Director Fees are Subject to Washington State Business and Occupation (B&O) Tax |
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As a result of the 2010 Washington State tax legislation, Board of Director fees have been specifically identified as being taxable in Washington. This legislation clarified that compensation received for serving on a corporate Board of Directors does not meet the exemption afforded to compensation earned as an employee.
Beginning July 1, 2010, all compensation earned for serving on a Board of Directors, including any expense reimbursements, stock options or bonuses is taxable under the Service classification, which is currently taxed at a rate of 1.8%. Generally these will be the amounts reported to the director on IRS form 1099-MISC.
Who is subject to tax?
Anyone who meets one of the following requirements is taxable in Washington:
- A resident or domiciliary of this state
- A non-resident of this state who meets any one of the following in the tax year:
- More than $50,000 of property located in this state;
- More than $50,000 of payroll paid in this state;
- More than $250,000 of receipts received for services in this state; or
- At least 25% of their total property, total payroll, or total receipts are in this state.
What if I perform services in multiple states?
If Directors are taxable outside Washington on their director fees they may be able to apportion this revenue between the states.
When and how do I report to the state?
Corporate Directors are not required to register with the Washington Department of Revenue if their total gross receipts are less than $12,000 annually and no other registration requirements apply.
If total gross receipts exceed $12,000 annually, the director will be required to register and file state excise tax returns. Washington does offer a small business tax credit which may eliminate all or a portion of the tax due. If annual taxable Service revenues are less than $46,000 no tax should be due.
In some instances, a corporation may be allowed to report the director fees to the Department of Revenue on behalf of the director(s). The corporation may contact the State regarding this opportunity.
What if I still have questions?
Contact Chris Laine, Director of State and Local Tax at (425) 289-7609 or claine@bpcpa.com.
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