Washington taxes · 4 minute read

How to file your Washington excise tax return as a contractor

Washington contractors file one excise tax return that covers both retail sales tax and B&O tax. Construction businesses with under $60,000 a year in Washington income usually file quarterly, and $60,000 or more usually monthly. Monthly returns are due the 25th of the next month. Quarterly returns are due the last day of the month after the quarter ends. You file it in My DOR on the Department of Revenue website.

One return, two taxes

Washington doesn't have a state income tax. It has the excise tax return instead, and it covers more than most new contractors expect.

The same return reports the retail sales tax you collected from customers and the business and occupation (B&O) tax you owe on your gross income. It can also include use tax on materials you bought without paying sales tax.

How sales tax and B&O apply to construction is its own topic. Start with our guide to Washington sales tax and B&O for contractors if you're not sure whether you're a prime contractor or a sub. This article is about getting the return filed correctly and on time.

How often you file depends on how much you earn

The Department of Revenue assigns your filing frequency when you register and lists it in your welcome letter. For construction businesses, its published guideline is:

• Under $60,000 a year in Washington income: quarterly
• $60,000 a year or more: monthly

Construction doesn't get the annual option some other businesses do. If your income has grown past your frequency, the department can change it, and you can ask by calling 360-705-6705.

When each return is due

• Monthly: the 25th of the following month. October's return is due November 25.
• Quarterly: the last day of the month after the quarter. October through December is due January 31.

If the due date lands on a weekend or holiday, it moves to the next business day.

Put every due date on your calendar for the year, today. Late returns cost a penalty plus interest, and the penalty grows the longer the return sits.

File even when you had no income

A slow quarter is not a skipped quarter.

If you had no business activity for the period, the Department of Revenue has a "no business activity" return you can file through My DOR, Express file or by phone. Filing it keeps your account in good standing.

What goes on a contractor's return

For a typical prime contractor doing residential work for homeowners, the lines that matter most are:

• Retailing B&O: the gross amount of your retail contracts for the period.
• Retail sales tax: the same contracts, reported by the location where the work was done. Sales tax rates differ by city and county, and construction is taxed at the rate where the job site is, not where your shop is.
• Wholesaling B&O: if you also work as a sub for other contractors and they gave you their reseller permit.
• Use tax: on materials or equipment you bought without paying Washington sales tax, if you didn't resell them to a customer.

The location coding is where most returns go wrong. A remodel in Everett and a deck in Marysville carry different rates, and the return has to split them.

The three mistakes that cost contractors the most

Using the shop's rate for every job. If your invoices charge one rate everywhere, some customers paid the wrong amount and the return is off. Set up sales tax in QuickBooks so the rate follows the job address.

Treating sales tax as income. The sales tax you collect belongs to the state from the moment it lands in your account. If it sits in your checking account and gets spent, the return becomes a bill you can't pay. In our monthly bookkeeping, collected sales tax lives in its own liability account so the balance is always visible.

Filing from bank deposits instead of invoices. Deposits mix in customer deposits, loans and transfers. The return should come from what you invoiced in the period, reconciled to the books. That's one more reason a real monthly close matters.

How to actually file it

1. Close the month or quarter in your books first, so income and sales tax are final.
2. Run a sales tax liability report in QuickBooks for the period, broken out by location.
3. Log in to My DOR at dor.wa.gov and open the return for the period.
4. Enter gross amounts on each B&O line, and sales tax by location.
5. Check the total the return calculates against the sales tax liability in your books. If they don't match, find out why before you submit.
6. Pay by the due date and record the payment against the liability in your books, not as an expense.

What to do this week

Find your filing frequency in My DOR and put every due date for the next twelve months on your calendar.

If your returns have been estimates or your sales tax account doesn't reconcile, our catch-up bookkeeping fixes the books first and gets the returns lined up with them. The Back Office plan handles the filing every period from there.

General information, not tax advice. Your situation may differ, so check with the Department of Revenue or your CPA before filing.