The Washington Department of Revenue introduced a new form filing for businesses called the Annual Reconciliation of Apportionable Income. The new annual reconciliation filing is a requirement for businesses taking the foreign and interstate sales deduction on service revenue on Washington combined excise returns. This filing will provide a snapshot of the gross income for the year and determine where the income was taxed. Upon filing, Washington DOR will calculate if any additional B&O tax is due (WA income understated) or if the business is owed a refund for the prior B&O filings (WA income overstated). The annual reconciliation and any tax owed is due on October 31st each year following the end of the applicable tax year.

For the 2021 tax year, the Department of Revenue has notified businesses who meet the filing requirement. The report can be filed through a business’s online DOR account. Specific directions on how to submit this filing can be found on the Department of Revenue’s website.


Effective January 1st, 2020, under Washington law, business is taxable in another state if any of the following situations apply:

  • Subject to any kind of business activities tax by another state or country
    • Any tax imposed by a jurisdiction based on net or gross income (i.e., income tax, franchise tax, privilege tax)
    • Does not include use/sales tax paid to another jurisdiction for purchase of goods or services
  • Established physical presence nexus in another state or country
  • Has gross receipts exceeding $100,000 sourced to another state or country (all sales)
  • Organized or commercially domiciled in another state or country

If none of the above situations apply to the business, total gross income is taxable in Washington state for Business and Occupation tax and there will be no apportionment allowed to any other states or countries.

After determining whether an apportionment report is required, businesses need to compile all the necessary information to calculate their receipts factor.

Apportionable Washington income
(Apportionable Worldwide income – Throw-out income)

First, apportionable income will need to be broken out by state and non-US countries (Washington included). The following activities are examples of apportionable income:

  • Service and other activities
  • Real estate brokers
  • Royalties
  • Insurance brokers
  • Does not include retail sales

A full list of apportionable activities is listed on the Department of Revenue’s website.

Throw-out income includes those amounts that do not meet the nexus criteria above. An example of this would be sales from a state where the business does not file any tax returns, has zero employees, and has minimal income activity. To claim throw-out income, the business must meet both of the following requirements:

  • Income attributed to said state is considered not “taxable in another state” and
  • At least some of the income producing activity is performed in Washington

At the end of the filing taxable income for Washington State will be calculated by multiplying apportionable income by the receipts factor. The results of the reconciliation will be compared to the original B&O excise tax filings and determine if the business owes additional excise tax or if a refund is due for the tax year.


The implementation of this new filing requirement highlights the importance of tracking sales by state. Businesses should also be checking on state nexus on a regular basis. Currently this report only focuses on apportionable income and excludes most retail sales. As state taxation is constantly changing and nexus compliance becomes more prevalent, businesses should add out-of-state sales as a check-in item frequently throughout the year. We recommend consulting your CPA if you believe any of the above circumstances pertain to your business.