Apportionment guide

Washington B&O apportionment and the annual reconciliation: a plain-English guide

If a business earns income in an "apportionable" B&O classification (Service and Other Activities, royalties, and a short list of others) and is also taxable in another state or country, Washington law requires it to pay B&O tax on only the Washington share of that income.

Published: Oct 17, 2026Source checked: Oct 17, 2026
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Draft — last source check Oct. 17, 2026

Quick answer

If a business earns income in an "apportionable" B&O classification (Service and Other Activities, royalties, and a short list of others) and is also taxable in another state or country, Washington law requires it to pay B&O tax on only the Washington share of that income. That share is set by a single receipts factor: Washington-attributed receipts divided by worldwide receipts, less "throw-out" income (RCW 82.04.462; WAC 458-20-19402). Because returns during the year are often filed with an estimated factor, the law requires a correction for each calendar year by Oct. 31 of the following year. DOR handles that correction through its Annual Reconciliation of Apportionable Income (ARAI), and the reconciliation can produce either a refund or additional tax, with interest either way.

2026 timing note: the reconciliation for calendar year 2025 is due Oct. 31, 2026, which is a Saturday. WAC 458-20-19402(602) says a reconciliation due on a weekend "will be considered timely if filed on the next business day," which would be Monday, Nov. 2, 2026. DOR's ARAI page simply says "Oct. 31." To be safe, file and pay by Friday, Oct. 30, and send any extension request before Oct. 31 (see Flagged uncertainty).

At a glance

TopicWhat the source saysSourceLaw or DOR guidance?
Who must apportionA person "earning apportionable income taxable under this chapter and also taxable in another state must... apportion to this state, in accordance with RCW 82.04.462"RCW 82.04.460(1)Law (statute)
Which classifications"Only those activities taxed under" the RCW sections listed in RCW 82.04.460(4)(a)(i)–(x), including Service and Other Activities (RCW 82.04.290) and royalties (RCW 82.04.2907)RCW 82.04.460(4)(a); names listed in WAC 458-20-19401(2)(a) and DOR's guideLaw (statute); names: rule and DOR guidance
"Taxable in another state"Subject to a business activities tax in another state, or that state could tax you under Washington's own substantial-nexus standards in RCW 82.04.067(1)RCW 82.04.460(4)(b); RCW 82.04.462(3)(c)Law (statute)
FormulaWashington taxable income = apportionable income × receipts factorRCW 82.04.462(1); WAC 458-20-19402(201), (501)Law and rule
Receipts factorWashington-attributed apportionable receipts ÷ (worldwide apportionable receipts − throw-out income)RCW 82.04.462(3)(a), (c); WAC 458-20-19402(402)Law and rule
One factor per classificationPersons taxable under more than one apportionable classification "must calculate a separate receipts factor for each tax classification"RCW 82.04.462(1)Law (statute)
Where receipts goA 7-step cascade, starting with where the customer received the benefit of the service (royalties: where the intangible was used) and ending at the taxpayer's commercial domicileRCW 82.04.462(3)(b)(i)–(vii); WAC 458-20-19402(301); WAC 458-20-19403 (royalties)Law and rule
Throw-outReceipts are removed from the denominator if at least some of the activity is performed in Washington and the receipts are attributed to a state where the taxpayer is not taxableRCW 82.04.462(3)(c); WAC 458-20-19402(403)Law and rule
Reporting during the yearEstimate with the most recent full calendar year's factor, or use current-year informationRCW 82.04.462(4); WAC 458-20-19402(601)Law and rule
Annual reconciliation deadlineCorrect the year "not later than October 31st of the following tax year"RCW 82.04.462(4); WAC 458-20-19402(602)Law and rule
PenaltiesStatutory penalties apply to additional tax "only if" the year is not corrected and the tax not paid by Oct. 31 of the following year (WAC 458-20-19402(602) says the same: no penalties if the reconciliation is completed and the additional tax paid by the Oct. 31 due date)RCW 82.04.462(4); WAC 458-20-19402(602)Law and rule
InterestApplies to additional tax and to overpayments (refunds)RCW 82.04.462(4); WAC 458-20-19402(602)Law and rule
Extensions"Requests must be received before Oct. 31"DOR ARAI pageDOR guidance
Financial institutionsSeparate rule, still single receipts factor, same Oct. 31 reconciliationRCW 82.04.460(2); WAC 458-20-19404(2)(d)–(e)Law and rule

How it works, step by step

1. Is the income apportionable?

The statute defines apportionable activities by RCW citation. It says "apportionable activities" means "only those activities taxed under" a list of sections, namely RCW 82.04.255 (real estate brokers); RCW 82.04.260(3) (research and development by nonprofit corporations and associations), (5) (travel agents and tour operators), (6) (international activities of international steamship agents, customs house brokers, freight forwarders, cargo charter brokers and air cargo agents), (7) (stevedoring and associated activities), (8) (disposing of low-level waste), (9) (licensed insurance producers and surplus line brokers), (10) (public and nonprofit hospitals), and (13) (inspecting, testing, labeling and storing canned salmon owned by another person); RCW 82.04.280(1)(e) (independent resident managing general agents for fire or casualty insurers); RCW 82.04.285 (contests of chance); RCW 82.04.286 (horse races); RCW 82.04.290 (Service and Other Activities, which includes aerospace product development under RCW 82.04.290(3)); RCW 82.04.2907 (royalties); RCW 82.04.2908 (room and domiciliary care to assisted living facility residents); RCW 82.04.263 (cleaning up radioactive waste and other by-products of weapons production and nuclear research and development), but only to the extent the activity would be taxable under one of the items above if that classification did not exist; and RCW 82.04.280(1)(a) (printing materials other than newspapers and publishing periodicals or magazines) or income exempted under RCW 82.04.759 (newspapers and certain digital content), but only with respect to advertising (RCW 82.04.460(4)(a)(i)–(x)). WAC 458-20-19401(2)(a) and DOR's apportionment guide translate those citations into classification names such as "Service and other activities," "Royalties," "Travel agents and tour operators," "Insurance producers, title insurance agents, or surplus line brokers," and "Real estate brokers."

Retailing (RCW 82.04.250), wholesaling (RCW 82.04.270), and manufacturing (RCW 82.04.240) are not on the statutory list. That matters after ESSB 5814: for many services that became retail sales on Oct. 1, 2025, the income moved out of Service and Other Activities and into retailing B&O. For temporary staffing, DOR's interim guidance says it plainly: "As of October 1, 2025, unless provided to hospitals licensed under chapters 70.41 and 71.12 RCW, temporary staffing services are no longer apportionable activities." DOR says retail sales "must be sourced in accordance with RCW 82.32.730," not the apportionment cascade. A 2025 reconciliation can therefore cover apportionable income for only part of the year for some service lines.

2. Is the business "taxable in another state"?

Apportionment only applies if the business is also taxable somewhere else. Under RCW 82.04.460(4)(b), that means either (a) another state actually imposes a business activities tax on the income, or (b) it doesn't, but the state "has jurisdiction to subject the taxpayer to a business activities tax on such income under the substantial nexus standards in RCW 82.04.067(1)." Those standards are, in the current or immediately preceding calendar year: being organized or commercially domiciled there (or, for an individual, being a resident or domiciliary there), more than $100,000 of cumulative gross receipts attributed there, or physical presence there (RCW 82.04.067(1), applied to the other state as RCW 82.04.460(4)(b) directs). "Business activities tax" includes taxes on net or gross income but "does not include a sales tax, use tax, or a similar transaction tax" (RCW 82.04.462(3)(c)).

DOR's guide restates the test as five checks: receipts threshold, business activities tax, physical presence, organized or commercially domiciled, and "taxable in prior year (trailing nexus)." DOR adds that for the $100,000 test "you must include gross income from all tax classifications."

If a business is not taxable anywhere else, DOR says "your gross income is taxable in Washington and is not eligible to be apportioned to other states or countries."

3. Attribute each receipt: the cascade in RCW 82.04.462(3)(b)

Each receipt goes to the first step that works. The statute moves to the next step only "if the taxpayer is unable to attribute" under the earlier ones.

  1. Benefit (or use). "Where the customer received the benefit of the taxpayer's service or, in the case of gross income from royalties, where the customer used the taxpayer's intangible property." If the benefit is spread across states and the Washington amount "can be reasonably determined," that amount goes to Washington. (RCW 82.04.462(3)(b)(i))
  2. Primary benefit. Where the benefit "was primarily received" (or the intangible "primarily used"). The rule defines primarily as "more than 50 percent." (RCW 82.04.462(3)(b)(ii); WAC 458-20-19402(301)(b))
  3. Where ordered. "The state from which the customer ordered the service" (royalties: the customer office that negotiated the agreement). (RCW 82.04.462(3)(b)(iii))
  4. Billing address. "The state to which the billing statements or invoices are sent." (RCW 82.04.462(3)(b)(iv))
  5. Payment location. "The state from which the customer sends payment." (RCW 82.04.462(3)(b)(v))
  6. Customer address. The customer's address in the taxpayer's regular business records, or one obtained during the sale or contract negotiation. (RCW 82.04.462(3)(b)(vi))
  7. Commercial domicile. "The commercial domicile of the taxpayer." (RCW 82.04.462(3)(b)(vii))

DOR's rule fills in what "benefit" means. For example, services related to real property are received "where the real property is located," and business services are generally received in the customer's market or at the customer's business locations (WAC 458-20-19402(303)). DOR says it "expects that most taxpayers will be able to attribute apportionable receipts based on subsection (301)(a)," the first step (WAC 458-20-19402(302)(a)). Royalties follow a separate rule for the first steps (WAC 458-20-19403(103)), and financial institutions follow WAC 458-20-19404.

4. Apply throw-out

Under RCW 82.04.462(3)(c), receipts "must be excluded from the denominator" if "at least some of the activity is performed in this state, and the gross income is attributable... to a state in which the taxpayer is not taxable." Both conditions must be true. If none of the work for those receipts happens in Washington, they stay in the denominator (WAC 458-20-19402(403), Examples 49–50).

5. Compute the factor and the taxable amount

Receipts factor = Washington receipts ÷ (worldwide receipts − throw-out income) (WAC 458-20-19402(402)). The factor uses receipts before deductions. Apportionable income is receipts less allowable deductions, and that income is multiplied by the factor (WAC 458-20-19402(501)). On the return, DOR says to "report gross apportionable income and then take an Apportionment (Interstate & Foreign Sales) deduction based on the results of the apportionment formula." DOR's paper form notes that this apportionment deduction "does not qualify to be deducted from the worldwide gross income" when computing the factor.

6. Reconcile the year

During the year, a business may estimate using "the most recent calendar year for which information is available," or use current-year information. "In either case, a taxpayer must correct the reporting for the current tax year when complete information is available to calculate the receipts factor for that year, but not later than October 31st of the following tax year" (RCW 82.04.462(4)).

DOR's rule adds the filing mechanics: "a taxpayer that has reportable apportionable income must file a reconciliation to determine the receipts factor for an entire calendar year by October 31st of the following year. If the date for filing falls on a Saturday, Sunday, or legal holiday, the reconciliation will be considered timely if filed on the next business day. The reconciliation filing must be on the department's 'annual reconciliation of apportionable income' form" (WAC 458-20-19402(602)).

DOR's guidance pages say:

  • Who files: "All businesses with apportionable income that are taxable in Washington and another state or country must file an ARAI. The ARAI is due by Oct. 31 of the following year."
  • One per classification: "A separate reconciliation must be filed for each year and each apportionable tax classification" (Form 40-2433).
  • Even with no change: DOR's My DOR Help has a topic for filing a "No Change Annual Apportionment Reconciliation."
  • Fixing prior years: "After the close of the calendar year, you must correct apportionable income by filing the annual reconciliation. Amended returns filed to correct apportionable income for periods outside the current calendar year will be rejected."
  • Extensions: "If you are unable to file your ARAI by Oct. 31, you may request an extension. Requests must be received before Oct. 31."

Refunds, additional tax, interest and penalties

  • The rule: "The reconciliation may result in the taxpayer either obtaining a refund or paying any additional tax due. In either event (refund or additional taxes due), interest will apply in a manner consistent with tax assessments. If the reconciliation is completed and any additional tax shown on the reconciliation has been paid by the October 31st due date, no penalties will apply to the additional tax shown on the reconciliation" (WAC 458-20-19402(602)).
  • The statute: "Interest will apply to any additional tax due on a corrected tax return... Penalties as provided in RCW 82.32.090 will apply to any such additional tax due only if the current tax year reporting is not corrected and the additional tax is not paid by October 31st of the following tax year." It also says interest under RCW 82.32.060 applies "to any tax paid in excess of that properly due" because of using prior-year or incomplete data (RCW 82.04.462(4)).
  • DOR's form: "The Department will automatically include interest in refunds. If additional tax is due, the Department will notify taxpayers of the amount of interest due."
  • DOR's late-filing penalties for additional tax: "9% of the tax due if the ARAI is not filed and paid by Oct. 31," 19% if not by Nov. 30, and 29% if not by Dec. 31, with a $5 minimum. DOR also notes a possible 5% substantial underpayment penalty, where "Substantially underpaid means you paid less than 80% of the total tax due and the additional tax due is at least $1,000."
  • DOR also warns that the estimate method you report on the ARAI "may impact how penalties are applied to periods with no business activity reported," and that payments "are first applied to interest, then penalties, then any outstanding tax due."

Illustrative worked examples

These are made-up examples with round numbers, meant only to show the arithmetic. They are not about any real business, and they assume every receipt is apportionable income in a single classification with no deductions. Real results depend on the facts, attribution records, and the B&O rate for the classification.

Example A — No throw-out. A business has $1,000,000 of worldwide apportionable receipts. $400,000 is attributed to Washington, and it is taxable in every other state where receipts are attributed. Its factor is $400,000 ÷ $1,000,000 = 40%. (This mirrors DOR's own Example 47 in WAC 458-20-19402.)

Example B — Throw-out. Same business, except that $200,000 of receipts is attributed to State Y, where it is not taxable under either test, and part of the work for those receipts is done in Washington. The $200,000 is thrown out of the denominator, so the factor is $400,000 ÷ ($1,000,000 − $200,000) = 50%. If none of the work for the State Y receipts were done in Washington, nothing would be thrown out and the factor would stay at 40% (compare WAC 458-20-19402 Examples 49–50).

Example C — Reconciliation with additional tax. A business reported all year using last year's 40% factor on $1,000,000 of apportionable income, reporting $400,000 of Washington taxable income. Once the year closed, the actual factor turned out to be 45%, or $450,000. The reconciliation shows $50,000 more taxable income. At an assumed 1.5% rate (for illustration only; rates differ by classification and period), that is $750 of additional tax plus interest. Under RCW 82.04.462(4), penalties apply to that $750 only if the year is not corrected and the tax not paid by Oct. 31 of the following year.

Example D — Reconciliation with a refund. Same as Example C, but the actual factor turned out to be 35% ($350,000). The business overreported $50,000 of taxable income, so the reconciliation shows a refund. Under RCW 82.04.462(4), interest applies to tax paid in excess of what was due, and DOR's form says DOR "will automatically include interest in refunds."

FAQ

Do I have to file the annual reconciliation if my percentage didn't change? DOR says "All businesses with apportionable income that are taxable in Washington and another state or country must file an ARAI," and My DOR Help includes a topic for a "no change" reconciliation. The WAC requirement applies "regardless of how a taxpayer reports" during the year (WAC 458-20-19402(602)).

When is the 2025 reconciliation due? The statute and DOR say Oct. 31 of the following year, which is Oct. 31, 2026. That date is a Saturday, and WAC 458-20-19402(602) says a reconciliation due on a weekend "will be considered timely if filed on the next business day" (Monday, Nov. 2, 2026). DOR's ARAI page does not mention the 2026 weekend date, and the payment side is less clear, so filing and paying by Friday, Oct. 30 is the safest course (see Flagged uncertainty).

Can I just amend last year's returns instead? Not to fix apportionment. DOR says that after the year closes, "you must correct apportionable income by filing the annual reconciliation. Amended returns filed to correct apportionable income for periods outside the current calendar year will be rejected."

Does apportionment apply to retail sales of services under ESSB 5814? Retailing B&O is not on the statutory list of apportionable activities in RCW 82.04.460(4)(a), and DOR says retail sales "must be sourced in accordance with RCW 82.32.730." For temporary staffing, DOR's interim guidance says such services "are no longer apportionable activities" as of Oct. 1, 2025, except as provided to licensed hospitals. For other ESSB 5814 services, check the classification first (see our ESSB 5814 pages below).

Is the $100,000 threshold about Washington or the other state? Both, in different ways. RCW 82.04.067(1) uses more than $100,000 of receipts to decide whether an out-of-state business has nexus with Washington. For apportionment, the same Washington standards decide whether the business counts as "taxable in" another state (RCW 82.04.460(4)(b)), which affects throw-out.

Flagged uncertainty

  1. 2026 weekend deadline. Oct. 31, 2026 is a Saturday. WAC 458-20-19402(602) gives next-business-day treatment to the filing, and WAC 458-20-228(4)(a) gives it to "payment of the tax due on a tax return." RCW 82.04.462(4) and DOR's ARAI page say "October 31st"/"Oct. 31" without a weekend note. DOR's own rule makes a Monday, Nov. 2, 2026 filing timely for the 2025 reconciliation (WAC 458-20-19402(602)). What is less clear is payment: the rule's no-penalty sentence refers to tax "paid by the October 31st due date," and the weekend rule for payments in WAC 458-20-228(4)(a) is written for "a tax return." The extension request window ("received before Oct. 31") also has no weekend adjustment. To be safe, file and pay by Friday, Oct. 30, 2026, and send any extension request before Oct. 31.
  2. WAC 458-20-19401 is out of date. It was last amended in 2018 (WSR 18-06-078) and still describes payroll and property dollar thresholds. RCW 82.04.067, as amended by 2019 c 8, now uses more than $100,000 of cumulative gross receipts or physical presence. The statute controls, and DOR's current guide follows it.
  3. Classification lists differ slightly. DOR's guide includes "For profit hospitals," says "Parimutuel wagering" where WAC 458-20-19401(2)(a) says "Horse races," and says "Real estate commissions" where the WAC says "Real estate brokers." The WAC list includes "Room and domiciliary care to residents of a boarding home," which DOR's guide list does not; the statute does list that activity (RCW 82.04.2908, now worded as care to assisted living facility residents). The statutory list in RCW 82.04.460(4)(a) controls. The names in Step 1 come from the text of each cited RCW section as fetched Oct. 17, 2026.
  4. ESSB 5814 and the 2025 reconciliation. DOR has said WAC 458-20-19402 is among the rules affected by ESSB 5814 and that formal rulemaking would start after the 2026 session. Only temporary staffing has an explicit DOR "no longer apportionable" statement in what we fetched. For other reclassified services, DOR's interim guidance statements govern sourcing, and the mid-year split should be checked against DOR's guidance for that service.
  5. No 2025–2026 amendments found to RCW 82.04.460 or .462. The codified histories fetched Oct. 17, 2026 show RCW 82.04.460 last amended by 2023 c 286 and RCW 82.04.462 by 2014 c 97. The RCW site does reflect 2026 session laws (for example, RCW 82.12.0208 shows 2026 c 250). A future version of RCW 82.04.460, effective Jan. 1, 2034, changes the advertising item in (4)(a)(x). This finding rests on the codified history, not a search of every session law.
  6. 2025 Service and Other split. For 2025, DOR's My DOR Help says the receipts factor and throw-out income "must be the same" for the "$1 million or greater in prior year" and "$5 million or more in prior year" Service and Other classifications. That is DOR filing guidance, not statute. Separately, RCW 82.04.290(2)(e) says a taxpayer subject to the RCW 82.04.462(4) reconciliation that figured its prior-year gross income for the Service and Other rate thresholds "based on incomplete information" must correct current-year reporting when complete prior-year information is available.

Related pages on Washington Tax Desk

Sources (all fetched Oct. 17, 2026, 08:26–08:33 PT)

Statutes (law)

DOR rules (WAC)

DOR guidance

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