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STARTING AND OPERATING A BUSINESS IN WASHINGTON STATE Copyright © 2004, Michael D. Jenkins
CONTENTS OF THIS SECTION:
I. INTRODUCTION I. INTRODUCTION Washington has a somewhat atypical and generally very friendly tax and legal structure under which businesses must operate. For example, Washington has repealed its bulk sale law that formerly applied to most purchases of existing businesses and, more importantly, it is one of only a few remaining states that has no corporation or individual state income tax and no corporation franchise tax, all of which help to make it an excellent place to do business. In another business-friendly move, in 2003 the state enacted legislation that prohibits local governments from imposing gross receipts taxes on software development and other intellectual property creating activities, after January 1, 2004. At present, the state's economy is relatively soft, in terms of the level of unemployment and other important economic measures. In September, 2004, the Washington unemployment rate was 5.6%, somewhat higher than national jobless rate of 5.4%, but the Washington economy appears to be improving rapidly, as the unemployment rate has come down sharply from 7.7% in September of 2003. To view the latest federal Bureau of Labor Statistics unemployment rate data for Washington or any other state, visit the BLS website. The state has a relatively high cost of living, compared to national averages, and some firms in low-profit margin types of businesses will find Washington's Business and Occupations tax on gross income is more burdensome than the net income taxes imposed by most other states, since the B & O tax applies even if your business operates at a loss. In addition, Washington has the highest state minimum wage rate in the nation, which is adjusted upward annually for inflation. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Washington can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. Washington also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Washington can be formed with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in most cases, at least one state license, as well. Nearly all businesses in the state, except the very smallest, must also register with the state Department of Licensing and pay a small licensing fee before commencing business. Since there is no state income tax, no separate tax form filing is required, generally, for a sole proprietorship, under the Washington tax laws. However, you will still have to include a Schedule C with your federal Form 1040, on which you will report the net income or loss from your sole proprietorship. However, sole proprietorships, like all forms of business in Washington, are generally required to file an excise tax return and to pay the Washington Business and Occupations (B & O) tax on their gross income. See Section IV(c) for information on the Washington B & O tax and filing requirements for individuals. (c) Partnerships. As a rule, general partnerships in Washington can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), you will need to register with the state Department of Licensing, and it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Washington law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with Corporations Division of the office of the secretary of state, together with a filing fee of $175. Foreign limited partnerships must also register before being allowed to do business in Washington, and must pay a registration fee of $175. For information on limited partnership filing requirements, see the contact information for the offices of the Washington Secretary of State, listed in Section VI(a). Limited liability partnerships (LLPs) are a new form of partnership permitted under the laws of Washington. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. To form an LLP in Washington, a majority in interest of partners, or a partner authorized to execute an application, must register with, and pay a filing fee of $175 to the secretary of state. Foreign LLPs, those created under the laws of another state, must also register with the secretary of state and pay a fee of $175. Every LLP doing business in Washington, including both domestic and foreign LLPs, must file an annual notice and pay an annual renewal fee of $50. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLPs, if you will do business in other states besides Washington, is that some states, like California and New York, only recognize certain types of professional partnerships as LLPs. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
There is no personal income tax in Washington, so the income of a partnership is not taxed to the individual partners for state income tax purposes. However, like other legal entities, partnerships are generally required to pay B & O tax and file excise tax returns with the state. For details on Washington B & O tax return filing requirements, see Section IV(c). (d) Corporations. To form a corporation in Washington, you must file articles of incorporation with the Washington Secretary of State and pay a filing fee of $175 for filing and the first year's license fee. A foreign corporation (one formed under the laws of another state or a foreign country) must obtain a certificate of authority before it may legally conduct business in Washington, by filing an application for a certificate of authority and paying a filing fee of $175. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Washington, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports and a license fee of $50 and a filing fee of $10 with the secretary of state each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. While corporations, other than S corporations, must pay federal income taxes on their taxable income, there is no state corporation income tax or franchise tax in the state of Washington. However, like all other forms of business, corporations are subject to the Business and Occupations (B & O) Tax, which is based on gross income. (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal tax purposes to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual federal income tax returns. Since there is no individual or corporate income tax in Washington, the existence of a federal S corporation election is not relevant for state income tax purposes in Washington. Like other corporations and other business entities, S corporations are subject to the Washington Business and Occupations (B & O) Tax. (f) Limited Liability Companies. Washington, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or a corporation, a business that operates in Washington may also choose to operate in the form of an LLC. In most states, LLCs are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. Since there is no state income tax in Washington, members of an LLC need only be concerned with federal, not state, income taxation. However, as discussed in Section IV(b), LLCs, like other business entities in Washington, are almost always subject to the state B & O tax. To form an LLC under the laws of Washington, one or more persons must file articles of organization with the secretary of state, which must be accompanied by filing fees of $175, as set by the secretary of state. Washington state law now allows formation of one-member LLCs, since legislation of April 15, 1997. Such one-owner LLCs now qualify for treatment as sole proprietorships for federal tax purposes. Foreign LLCs, those formed under the laws of another state, must obtain a certificate of authority to do business in Washington, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $175. In addition to initial filing fees, all LLCs, domestic or foreign, must subsequently file annual reports. LLCs must also pay an annual report filing fee of $10 for the initial year and $50 with each subsequent annual report. There is also an additional $9 handling fee required with each annual license renewal. Filing fees for LLCs are set by the Secretary of State. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You may also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Washington is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this burdensome requirement when buying a business in Washington. However, note that if, as a buyer, you acquire in bulk sale more than 50% in fair market value of the assets of a taxpayer leaving business, you will be liable as a successor for business and occupation taxes owed by the seller. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Washington, you should obtain tax releases for the unemployment taxes and various other state taxes that may be owed by the seller. To avoid becoming liable for unpaid unemployment taxes of the selling business, you should require the seller to obtain a tax release, showing that no tax is due, from the Washington Department of Employment Security. Similarly, the seller should be required to provide you with a tax status letter from the Washington Department of Revenue, showing that you are not required to withhold any B & O, excise, or sales and use taxes from the purchase price you will be paying to the seller. (d) Unemployment Tax Rating of Seller. In Washington, a new employer will generally be assigned an initial tax rate based on the average experience rating of other companies in the same industry. After 3 years, you will be assigned an experience rating that is based on your firm's record of, with the rate being higher if you have had numerous employee terminations, where the employees were eligible for unemployment benefits. However, beginning in 2005, if you acquire an existing business, and you were not an employer prior to the acquisition, you will inherit the acquired firm's existing experience rating. For subsequent years, the tax rate will be calculated using a combination of the successor's own experience and that transferred from the acquired business. For more information, contact the Washington Department of Employment Security. IV. WASHINGTON TAXES AND OTHER GENERAL REQUIREMENTS. (b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees. However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis. State governments have also traditionally required special licenses for many kinds of professionals, such as physicians, dentists, lawyers, and accountants. To further protect consumers, Washington has expanded the list of occupations that must be licensed by the state to include many other occupations. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing. In Washington, most businesses must register with the state Department of Licensing, by filing a Master Business License Application, which can be filed with any of a large number of state agencies, as well as with the Department of Licensing. After you register, you will be assigned a Uniform Business Identifier (UBI) number that you will use in your dealings with all state agencies in Washington. Note that certain small firms with under $12,000 of gross revenues, and which do not make sales that require collection of sales taxes, are not required to register with the Department of Licensing or file any tax returns with the Department of Revenue. However, such small firms may still be required to register with the Department of Labor and Industries for industrial (workers' compensation) insurance or with Employment Security for unemployment insurance, if applicable. You can also any register any trade name or fictitious business name at the same time, as part of the registration form, when you file the Master Application. For information on state licensing and business registration requirements in Washington, see the contact information for the offices of the Department of Licensing, listed in Section VI(a). (c) Income and Franchise Taxes. Washington is one of the few states that does not have either a corporate or individual income tax, or a corporate franchise tax. Thus, whether your business is a sole proprietorship, a partnership, a limited liability company, or a corporation, you will only have to be concerned with payment of federal income taxes, not Washington state income taxes. Instead, most businesses in Washington will be concerned mainly with three types of taxes, the Business and Occupations (B & O) tax, the sales and use tax, and property taxes on both real estate and personal property. The business and occupation tax (B & O) is based on the gross receipts of your business. There are several classifications for the B & O tax based on the type of business activity. Each classification has its own tax rate, generally ranging from just under 1/2 of 1% to 2%, for most major categories. Virtually all businesses in Washington are subject to B & O tax, including corporations, LLCs, partnerships and sole proprietors, whether nonprofit or for profit. The major exempt activities are farming and the sale or rental of real estate. Very small businesses are either exempt from the B & O tax or will pay no such tax due to the small business B & O tax credit of up to $420 per year. (This credit phases out if the tax liability before the credit exceeds $420, and is completely phased out if the tax liability exceeds $840.) Some of the provisions of the B & O tax are quite complex and can be surprising, such as the fact that one business may be subject to B & O taxes at varying rates on more than one type of activity. Also, until July 1, 1998, the tax could also apply to "integrated" businesses, even to transactions where no sale takes place, such as a central distribution service supplied by a central warehouse to multiple retail outlets of the same company, or use of items that are extracted or manufactured by the same company. Fortunately, this tax on intra-company transactions was repealed, retroactive to July 1, 1998. Businesses are generally required to file a Washington State Combined Excise Tax Return to report and pay any applicable B & O taxes and sales and use taxes to the state Department of Revenue. You should obtain or download a copy of the Department's Business Tax Guide, which will help you to better understand the often complex provisions of the B & O tax. (d) Sales and Use Tax. Washington imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 6.5%. In addition, local governments are allowed to adopt local sales taxes, at varying tax rates. Combined rates are nearly 9% in some major urban areas like Seattle, and are generally at least 7% in all parts of the state. Any city or county may impose a basic 0.5% sales tax and up to an additional 0.5% without voter approval. Sellers are required to collect and pay over the state and local sales and use taxes to the Washington Department of Revenue. Every person who does business in the state, including those not subject to sales tax, must register with the state and obtain a certificate of business registration. No separate sales tax permit is required, however, unlike most other states. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. Some of the other most frequently used exemptions to retail sales and use taxes include:
A number of service industries, ranging from landscape maintenance to massage therapy, are subject to the sales tax. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Washington. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Department of Licensing by filing a Master Application, to obtain a Uniform Business Identifier number. Washington has joined more than 30 other states that now allow certain large companies to apply for and obtain direct pay permits, which allows them to directly pay sales and use tax on their purchases, rather than paying sales tax to sellers of certain specified types of goods and services. If your business sells such goods or services to a company that holds such a direct pay permit, you will not be required to collect sales tax on the transaction if the buyer gives you a copy of its direct pay permit and you retain the copy in your records. For more information on Washington sales and use tax registration and compliance, see contact information for the offices of Department of Revenue in Section VI(a). (e) Real and Personal Property Taxes. In Washington, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. Washington also imposes personal property taxes on tangible personal property. However, certain business personal property, such as business inventories, are exempt from personal property tax in Washington. While Washington generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets. (f) Other Business Taxes. Washington imposes a number of other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. If your business operates under an assumed name in the state of Washington, you should declare and register the name (or names) when you file a Master Application for your state business license with the Department of Licensing. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Washington has no state income tax on wages, you will not need to be concerned with any obligation to withhold state income tax. However, if you pay more than a minimal amount of wages, you will most likely be required to pay state unemployment tax, and will have to register with the state as an employer for unemployment tax purposes, as described in Section V(b). For more detailed information on Washington unemployment taxes and registration requirements for employers, see the contact information for the offices of the Department of Employment Security, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business has one or more employees at any time during the year, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Washington unemployment tax are required to register with the Department of Employment Security, as part of your Master Business Application registration with the state, described in Section IV(b). Employers are required to pay tax at rates that vary, based on industry classification and the employer's experience rating, on the first $30,200 of wages paid to each employee in 2004. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Washington law, cannot be charged to your employees or withheld from their wages. For more information on your Washington unemployment tax obligations as an employer, see the contact information for the offices of Employment Security Department, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Washington, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. All such employers are required to obtain a certificate of coverage from the Department of Labor and Industries. Note, however, that a sole proprietor or a partner in a partnership is generally not considered an employee. Similarly, certain officers of a corporation who are also directors and stockholders of the corporation may be exempt from being covered for workers' compensation purposes. Members of a limited liability company may be exempt if they are essentially like partners or sole proprietors and if the management of the LLC is vested in the members; or, if management of the LLC is vested in one or more managers, some or all of the managers may be exempt from the coverage requirements. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. For more detailed information regarding your obligations as an employer under the Washington workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Department of Labor and Industries, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Washington wage-hour laws. The state minimum wage law provides for a state minimum hourly wage that increases each year, indexed for the inflation rate for the twelve month period ending on the preceding September 1st. For 2004, the state minimum wage, as indexed, is $7.16 per hour, the highest in the nation. Minors age 14 or 15 may be paid at 85% of the adult rate, or at $6.09 in 2004. For 2005, the state minimum wage increases to $7.35 an hour, while the rate for minors age 14 or 15 must be paid at least $6.25. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees, as well as outside salespeople, are exempted from the Washington wage-hour rules. State law also requires payment of overtime premium pay at time-and-a-half for hours worked in excess of 40 hours a week for covered employees, except when the employee requests compensatory time off in lieu of overtime pay. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Employment Standards Section of the Department of Labor and Industries. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Washington. The state child labor laws generally requires you, as an employer, to obtain a work permit if you are to employ any minors under the age of 18. As under federal law, state law has various prohibitions on the hours that minors of different age categories may work, and generally bans the employment of minors in hazardous occupations or industries. Detailed rules apply with regard to the number of hours children of ages 14-15 or 16-17 may work per day, or per week, and as to the hours of the day when work is or is not permitted on school days or evenings before school days. Be sure to contact the Department of Labor and Industries for more information before you hire anyone under the age of 18 for any kind of job. (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Washington is one of the states that has its own OSHA-type agency. To determine if your workplace is in compliance with federal and Washington job safety requirements, you may wish to contact the Department of Labor and Industries, and request a free on-site safety consultation. You will not be cited for any violations detected, provided that you promptly correct the unsafe conditions. This differs from the rules for consultations by federal OSHA inspectors, who are required to cite you for any violations they find. The Washington Industrial Safety and Health Act (WISHA) of Washington provides job safety and health protection for Washington employees. The Department of Labor and Industries administers the law and adopts job safety and health regulations. All employers and employees are required to comply with these regulations. Department representatives conduct workplace inspections and investigations to ensure compliance with safety and health regulations. Employers are required to:
For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Department of Labor and Industries, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Washington labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. Employers are required to pay an employee who quits or is discharged no later than the end of the established pay period. There are significant financial penalties for failing to make such payments on a timely basis. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Washington does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Washington, and display a poster informing employees of their rights. You can obtain this poster from the Human Rights Commission, at the address listed in Section VI(a). While Washington law states that employers with fewer than eight (8) employees are exempt from the state's anti-discrimination laws, recent (2000) decisions of the state supreme court, in Roberts v. Dudley, and by the state Court of Appeals, in Sedlaceck v. Hillis, have ruled that, with regard to sex discrimination or disability, employers with fewer than 8 employees can be sued under the common law of torts for discrimination, notwithstanding the specific wording of the Revised Code of Washington. However, the state Human Rights Commission will not be authorized to participate in or intervene in such tort law cases brought against small employers. Thus, in light of the above court cases, it is possible that Washington's courts will also sidestep the small employer exemption with regard to other types of discrimination, such as discrimination based on race or national origin. Thus, even if you employ fewer than 8 people, you must be extremely careful to avoid taking any actions that could in any way be considered discriminatory, and you must not allow sexual harassment between any of your employees to occur, since such harassment is also considered to be a form of sex discrimination. (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a specified state agency (the Department of Social and Health Services for Washington employers) within 20 days after the date of hire. See Section VI(a) for contact information for new hire reporting, or see Section VI(c) for a link to the DSHS new hire reporting website, where you may also file new hire reports online. (5) Washington Family Leave Act. Under Washington state law, employers are required to grant up to 12 weeks of family leave in a 24-month period to a worker who is a parent, after the birth or adoption of a child under the age of six, or to care for a child under age 18 who has a terminal health condition. Employers may avoid coverage for up to 10% of their employees in the state who are designated as "key employees" by the employer. This law overlaps somewhat with the federal Family and Medical Leave Act of 1993, so, as an employer, you may need to comply with both the federal and the state family leave laws in different situations. In 1997 the Washington Legislature directed the Department of Labor and Industries to cease administration and enforcement of Washington's Family Leave Act except in two areas where the state law provides benefits over and above the benefits provided under the federal Family and Medical Leave Act ("FMLA"). Under Washington's Human Rights Commission rules against discrimination, leave for disability due to pregnancy or childbirth is required in the case of employers of 8 or more employees. For employers with 100 or more employees, the following two provisions of the Washington Family Leave Act apply:
VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Washington, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses work their way through state red tape. You can register your business with the state for B & O tax, sales and use tax, and other taxes by filing a master business license application with the Department of Licensing at the address listed below for that agency. A listing of contacts for other key state agencies is also set forth below for your convenience. BUSINESS STARTUP INFORMATION. A key agency that can provide helpful information on getting your business up and running in Washington is the Office of Trade and Economic Development, part of the Department of Community, Trade, and Economic Development.
SECRETARY OF STATE. Contact the office of the secretary of state for information on:
EMPLOYER WITHHOLDING. No state income tax withholding is required in Washington, as Washington does not impose any income taxes. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject.
STATE OSHA PROGRAM. For information on state occupational safety and health laws (WISHA) that affect you as an employer in Washington, and industrial insurance (workers' compensation) requirements, contact:
STATE NEW HIRE REPORTING. Washington employers must report newly hired employees within 20 days to the state New Hire Reporting Program at the following address, by mailing in a federal Form W-4 or other list of newly hired employees, filing by phone or fax, or filing online at the web site listed in Section VI(c).
STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Washington civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace:
(b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Washington to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you.
(c) Internet Sites. If you have access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Washington. Since new sites are appearing constantly, you might also want to search for other Washington government Web sites by using one of the popular Internet search engines, such as Excite! or Yahoo. To start your Internet search for Washington government information, you may want to begin with the following Internet sites: State of Washington home page: List of Washington state agencies, boards, and commissions: Department of Revenue (sales and use tax, Business & Occupations Tax, and other tax forms and information): Department of Licensing (licensing requirements and fees for various business, professions and occupations): Employment Security Department (state unemployment tax): Department of Labor and Industries (workers' compensation, state child labor and minimum wage laws, and other labor regulations): Washington Secretary of State's home page (corporation, partnership and limited liability company filings, trademark and trade name registration): Department of Social and Health Services (DSHS) New Hire Reporting Program (reporting of new hires):(d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Washington, or contact the Washington State Community, Trade and Economic Development Department, Office of Trade and Economic Development, whose address is listed in Section VI(a). The address of the Seattle District office of the U.S. Small Business Administration is:
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Copyright © 2004 Michael D. Jenkins
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