Why More Washington Cities Are Looking to Collect Business and Occupation (B&O) Tax Locally

An increasing number of local governments are looking to B&O taxes to help ensure a stable revenue stream for their communities.

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Local leaders in Washington state have to be creative. With a 1% property tax levy limit, they are constrained in their ability to meet the needs of their growing cities.

To help ensure a stable revenue stream for their communities, over 54 cities now collect a local Business and Occupation (B&O) tax—and that number is growing. Covington and Poulsbo adopted a B&O tax effective July 1, 2024, followed by Oak Harbor (October 1, 2025) and Vancouver (January 1, 2026).

Based on conversations with leaders across the state, Neumo anticipates many more will follow suit.

Why Collect a B&O Tax?

B&O tax revenues are unrestricted and may be used for any lawful governmental purpose.

This locally collected tax is in addition to the B&O tax imposed by the state of Washington. B&O tax is a gross receipts tax measured on the value of products, gross proceeds of sale, or gross income of the business.

The urgency for cities to explore local revenue options has grown sharply. Washington’s 2025 budget legislation, signed into law on May 20, 2025, represents the largest tax increase in Washington State history, raising nearly $9 billion over four years in response to a $16 billion projected budget deficit.

At the state level, B&O rates for service businesses with gross income over $5 million increased from 1.75% to 2.1% effective October 1, 2025. These pressures are prompting cities to more actively evaluate whether a locally collected B&O tax makes sense for their community.

What’s Driving New B&O Tax Adoptions?

The pace of adoption has accelerated. Several factors are converging:

New cities coming online: Four cities have adopted local B&O taxes since mid-2024, including Covington, Poulsbo, Oak Harbor, and Vancouver, which brings the statewide total to 54 cities.
State budget pressure: Washington’s 2025-2027 operating budget significantly expanded both B&O and sales tax obligations, making locally controlled revenue sources more attractive as a complement.
Model ordinance updated: The MRSC model ordinance was updated in 2026 to reflect changes from state legislation, and the 54 existing B&O tax cities were advised to amend their ordinances by January 1, 2026.
Major cities expanding scope: Seattle voters approved Proposition 2 in November 2025, raising B&O tax rates and increasing the filing threshold to $2 million, restructuring how the city’s B&O tax works to sustain essential services amid projected deficits.

How to Start Collecting a B&O Tax?

Cities across the state that are currently collecting a B&O tax adhere to a model ordinance to ensure uniformity across the state for things like penalty and interest provisions as well as payment periods. The model ordinance cannot be updated more often than every four years and was last updated in 2026.

Best Practices for Managing B&O Tax Collections and Compliance

Cities collecting B&O tax may adhere to the same mandatory provisions, but they manage tax filings and compliance very differently.

While a few cities utilize a shared portal, most rely on paper forms for tax filings. This can create a lot of additional work for time-strapped teams—a challenge that only grows as more cities come online and businesses face compliance obligations across multiple jurisdictions simultaneously.

Tax management software built for government offers two important benefits:

20% more business entities registering and paying on time, which results in more revenue.
95% payment accuracy by helping to ensure that business owners know the amount they owe.

Cities utilizing an effective software solution save up to 20 hours a week on manual work, which frees staff to focus on closing the non-compliance gap.

B&O Tax Resources for Washington Cities

For more information about how to roll out a B&O ordinance for your city and details about fees: