The Washington Department of Revenue is the state's primary tax collection agency. It administers 60 different tax types, processes 3.1 million tax returns per year, and oversees 635,000 registered businesses. Its operating budget for the 2023-25 biennium was $947.9 million, roughly $474 million per year, a 48% increase from the prior biennium's $640.3 million. The agency employs approximately 1,500 people across 15 divisions.
$947.9 million operating budget, 2023-25 biennium
1,497 FTEs (up 94.5 from prior biennium, a 6.7% increase)
60 tax types administered
635,000+ registered businesses under DOR jurisdiction
3.1 million tax returns processed annually
Sources: OFM Agency Recommendation Summary, Agency 140; DOR Statistics & Reports
In FY 2023 the department collected $40.5 billion in total revenue, including $33.2 billion from businesses and $7.7 billion in local-source revenue. DOR's own estimate of its collection efficiency is approximately $1.17 per $100 of revenue collected. That ratio sounds lean until you consider that the IRS achieves $0.35 per $100, and that DOR's complexity is largely self-inflicted: Washington's tax code is one of the most fragmented in the country, with dozens of rates, classifications, exemptions, and special categories layered on top of each other over decades of legislative accumulation.
DOR collected $179.3 million in penalties and interest from Washington businesses in FY 2024. The year before that, the figure was $190.4 million. These are not trivial rounding errors in the state budget. Penalty and interest revenue represents a significant and growing income stream for an agency whose entire purpose is supposed to be orderly tax collection, not punitive extraction.
| Fiscal Year | Penalties & Interest Collected |
|---|---|
| FY 2020 | $140,667,000 |
| FY 2021 | $99,429,000 |
| FY 2022 | $118,056,000 |
| FY 2023 | $190,392,000 |
| FY 2024 | $179,276,000 |
Source: DOR Tax Statistics 2024
The penalty structure itself is designed to escalate rapidly and punish small operators disproportionately. A business that files one day late on its B&O return faces a 5% penalty on unpaid tax plus interest at roughly 8% annually. At 60 days late the penalty doubles to 10%. A business that was never aware it needed to register with DOR in the first place faces a 39% penalty on all back taxes owed, plus interest, plus the threat of business license revocation. The most common reason for noncompliance, according to DOR's own compliance studies, is ignorance of tax law, at 34% of all cases. The second most common is computing errors at 26%. In other words, the majority of businesses being penalized are not evading taxes. They are making mistakes or did not know the rules existed.
39% penalty for businesses that failed to register with DOR
34% of noncompliance caused by ignorance of tax law (DOR's own data)
26% caused by computing errors
19.9% noncompliance rate among businesses under $100K gross revenue
1.7% noncompliance rate among businesses over $50M gross revenue
The disparity between small and large business noncompliance rates tells the entire story. Businesses grossing less than $100,000 have a noncompliance rate of 19.9%. Businesses grossing over $50 million have a rate of 1.7%. Large companies have tax departments, accountants, and attorneys who understand the system. Small businesses, many of them sole proprietors and family operations, do not. The penalty structure punishes the people least equipped to navigate it, and the compliance gap has persisted for decades because DOR has not published an updated compliance study since 2018. The most detailed public data available still references methodology from 1991.
Washington's Business and Occupation tax is a gross receipts tax. Businesses pay on total revenue regardless of whether they made a profit. A company that grosses $1 million and loses $200,000 still owes B&O on the full million. This structure is widely recognized as one of the most regressive business tax frameworks in the country, and it is the foundation of DOR's entire collection operation.
In 2025, the legislature passed HB 2081, which the Association of Washington Business described as "the single largest tax increase in Washington state's history." The bill restructured B&O rates into tiers: 1.5% for businesses under $1 million gross, 1.75% for $1-5 million, and 2.1% for businesses over $5 million, effective October 2025. A separate surcharge of 0.5% hits companies over $250 million in gross receipts. The advanced computing rate, aimed squarely at Microsoft and Amazon, went to 7.5% with a $75 million cap. The National Federation of Independent Business noted that the bill contained no adjustment to the Small Business Tax Credit or filing threshold, meaning the smallest businesses absorbed the full compliance burden of the new tiered system with no offsetting relief.
DOR's enforcement process moves from penalties to property liens to asset seizure to business license revocation. The sequence is codified and mechanical: once a revenue agent is assigned and a tax warrant is issued, the business has 10 days to pay. If it does not, the warrant is filed with Superior Court, which creates an automatic lien on all business property. After 30 days, DOR can move to revoke the business license entirely. For a small business owner who filed late because they miscalculated a quarterly return or did not understand which B&O classification applied to their work, this escalation can destroy a livelihood in under 60 days.
DOR's Voluntary Disclosure Agreement program, which was supposed to provide a pathway for businesses to come into compliance without facing the full penalty structure, was criticized by the tax practitioner community for years before being reformed in 2025. Under the old rules, any business that had ever been contacted by DOR for any reason was ineligible for voluntary disclosure, regardless of how long ago the contact occurred. If one affiliate in a corporate group was under audit, the entire group was blocked. Lookback periods were extended beyond the statutory four-year limit. The 2025 reforms addressed some of these issues, but practitioners noted they "may not have gone as far as what some members of the tax practitioner and business community had advocated for."
SB 6346, the so-called "millionaires tax," imposes a 9.9% income tax on adjusted gross income over $1 million, effective January 1, 2028, with the first filings due in 2029. Both chambers passed the bill on March 12, 2026. The fiscal note tells the story of what happens before a single dollar of new revenue arrives.
| Fiscal Year | DOR Implementation Cost | New FTEs |
|---|---|---|
| FY 2026 | $41,600 | 0.14 |
| FY 2027 | $10,195,800 | 55.4 |
| FY 2028 | $55,585,400 | 145.2 |
Source: OFM Fiscal Note, SB 6346 (ESSB)
By FY 2028, DOR will have spent over $65 million and added 145 permanent full-time employees to stand up the collection infrastructure for a tax type it has never administered. That is a 10% increase in headcount. The costs cover a full redesign of DOR's web services platform, contract programming for new IT systems, rulemaking, and staffing. The Attorney General's office has separately budgeted $683,000 per year by FY 2031 for the constitutional litigation that everyone involved expects will follow.
$65.8 million in DOR implementation costs before the first dollar of income tax revenue is collected
145 new permanent FTEs added to DOR headcount (10% increase)
$683,000/year budgeted for Attorney General litigation defense by FY 2031
The infrastructure being built for this tax does not sunset. Once DOR has 145 new employees, new IT systems, new enforcement divisions, and new legal authority to access the income records of Washington residents, that machinery will exist permanently. If the tax survives constitutional challenge, the $1 million threshold will erode through inflation and legislative adjustment the same way the federal AMT expanded from its original target of 155 high-income households to millions of middle-class families. If the tax is struck down, the infrastructure will be repurposed. Agencies do not voluntarily shrink.
The income tax did not arrive in isolation. The 2025 legislative session produced over 20 new or increased taxes, the most aggressive expansion of Washington's tax code in state history. In addition to the B&O overhaul (HB 2081) and the income tax (SB 6346), the legislature passed SB 5814, a new sales tax on professional services including advertising, software development, and IT support, projected to raise $1.1 billion over two years. Each new tax type adds compliance obligations, filing requirements, audit exposure, and penalty risk for every business operating in Washington.
The cumulative effect is not just higher taxes. It is a denser, more complex, more punitive regulatory environment administered by an agency that already collects $179 million per year in penalties from businesses that cannot keep up with the system as it exists today. Every new tax type gives DOR new reasons to audit, new penalties to assess, and new leverage over businesses that make mistakes. The collection machinery expands in one direction.
Burnham Civic has submitted public records requests to the Department of Revenue for detailed data on penalty assessments by business size, audit volumes and outcomes by revenue tier, the full 2018 compliance study, and internal cost projections for income tax implementation beyond what appears in the published fiscal note. We will publish what we receive.
We have compared Washington's income tax push to the Stamp Act for a specific reason. The Stamp Act of 1765 was not primarily about the tax rate. It was about establishing Parliament's authority to impose direct internal taxation on the colonies, and about building the administrative infrastructure to collect it: stamp distributors, courts of admiralty, enforcement agents. The colonists understood that once the collection machinery existed, the rates would only go up and the scope would only expand. They were correct.
SB 6346 follows the same structural logic. The 9.9% rate and the $1 million threshold are the initial parameters. The 145 new DOR employees, the new IT systems, the new enforcement authority, and the new legal framework are the permanent infrastructure. The tax is the door. The machinery is what walks through it.
The Stamp Act crisis was not resolved by individual colonists protesting their individual tax bills. It was resolved when the towns started corresponding with each other. Washington needs the same network now. Read about the Committee of Correspondence we are building.