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Editorial 9 MIN READ

Washington in August 2021: the fee schedule, honestly reviewed

A $200 online filing, a $60 annual report, no state income tax, and a new 7% capital-gains surcharge that will not touch 2021 returns

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 6 sections
  1. What the Secretary of State actually charges
  2. The annual report, which is the compliance item people miss
  3. The B&O tax, the thing people mean when they say no income tax
  4. What Senate Bill 5096 does, and does not, change
  5. Who Washington still makes sense for
  6. Sources

Washington LLC costs $200 to form online and $60 a year to keep. Those are the two numbers on the Secretary of State fee schedule that matter, and both have held steady through the 2021 filing season. The Business & Occupation tax is still the bill most founders read about late, and Senate Bill 5096 has added a 7% capital-gains surcharge that does not hit until returns filed in 2023.

This is a review of the Washington fee schedule as it stands in August 2021, written for someone deciding whether to form here or refreshing a compliance calendar that has not been audited since before the pandemic.

What the Secretary of State actually charges

You form a Washington LLC by filing a Certificate of Formation with the Corporations and Charities Division. The authorizing statute is Chapter 25.15 RCW, the Washington Limited Liability Company Act, and the specific formation section is RCW 25.15.071. The Certificate is short: the LLC name, the name and Washington street address of the registered agent, the principal office address, whether management is reserved to members or vested in managers, any effective date other than the filing date, and the signature of a person forming the LLC.

The fee is $200 if you file through the Corporations and Charities Filing System online and $180 if you mail a paper form. The paper discount is the inverse of what most founders expect, and it is worth looking at: Washington is one of the few states that prices paper below digital, because the $200 online tier includes an expedited processing lane that the mail tier does not. Online filings clear in two business days as a matter of standard practice; paper filings sit in a queue that, through much of 2020 and into the first half of 2021, ran several weeks long. If you need the entity this month, pay the $200 and file online.

Expedited handling on top of the standard online fee costs another $50 for routine expedite and $100 for same-day service when it is offered. Same-day is not always available, and the office will note on its current-processing-times page when it is suspended. The page has been updated frequently since early 2020, and it is worth a glance before you assume a turnaround.

Name reservations are $30 for mail, $50 online, and hold a name for 180 days. Most formations skip the reservation step and include a name search in the filing itself; the filing system will flag a conflict before it takes the money. Foreign LLCs (a company formed in another state and registering to do business in Washington) pay the same $200 online or $180 paper for the Foreign Registration Statement, with the same expedite options.

The fee schedule has not been rewritten since the 2015 rebuild of Chapter 25.15 RCW, which consolidated the LLC Act and conformed it more closely to the Revised Uniform Limited Liability Company Act. The figures you see on the SOS site in August 2021 are the same figures a diligent founder would have seen in June 2017, with one meaningful change: the annual report fee rose from $71 to $60. More on that below.

The annual report, which is the compliance item people miss

Every Washington LLC owes an annual report to the Secretary of State. The report is due by the end of the anniversary month of formation, and the filing fee is $60. For a company formed in August 2021, the first annual report is due by August 31, 2022, and then every August after that. The report itself is a confirmation exercise: registered agent, principal office, governors or members, nature of business, UBI number. You can file online in a few minutes; you can file by mail if you enjoy stamps.

The $60 figure is the current rate on the Corporations and Charities fee schedule as of mid-2021. Earlier iterations of the schedule carried a $71 headline, which reflected the $60 statutory fee plus an $11 surcharge that funded a SOS technology modernization account. With the modernization work largely absorbed into the Corporations and Charities Filing System rebuild, the consolidated number presented to filers has settled at $60. A handful of older online guides still cite $71; the Secretary of State's own schedule is the controlling reference.

Miss the annual-report deadline and Washington does two things. It assesses a $25 late fee after the due date, and if you remain in delinquent status for more than the statutory window, the state administratively dissolves the LLC. Administrative dissolution is reversible via reinstatement within five years of dissolution, and reinstatement carries its own fee plus any back reports and late fees. It is worth cheaper to set a calendar reminder.

Registered-agent changes filed between annual reports cost $20. A restated Certificate of Formation is $30 by mail, $50 online. A voluntary dissolution filing is $20. Reinstatement after administrative dissolution is $140. None of these are the sort of fees that change a formation decision, but they are useful to have a rough feel for when a lawyer sends you an invoice that includes them.

The B&O tax, the thing people mean when they say no income tax

Washington has no personal income tax and no corporate income tax. It is one of seven states without a personal income tax and one of the few without a corporate income tax or a franchise tax keyed to income. The replacement is a gross-receipts tax, called the Business & Occupation tax, codified in Chapter 82.04 RCW.

The B&O tax applies to gross revenue, not net income. That is the single most consequential fact about operating in Washington, and it is the one most frequently misunderstood. There are no deductions for cost of goods sold, rent, payroll, or debt service at the B&O layer. A distributor reselling $10 million of goods at a 3% margin pays B&O on $10 million; a SaaS company with $10 million of ARR and negative EBITDA still owes B&O on the $10 million.

Rates vary by classification. Retailing is taxed at 0.471%. Wholesaling is 0.484%. Manufacturing is 0.484%. Service and other activities, which sweeps up most professional services and much of the digital economy, is 1.5%. There are preferential rates for a set of specific industries, most notably aerospace, timber, and certain food processing, that reflect the political history of the statute more than any consistent economic principle. The Department of Revenue publishes the full classification table, and if your business touches more than one classification you will owe B&O under each, on the portion of revenue attributable to it.

Washington also levies a Retail Sales Tax and a companion Use Tax, both at a state rate of 6.5% plus local add-ons that push the combined rate into the high 9s and above in King County. Retail Sales Tax is a pass-through: you collect from customers and remit. B&O is not a pass-through, and the instinct to bill it as a line item on the invoice, the way founders from other states sometimes try to do, is discouraged by Department of Revenue guidance because it confuses customers who conflate it with sales tax.

The small-business filing thresholds matter. Businesses with annual gross income below the filing threshold owe no B&O, and the thresholds differ by classification. The small-business credit phases B&O liability down to zero for businesses with tax due below a monthly floor. A founder generating $40,000 in service revenue in a year will owe effectively nothing; a founder generating $400,000 will owe meaningful sums at 1.5%.

What Senate Bill 5096 does, and does not, change

The 2021 Washington legislative session produced the state's first capital-gains tax. Senate Bill 5096, signed by Governor Inslee in May 2021, imposes a 7% tax on long-term capital gains over $250,000 per year, with exemptions for real estate, retirement accounts, livestock held for business, agricultural timberland, and certain small-business stock. The tax is scheduled to take effect January 1, 2022, with the first returns due in April 2023 against 2022 gains.

The 2021 filing season is therefore unaffected. A founder selling a business in 2021 or harvesting gains in 2021 owes no Washington capital-gains tax on those transactions under SB 5096. The bill is already being litigated. A lawsuit filed in Douglas County Superior Court in April 2021 argues the tax is an unconstitutional income tax under the Washington Constitution's uniformity clause, which treats income as property and requires property taxes to be uniform and capped at 1%. The trial court has not yet ruled as of this writing, and any ruling is widely expected to be appealed to the Washington Supreme Court before the tax's first effective year is over.

For formation-decision purposes in August 2021, the honest summary is: Washington remains a no-income-tax state for 2021 earnings, B&O still governs the operating year, and a capital-gains surcharge is pending but not yet in effect. Anyone telling you to hurry and form in another state to escape the 2022 tax should be read with the understanding that the tax itself may not survive judicial review, and that in any case it applies to Washington residents regardless of where their LLC is organized.

Who Washington still makes sense for

The fee schedule is unremarkable. $200 up front and $60 a year puts Washington in the middle of the national pack, cheaper than California's $70-plus-$800 structure and more expensive than Wyoming's $100-plus-$60. The decision about whether to form here is almost never driven by the SOS fees.

It is driven by the B&O tax, by the lack of a state income tax, and by where the founders and the customers are. For a service business whose customers are Washington-resident, forming in Washington costs one B&O filing per quarter and saves nothing that matters by forming elsewhere; the out-of-state LLC still has to register as a foreign entity and pay the same $200. For a software company with Washington-resident founders and national revenue, the 1.5% service-and-other rate on Washington- sourced receipts is the real compliance cost, and it is a rate you cannot escape by incorporating in Delaware. For a founder moving to Washington from California or New York, the delta is large and in Washington's favor at the personal-tax layer, regardless of where the LLC is chartered.

SB 5096, if it survives, narrows one slice of that personal-tax advantage for founders who expect to realize seven-figure long-term gains in any given year. It does not touch wage income, it does not touch the sub-$250,000 segment of gains, and it does not reach into S-corp or partnership operating income. It is a surgical tax on a specific shape of liquidity event, and the founders for whom it is load-bearing are the founders who should already be doing the math with counsel.

If you are forming this quarter and the business is operational and Washington-based, file here this week, calendar the anniversary-month report, and put the first B&O payment on the same calendar. If you are forming as a holding vehicle for an investment that will live outside Washington, the question is where the operations are; the Washington SOS does not care, but the Department of Revenue does.

Sources

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