B&O Tax Updates

What’s happening?

The City of Olympia faced a budget deficit when preparing the 2025 budget. After significant reductions in expenses and the elimination of 18 staff positions, the City’s General Fund still had an approximately $4 million deficit. The City used one-time reserves to close this gap for 2025 and maintain essential services, but the deficit is expected to grow next year.

The budget deficit is driven by several factors, including Washington State’s 1% cap on property tax increases and the rising costs of providing services. While the City continues to identify and pursue internal efficiencies and savings to maintain essential services for residents and businesses, the Olympia City Council is also evaluating additional revenue options to close the budget gap.

Proposed Changes to B&O Tax:

1. Increase the zero-dollar filing threshold from $20,000 to $500,000
2. Increasing the Retailing rates from .001 to .002

What are B&O taxes?

Business & Occupation (B&O) taxes are a type of local tax collected by the City of Olympia on the gross receipts (total revenue) of businesses. Unlike a sales tax, which is paid by customers, the B&O tax is paid directly by businesses based on their earnings.

Businesses are grouped into categories such as manufacturing, construction, printing and publishing, wholesaling, retail, retail services and services and other activities. Each category has its own tax rate.

Revenue from the B&O tax goes into the City’s General Fund. These dollars are not restricted to specific use and may be applied to any lawful governmental purpose, including maintaining essential services such as public safety, parks and community programs.

How would this affect your business?

Under the proposed $500,000 threshold, more small businesses would qualify for the “no tax due” zero dollar filing. Currently, about 3,800 of Olympia’s 8,950 tax filers are in this “no tax due” group. With the proposed change, that number would increase to about 6,960 zero-dollar filers.

The proposed rate increase applies only to businesses in the Retail and Retail Services category, as demonstrated in the grid above. The Services & Other Activities category is currently set at .002 (0.2%) and would remain unchanged as well.