tax, which counties collect, is based on the value of real estate and buildings.
- Industry-specific taxes: Businesses offering certain goods, such as hotel rooms, rental cars, and cigarettes may have to pay taxes particular to those types of offerings.
You may have to pay taxes monthly, quarterly, or annually; how often you submit will depend on the amount of tax you are likely to owe. You’ll get information about your business’s tax filing frequency after you have registered your business with the DOR.
Along with federal and state taxes, businesses in Washington likely have to also pay taxes to local and county jurisdictions. Most towns and cities require businesses to pay a local sales tax and a B&O tax, in addition to the state B&O tax. Contact authorities in your town, city, or local area to learn about what taxes you will owe and how often you should file them.
Counties collect property taxes from businesses. Even though property is often referred to as “personal property,” that name encompasses business buildings, structures, furnishings, equipment and other assets.
Washington law requires businesses with employees to provide workers’ compensation insurance, which covers employees in the case of work-related injury.
Most Washington businesses get workers’ comp insurance via an insurance pool called the Washington State Fund, which is administered by the Washington State Department of Labor & Industries. Business owners can apply for coverage via a DOR business license application.
Washington businesses with 50 or more employees are required to provide health insurance for their workers. Those with fewer than 50 employees also have options for providing health coverage, but this is optional.
Though not required, small business owners may also want to consider other types of insurance including:
- Liability insurance, which protects you, employees and customers in case of an accident.
- Commercial property insurance for your company’s physical assets such as buildings, equipment and inventory.
- Business interruption insurance, if your business must close after a fire or other unforeseen circumstances.
Washington businesses will need to make sure they remain in compliance with various state and federal regulations. One example is that businesses in Washington are required by law to register new hires within 20 days of hiring to the Washington State Department of Social and Health Services.
Expending the effort to keep up with evolving laws and upgrading your business operations, technology, and training to remain on the right side of the law can amount to an unexpectedly large business cost.
Ask the advice of an attorney or industry association when you are starting your business to make sure that you’re covering all your legal bases.
Getting help with costs
Business owners in Washington can find financing in a variety of places: traditional banks, online lenders, crowdfunding, and from friends and family. Banks and other lenders offer a variety of products, such as personal and business loans, including Small Business Administration (SBA) loans, equipment loans, lines of credit, invoice factoring, merchant cash advances, business credit cards and microloans.
The Washington Department of Commerce offers a variety of special loan, grant and other support opportunities to help small businesses in various sectors thrive. You could find out more in Washington’s Small Business Guide.
Washington also provides resources for small business owners interested in moving an existing business to the state, including site selection and financing. Owners of LLCs who would like to move their operations to Washington can register as a foreign LLC.
The bottom line
Starting a business in Washington requires apprising the Department of Revenue and maybe also the Secretary of State of your plans by filing your business with those agencies. Make sure you look into which specialty licenses you need, if any, and pay the appropriate fees. Be aware that despite Washington’s lack of income tax, business owners are still on the hook for business and occupation taxes.