Gross receipts taxes are structurally different from income taxes. Instead of taxing profit, taxes on gross receipts tax revenue, which means a business can owe taxes even while reporting a financial loss. That distinction is especially important for early-stage companies, digital service providers, and businesses with high operating costs.
Washington state provides one of the clearest examples because it does not impose a traditional corporate income tax on businesses. Instead, it uses the Business & Occupation (B&O) Tax, which taxes gross receipts from business activity conducted in the state.
What Gross Receipts Means
Gross receipts generally refers to total revenue before any deductions for operating costs. Unlike an income tax base, a gross receipts base usually does not allow deductions for:
- Cost of goods sold,
- Payroll,
- Rent,
- Depreciation or amortization, and/or
- Other ordinary operating expenses
That is why a company can have a meaningful accounting loss and still owe tax. The tax base is revenue itself.
How Washington B&O Works
Washington’s B&O tax is imposed under Revised Code of Washington (RCS) RCW 82.04 and applies to Washington-sourced revenue from business activities. The tax is imposed on gross receipts, and rates differ depending on the business classification, such as services, retailing, wholesaling, or manufacturing.
The tax applies once the business exceeds Washington’s economic nexus threshold, which is $100,000 in gross receipts sourced to Washington. The Washington Department of Revenue explains the B&O system and the broad compliance framework on its website.
Washington Expanded Sales Tax Exposure
In October 2025, Washington expanded the scope of services subject to sales tax, which means businesses that historically only worried about B&O now face additional collection and filing obligations.
That expansion is especially relevant for:
- SaaS and subscription companies,
- Digital service providers,
- Remote consulting firms, and
- Marketplace platforms
The practical consequence is that revenue growth alone can trigger both B&O liability and sales tax obligations before the business becomes profitable. For fast-growing companies, that means tax exposure can scale faster than cash flow.
Other States With Gross Receipts Style Regimes
Washington is not alone. Other jurisdictions use gross receipts taxes or gross-receipts-adjacent systems that can create filing exposure without regard to profit. Examples include:
- Oregon, through its Corporate Activity Tax
- Ohio, through the Commercial Activity Tax
- Nevada, through the Commerce Tax
These systems vary in design, sourcing rules, and thresholds, but they share a common principle: revenue can trigger tax even when net income is negative. Each state needs to be reviewed separately.
Planning Ahead and Ongoing Monitoring
The best planning here is not after-the-fact cleanup. It is an ongoing monitoring and classification review.
Useful controls include:
- Monthly revenue tracking by state,
- Sourcing analysis for services, digital products, and remote work,
- Reviewing whether sales tax collection obligations have been triggered,
- Considering voluntary disclosure for prior periods if thresholds were missed, and
- Contract drafting and delivery design can also matter, especially for service businesses.
How revenue is sourced may affect whether a state includes it in the tax base and at what rate.
Key Takeaways
- Gross receipts taxes apply to revenue, not profit;
- Washington B&O is a prime example of a tax system that can create liability even when a business is losing money;
- The $100,000 Washington economic nexus threshold is a common trigger;
- Gross receipts systems in other states can create similar exposure, and
- Monthly monitoring, classification review, and sourcing analysis are the best ways to manage risk.
If your company operates in Washington or another gross receipts state, it is important to review your revenue sourcing and classification before year-end.
Contact our team today to discuss your state tax exposure.
For More Reading
- State Nexus Can Create Filing Obligations Even Without Profit
- R&E Deductions Under the OBBBA
- California Corporate Suspension Can Bar Tax Court Review
Aura Advisors is a boutique tax consulting and compliance firm working with start-ups, emerging growth companies, and affluent individuals. Making it safer for good people and good companies to continue to do good things.