Short-Term Rental Taxes in Washington State: No Income Tax, B&O Tax, and STR Guide
NO state income tax | B&O tax ~1.75% on GROSS rental revenue (not net profit) | 6.5% state sales tax + local lodging taxes | Full federal bonus depreciation benefit — no state income tax offset | Top markets: Leavenworth, San Juan Islands, Lake Chelan, Whidbey Island, Olympic Peninsula
Washington State's tax picture for STR investors is unique: no income tax (a significant benefit), but a Business & Occupation (B&O) tax that applies to gross rental revenues rather than net profits. The B&O tax is relatively modest (approximately 1.75% of gross revenue), making Washington's overall tax burden on STR investors quite low compared to states like Oregon or California. Combined with Washington's spectacular STR markets — from the Bavarian-themed village of Leavenworth to the island paradise of the San Juan Islands — Washington is a compelling STR investment state.
Washington's Unique Tax Structure: No Income Tax, B&O Tax
Washington has no personal income tax, but the state raises revenue through the Business & Occupation (B&O) tax on business gross receipts. For STR rental activities, the applicable B&O rate is the service and other activities rate of approximately 1.75% on gross rental revenue. This is a tax on gross revenue — not net profit — which means you pay it even in years when your property has a net loss from depreciation and expenses.
For perspective: if your Washington STR generates $120,000 in gross annual rental revenue, the B&O tax is approximately $2,100 — substantially less than even a 5% income tax on modest net profits. For most profitable STR properties, the B&O tax is a manageable cost well below what comparable income tax states would charge.
Washington Lodging Taxes by Market
| County / Market | State Sales Tax | Local Lodging Tax | Approximate Total |
|---|---|---|---|
| King County (Seattle) | 6.5% | ~7.5% | ~14% |
| Chelan County (Leavenworth/Lake Chelan) | 6.5% | ~3–4% | ~10–10.5% |
| San Juan County (San Juan Islands) | 6.5% | ~3–4% | ~10% |
| Island County (Whidbey Island) | 6.5% | ~4% | ~10.5% |
| Jefferson County (Olympic Peninsula/Port Townsend) | 6.5% | ~4% | ~10.5% |
| Whatcom County (Bellingham/Mt. Baker) | 6.5% | ~3% | ~9.5% |
| Skamania County (Columbia River Gorge WA) | 6.5% | ~4% | ~10.5% |
| Okanogan County (Methow Valley/Winthrop) | 6.5% | ~4% | ~10.5% |
Top Washington State STR Markets
- Leavenworth (Chelan County): Bavarian-themed village in the Cascades; one of Washington's most visited tourist destinations; Christmas Lighting Festival (November–January) drives extraordinary off-season demand; skiing at Mission Ridge; apple orchards and wine country; charming aesthetic drives premium photography and listing appeal
- San Juan Islands (San Juan County): Remote and spectacular archipelago accessible only by ferry or seaplane; Friday Harbor and Orcas Island are primary STR markets; whale watching, kayaking, and cycling draw high-income visitors; premium property values; very limited STR supply creates strong occupancy
- Lake Chelan (Chelan County): Washington's deep-water lake resort; scenic 50-mile lake surrounded by desert hills and orchard country; strong summer boating and resort demand; a 2.5-hour drive from Seattle
- Whidbey Island (Island County): Long island in Puget Sound; accessible from Seattle metro by ferry or bridge; farms, art galleries, beaches, and navy base community; year-round demand from Seattle residents
- Methow Valley/Winthrop (Okanogan County): Wild West-themed town; best Nordic skiing in the Northwest; remote beauty with growing STR market
Cost Segregation in Washington: Federal Benefits Without State Income Tax
Washington's no-income-tax environment makes cost segregation highly efficient — every dollar of federal deduction at 37% is pure federal savings with no state income tax offset. Washington San Juan Islands and Lake Chelan properties have strong cost segregation profiles: dock and waterfront infrastructure (15-year), boat lifts, outdoor recreation amenities, and premium furnished interiors. A $1.2M San Juan Islands waterfront property might generate $270,000–$360,000 in bonus-eligible deductions — $99,900–$133,200 in first-year federal tax savings.
Estimate Your Washington State STR Tax Savings
Washington's no income tax + full federal bonus depreciation = excellent after-tax returns. Get your free cost segregation estimate.
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