So you want to start a business in Washington state? Good news: you can get up and running in 2-4 weeks for about $300-500, though you'll need to navigate some quirky tax rules and resist the urge to file things in the wrong order (trust me on this one). Washington's got no personal income tax, which is nice, but they make up for it with a business tax that applies even when you're losing money… because that makes total sense, right?
The real costs and timeline (aka what nobody tells you upfront)
Let's start with the numbers that actually matter. If you're forming an LLC in Seattle, budget $321 for the basics. That breaks down to $200 for state formation if you file online (or $180 by mail if you enjoy waiting), $50 for your state business license, and $71 for a Seattle city license if your revenue is under $20,000.
The timeline? Figure 2-4 weeks from "I have an idea" to "I can legally operate." Online filing gets processed in 2-3 business days, while mailing your paperwork means waiting 4-6 weeks. Pro tip: spring for the $100 expedited service if you're in a hurry… it guarantees 3-day processing, and there's even same-day service for $150 if you file before 3:30 PM in Tumwater and really enjoy living dangerously.
Here's what your first month looks like:
- Week 1: File your entity formation and get your EIN
- Week 2: Apply for state business license and file Initial Report
- Week 3: Handle city licenses and open business banking
- Week 4: Tackle any industry-specific permits
Don't forget the ongoing costs either. Annual LLC reports run $60, corporations pay $70, and city licenses vary wildly. Seattle charges anywhere from $71 to $3,126 depending on your revenue, because apparently they use a dartboard to determine fees.
Choosing your business structure (and why it matters more than you think)
Here's where most people mess up right out of the gate. They pick an LLC because their friend has one, then discover two years later that venture capitalists won't touch LLCs with a 10-foot pole. Attorney Norman Short from GSJones Law Group puts it bluntly: "The size of your tax bill, when you pay it, what liabilities you face and how you are protected, your start-up and overhead costs are all influenced by what business form you use."
Limited Liability Companies: The popular kid
LLCs dominate Washington's business landscape for good reason. You file a Certificate of Formation (not Articles of Organization like other states, because Washington likes being different), pay your $200, and boom… you've got personal asset protection.
The requirements are pretty straightforward:
- Name must include "LLC" or "Limited Liability Company"
- Need a registered agent with a Washington address
- File an Initial Report within 120 days ($10 fee)
- Submit annual reports each anniversary month ($60)
One weird Washington quirk: you can't just slap "LLC" anywhere in your name. It has to come at the end, so "LLC Bob's Burgers" is a no-go.
Corporations: For the ambitious
Corporations cost the same to form but require more paperwork and formality. You'll file Articles of Incorporation, establish bylaws, elect directors, and hold annual meetings where you talk to yourself if you're a single-owner corporation (yes, really).
The main draws? Easier to raise investment capital and potential tax benefits if you elect S-Corp status with the IRS within 75 days. Just remember that annual report fee is $70 instead of $60, because corporations apparently use fancier paper or something.
Sole proprietorships: The easy button
Want to skip the Secretary of State entirely? Go sole proprietor. You only need to register with the Department of Revenue if you hit one of these triggers:
- Make over $12,000 annually
- Collect sales tax
- Hire employees
It's simple, but you're personally liable for everything. Mess up and someone sues? They're coming after your house, car, and that vintage Pokemon card collection.
Washington's unique tax situation (prepare to be confused)
Okay, deep breath. Washington has no income tax (yay!) but makes up for it with the Business & Occupation tax (boo!), which taxes your gross receipts regardless of profitability. Yep, you read that right… lose money all year and you still owe B&O tax. It's like paying rent on a business you're not even sure works yet.
Current B&O rates vary by what you do:
- Retailing: 0.471%
- Wholesaling/Manufacturing: 0.484%
- Service businesses: 1.5% (or 2.1% if you're making over $5 million)
Thanks to 2025's "largest tax increase in state history" (their words, not mine), these rates are climbing. Service businesses over $5 million now pay 2.1%, and tech companies got hit with a 7.5% Advanced Computing Surcharge. Ouch.
Sales tax: It's complicated
Washington uses destination-based sales tax, meaning you charge based on where your customer receives the product, not where you're located. Rates range from 7.5% to 9.5% depending on local add-ons, so selling to someone in Seattle versus Spokane means different rates.
You'll need to register if you hit either:
- $100,000 in annual sales
- 200 separate transactions
And here's the kicker… the 2025 legislature decided digital services are now taxable. Web development, IT support, custom software? All taxable now. Time to update those invoices.
Employer taxes: More fun with numbers
Hiring employees? Welcome to a world of acronyms:
- UI (Unemployment Insurance): 1% for new employers
- L&I (Workers' Comp): Mandatory state coverage
- PFML (Paid Family & Medical Leave): Required for 50+ employees
- WTF (What The Finance): Not official, but you'll say it a lot
At least there's no state income tax to withhold, so that's one less form to mess up.
The critical filing sequence (seriously, don't mess this up)
I cannot stress this enough: FILE THINGS IN THE RIGHT ORDER. Doing this backwards creates duplicate UBI numbers, processing delays, and general headaches that aspirin won't fix.
Here's the correct sequence:
- Form your entity first with the Secretary of State
- Get your UBI number from that filing
- Apply for federal EIN (instant online)
- Register for state business license
- File Initial Report within 120 days
- Get city/local licenses last
See how entity formation comes first? That's because everything else keys off your UBI number. Try to get a business license without it and you'll enter paperwork purgatory.
Common mistakes that'll cost you
After watching countless entrepreneurs face-plant, here are the classics to avoid:
The wrong entity trap
"We'll start as an LLC and convert later if we need investors." Famous last words. Converting from LLC to C-Corp later costs thousands in legal fees and can complicate existing contracts. One client learned this after signing a major partnership agreement as an LLC, then trying to convert. Spoiler: it was expensive.
The name game
Nothing stings quite like paying a $200 filing fee only to have your application rejected because someone in Walla Walla already has "Awesome Business LLC." Always, always, ALWAYS search both state databases and federal trademarks first.
Missing deadlines nobody mentions
That Initial Report? It's due within 120 days and only costs $10, so people forget. Miss it and you're looking at penalties and potential administrative dissolution. One entrepreneur told me, "I spent $500 forming my LLC perfectly, then got dissolved over a $10 report. I wanted to cry."
Operating without proper licenses
Construction contractors operating without registration face misdemeanor charges and can't file mechanics liens. Healthcare professionals working without licenses risk fines and forced closure. A massage therapist friend learned this the hard way… $1,000 fine for starting two weeks before her license arrived.
Tax registration fails
Not registering for B&O tax when you pass $12,000 in revenue seems minor until the Department of Revenue catches up. They will find you, they will assess back taxes, and they will add penalties that'll make your eyes water.
City-specific requirements across Washington
Each city has its own special way of making things complicated. Here's what you're dealing with:
Seattle: The most complex system with fees from $71 to $3,126 based on revenue. Even home businesses need licenses, and they charge $10 per branch location because… Seattle.
Spokane: Refreshingly simple with a flat $113 that includes state filing. If you make under $18,000, you might qualify for reduced fees with IRS documentation.
Tacoma: Recently backed off proposed 400% fee increases after business owners revolted. Currently $25-$250 based on income, plus $75 for home occupations.
Bellevue: The unicorn of business licensing… one-time registration with no annual renewals. Just file your taxes on schedule and you're good.
Vancouver: Charges $105 per employee annually plus income-based fees, because apparently they think businesses are employee vending machines.
Industry-specific licensing (the fun never stops)
Some industries get extra special treatment:
Construction contractors
The requirements here are no joke:
- $30,000 surety bond (just increased)
- $200,000/$50,000 liability insurance
- $141.10 registration every two years
- Display registration number on everything
Work without proper registration and it's a misdemeanor. Plus you can't file liens, which defeats half the purpose of construction work.
Food service
Want to serve food? Get ready for:
- Food Worker Cards ($10-15 per person)
- Health permits ($100-$800 annually)
- Plan reviews and inspections
- Annual renewal fees
One food truck owner described it as "death by a thousand permits," which seems about right.
Cannabis businesses
Only available through the Social Equity Program now, requiring:
- 6+ months Washington residency
- $1 million liability insurance
- Extensive security systems
- Seed-to-sale tracking
Processing takes 90+ days minimum. One applicant said the paperwork stack was literally taller than their 5-year-old daughter.
Recent changes that'll affect you (thanks, 2025 legislature)
The 2025 session brought what many call the "largest tax increase in state history." Here's what changed:
B&O taxes climbing: Manufacturing and retail jump to 0.5% by 2027. Service businesses over $5 million already paying 2.1%.
Digital services now taxable: Web development, advertising agencies, IT support… all subject to sales tax now. That website you're building? Add 8.25% to the invoice.
Employment law updates: Minimum wage hit $16.66 statewide, nearly $20 in Seattle. Exempt employee thresholds rose to $69,305 for small employers. And you can't discriminate against employees for off-duty cannabis use anymore (though safety-sensitive positions remain exempt).
Capital gains tax: 7% up to $1 million, 9.9% above. After surviving court challenges, this one's here to stay.
Governor Ferguson acknowledged potential "unintended consequences," which is politician-speak for "oops, maybe we went too far."
Free resources you'd be crazy not to use
Washington actually provides solid free help if you know where to look:
The Washington SBDC offers free advising through 40+ experts across 25 offices. They've seen every mistake possible and will help you avoid them. One advisor told me, "We're like business therapy, but free and actually useful."
SCORE mentors are retired executives who volunteer their time. The Seattle chapter has people who've built everything from tech startups to restaurants. Fair warning: they might tell stories about "back in my day," but the advice is gold.
Funding programs worth checking:
- Small Business Credit Initiative: $10K-$500K loans
- Export Voucher Program: Up to $10K reimbursement
- OMWBE certification: 2% loan rate reduction
Digital tools that actually work:
- FileLocal: Multi-city license handling
- WEBS portal: Government contract opportunities
- MyStartup365: Free online training
Washington's business environment: The good, bad, and ugly
The good: No personal income tax saves you thousands annually. The tech ecosystem is world-class… Amazon, Microsoft, and Starbucks all started here. Access to Pacific Rim markets is unmatched. The educated workforce means finding talent is easier than most states.
The bad: That B&O tax on gross receipts hurts when you're unprofitable. Recent tax increases have businesses nervous. The regulatory complexity makes other states look simple.
The ugly: Some call it the "harsh business climate" for small businesses. The combination of high minimum wage, complex regulations, and increasing taxes has some entrepreneurs looking at Idaho real estate.
Final thoughts
Starting a business in Washington is like learning to surf in the Pacific Northwest… the water's cold, the rules are complicated, but once you get the hang of it, the waves are world-class.
Budget $400-500 for complete setup. Follow the filing sequence religiously. Use the free resources before paying consultants. And whatever you do, don't skip that Initial Report… seriously, it's $10 and takes five minutes online.
Despite the challenges, 630,819 small businesses thrive here, employing over half the state's workforce. The tech sector alone contributes $75 billion annually. If they can figure it out, so can you.
Just remember: form your entity first, get professional help for complex situations, and when in doubt, blame the legislature for making things complicated. Welcome to Washington business ownership… may the B&O tax odds be ever in your favor.
