Who Pays the B&O Tax?

With more and more states discussing, or even enacting, gross receipts taxes, there's a growing focus on who really ends up paying this tax. Most people agree that Washington's Business and Occupation (B&O) tax generally gets passed on to consumers in the form of higher retail sales prices. But a new state court ruling reminds Washingtonians that it doesn't always have to be this way.

The Court's ruling basically reaffirms what people have always said about the B&O tax, which is that it's absolutely OK for businesses to pass on the whole tax to consumers by increasing their retail prices, but also affirms that it is absolutely not OK for businesses to treat the B&O tax like a sales tax and actually tack it on to the final sales price of, say, a car.

This is exactly what Appleway Chevrolet tried to do to Herbert Nelson when he bought a used Volkswagen Cabriolet. After Appleway and Nelson agreed on a sales price, Appleway then added the B&O tax on top of it-- effectively making it a sales tax. The amount in question is not large (the B&O tax the dealership added was about $70), but the principle is clear. The $70 B&O tax the dealership paid is a cost of doing business. They could have increased the asking price of the car by $70 to effectively pass it on to Nelson, but once they set the price they were no longer able to tack it on.

The exception in this case only serves to prove the rule: despite the legal fact that businesses pay the Washington gross receipts tax, Washington consumers effectively pay the tax every time they make a purchase in Washington State. It's an invisible sales tax.