Category: State & Local Taxation

Washington B&O Tax and Active Traders (2026 Update): Still No Trader-Specific Safe Harbor, and the Statutory Base Remains Harsh

May 22, 2026 | By: Robert A. Green, CPA

Key Risks for Washington Traders

  • Possible Washington B&O tax on realized trading gains.

  • Potential inability to offset realized trading losses.

  • No trader-specific DOR safe harbor or formal guidance.

  • Broad statutory definition of “investments” under RCW 82.04.4281 potentially reaching many financial instruments.

  • No formal incorporation of federal Trader Tax Status (TTS) or Section 475 MTM rules into Washington B&O law.

  • Significant uncertainty regarding when active trading becomes “engaging in business.”

Washington Traders Still Face Significant Uncertainty

As of May 2026, Washington still has not issued trader-specific guidance, safe harbors, or examples addressing whether active traders are “engaging in business” for Washington Business & Occupation (B&O) tax purposes.

Since our original May 30, 2025 article analyzing the Antio decision and newly enacted ESHB 2081, traders have continued waiting for meaningful clarification from the Washington Department of Revenue (DOR) regarding:

  • Trader Tax Status (TTS),

  • Section 475 mark-to-market (MTM),

  • trading entities,

  • and proprietary trading activity.

The legislature specifically directed DOR to issue examples and guidance distinguishing personal investments from taxable business activity, but trader-specific examples still have not been published.

DOR previously indicated that additional investment-income guidance may be forthcoming in 2026, although trader-specific guidance still had not been released as of this article’s publication date.

Practitioners should monitor whether DOR releases additional guidance or examples addressing active proprietary trading.

As a result, Washington-resident traders continue to face substantial uncertainty regarding potential B&O tax exposure.

This 2026 update is not driven by major new statutes or rulings. Rather, it reflects the continued absence of trader-specific guidance, the evolution of practitioner analysis after Antio and ESHB 2081, and the growing realization that Washington’s existing statutes already contain potentially harsh tax mechanics if active trading is ultimately treated as “engaging in business.”

The core uncertainty is no longer whether Washington’s statute can produce harsh results if B&O applies to traders — the statute already clearly can. The unresolved question is where Washington draws the line between non-taxable personal investing and taxable business activity.

The concern remains serious because Washington’s B&O tax is imposed on the privilege of doing business and measured on gross income rather than net income. RCW 82.04.080 expressly includes gains realized from trading while disallowing deductions for losses.

Background: Antio and ESHB 2081

The current uncertainty developed after the Washington Supreme Court’s Antio decision and the legislature’s subsequent enactment of ESHB 2081.

Antio significantly narrowed the availability of the investment income deduction by emphasizing the incidental-investment requirement for taxpayers whose primary business is not investment activity. ESHB 2081 then revised RCW 82.04.4281 by adding a bright-line incidental test and specific deduction rules for certain vehicles.

For a taxpayer whose entire activity is proprietary trading, DOR could argue that investment or trading income is not incidental because trading is the taxpayer’s primary activity.

ESHB 2081 also revised and clarified portions of the investment income deduction rules, including:

  • bright-line “incidental” investment tests,

  • definitions of “investments,”

  • Collective Investment Vehicle (CIV) deduction provisions,

  • Family Investment Vehicle (FIV) deduction provisions,

  • and mandatory DOR rulemaking requirements.

ESHB 2081 also added a 5% bright-line incidental-investment framework, although that framework may provide limited practical relief for taxpayers engaged primarily in proprietary trading activities.

However, neither Antio nor ESHB 2081 directly resolved how Washington intends to treat professional-style active traders.

The Core Statutory Problem Remains Unresolved

Washington law continues to provide that:

RCW 82.04.080 defines “gross income of the business” to include “gains realized from trading in stocks, bonds, or other evidences of indebtedness” and provides that such gross income is measured “without any deduction … on account of losses.”

Washington’s B&O statute can therefore impose tax on realized trading gains while denying any offset for realized trading losses, if the trading activity is treated as “engaging in business.”

For example:

  • Trader realizes $2 million in gains during the year.

  • Trader also realizes $2.3 million in losses.

  • Federal tax result: $300,000 net trading loss.

  • Potential Washington B&O position: tax imposed on $2 million of realized gains.

No formal DOR guidance currently resolves this issue for traders.

Simple Illustration of Potential B&O Exposure

For illustration only, using an approximately 1.5% Service and Other Activities B&O rate, potential Washington B&O tax could be:

  • Realized trading gains: $2,000,000

  • Realized trading losses: ($2,300,000)

  • Federal net trading result: ($300,000) loss

Potential Washington B&O calculation if trading is treated as “engaging in business”:

  • Taxable realized gains: $2,000,000

  • Approximate B&O tax rate: 1.5%

  • Potential Washington B&O tax: $30,000

Actual B&O classification, rate, surtaxes, thresholds, and legislative changes should be confirmed for the taxpayer’s specific year, activity, and income level.

Under the conservative interpretation of RCW 82.04.080, realized trading losses may not offset realized trading gains for B&O purposes.

“Gains Realized” Is Not “Gross Proceeds,” But Loss Netting Still Appears Disallowed

Importantly, the statute refers to “gains realized,” not “gross proceeds.”

The better reading is that “gains realized” should mean transaction-level realized gains (sale proceeds minus basis for the position sold), rather than total broker “proceeds.”

However, the same statutory definition still denies any deduction “on account of losses,” creating the risk that loss positions do not offset gain positions in the B&O measure.

In practice, reconstructing Washington-specific gain-only reporting from broker records and tax software could be administratively burdensome.

Accordingly, the conservative interpretation remains:

  • transaction-level realized gains may count,

  • but realized losses may not offset aggregate realized gains.

Washington Specifically Allows Netting for Financial Institutions — But Not for Most Traders

RCW 82.04.080(2) separately provides that financial institutions determine trading gains on a “net annualized basis.”

That distinction matters because it demonstrates that Washington knows how to draft explicit netting provisions for defined taxpayers while leaving the broader rule in RCW 82.04.080(1) unchanged.

For this netting rule, RCW 82.04.080(2) ties “financial institution” to persons within the scope of DOR rules under RCW 82.04.460(2). Typical individual traders, trader-owned LLCs, and S corporations trading only proprietary capital generally should not assume they qualify.

Personal Investing, Professional Trading, and Dealer Activity Are Not Necessarily Treated the Same

Washington law and DOR guidance increasingly suggest that there are different categories of activity.

Traditional personal investing

The legislature and DOR both indicate that traditional personal investing generally is not “engaging in business.”

DOR guidance currently states:

“Persons who are not engaging in business are not subject to B&O tax on their income earned from investing. This category includes individuals who are not engaged in business and who invest their own personal assets.”

The legislature likewise stated in post-Antio findings language that:

“amounts received by individuals from personal investments are generally not considered amounts received from engaging in business and therefore are not subject to the business and occupation tax.”

A key distinction is whether the income is taxable in the first place. If an individual’s investing activity is not “engaging in business,” the income should be outside B&O without needing an investment-income deduction. By contrast, if the activity is treated as a business, the taxpayer must then analyze RCW 82.04.080 and any available deductions under RCW 82.04.4281.

Professional-style active trading

The unresolved issue is where professional-style active trading falls on the spectrum.

Washington still has not clearly addressed situations involving:

  • full-time day trading,

  • high-volume proprietary trading,

  • algorithmic trading,

  • Section 475 MTM elections,

  • trading entities,

  • or institutional-style trading operations.

If a proprietary trading activity is treated as a business, RCW 82.04.4281 may not provide relief because the trading income may not be incidental, and typical trader-owned entities generally will not satisfy the CIV or FIV definitions.

Traditional securities dealer activity

By contrast, activities involving customers, market-making, underwriting, investment advisory services, or broker-dealer operations are much more likely to constitute traditional business activity subject to B&O tax.

This customer-facing distinction also matters federally: IRC Section 475 defines a securities dealer by reference to transactions with customers, whereas proprietary traders typically rely on Section 475(f) trader elections rather than dealer status.

No Published Ruling on Trader Tax Status or Section 475

As of May 2026, we are not aware of any published:

  • Washington DOR binding ruling,

  • tax determination,

  • Excise Tax Advisory,

  • administrative determination,

  • or court decision

specifically addressing:

  • IRS Trader Tax Status (TTS),

  • Section 475 MTM elections,

  • trading LLCs or S corporations,

  • proprietary day traders,

  • or algorithmic/high-frequency traders.

Recent practitioner commentary discussing Antio and ESHB 2081 similarly notes that DOR has not issued trader-specific rulings or safe harbors.

Traders and practitioners may eventually seek formal clarification from Washington DOR through ruling requests, interpretive guidance requests, or future rulemaking comments. However, any guidance issued could be highly fact-specific and may materially affect how Washington treats active trading activities going forward.

Washington Does Not Formally Incorporate Federal TTS or Section 475 Rules

Importantly, Washington B&O law does not expressly adopt or incorporate the federal Trader Tax Status framework or Section 475 MTM rules.

The legal issue remains governed by Washington’s own “engaging in business” standards and the statutory B&O tax base under RCW 82.04.080.

Federal trader elections and business-style operational facts may nevertheless be persuasive — though not controlling — in a Washington “engaging in business” analysis.

Factors that DOR or a court could potentially weigh include:

  • electing Section 475 MTM,

  • operating through a trading LLC or S corporation,

  • maintaining a dedicated office,

  • employing staff or contractors,

  • operating sophisticated algorithmic infrastructure,

  • or conducting institutional-style trading operations.

However, Washington has not issued formal guidance addressing these specific configurations.

Washington’s Definition of “Investments” Is Extremely Broad

The revised statutory definitions in RCW 82.04.4281 are broader than many traders may realize.

The statute’s definition of “investments” includes:

  • securities,

  • trading account assets,

  • options,

  • futures contracts,

  • forward contracts,

  • foreign currency transactions,

  • derivative instruments,

  • and commodities.

One nuance: RCW 82.04.080’s gross-income phrase refers to gains from trading in stocks, bonds, or other evidences of indebtedness, while RCW 82.04.4281’s revised “investments” definition is broader for investment-income deduction purposes. DOR could still view broad trading-account income through the investment-income framework, but the statutory provisions are not identical.

As a result, the Washington B&O issue potentially extends beyond stock traders and may also affect:

  • futures traders,

  • options traders,

  • forex traders,

  • traders in crypto-linked derivatives or commodity-like instruments, depending on the instrument and classification,

  • and systematic algorithmic traders.

DOR Guidance Suggests Trading Frequency Alone May Not Be Determinative

DOR web guidance appears to suggest that trading frequency alone may not determine whether a person is engaged in business for B&O purposes.

DOR guidance instead focuses more heavily on traditional dealer-type activities such as:

  • making markets,

  • underwriting,

  • serving customers,

  • providing investment advice,

  • holding customer funds,

  • or operating as a broker-dealer.

However, nothing in the current DOR guidance directly addresses full-time proprietary day traders or systematic algorithmic traders, which remains a major unresolved gap.

Practitioners should confirm current DOR webpage language because online guidance can change without formal rulemaking.

CIV and FIV Deduction Provisions Generally Do Not Fit Typical Trading Entities

ESHB 2081 added or revised deduction provisions for Collective Investment Vehicles (CIVs) and Family Investment Vehicles (FIVs), but most trader-owned entities likely do not qualify.

CIV limitations

A CIV must generally:

  • derive at least 90% of gross income from investments,

  • hold passive investment assets for investors,

  • have investment decisions made by another person serving as manager or advisor,

  • and accept unrelated persons as investors.

Typical single-trader LLCs and S corporations generally do not satisfy those requirements.

FIV limitations

FIV status is generally limited to:

  • estates,

  • qualifying trusts,

  • Section 529 plans,

  • and Section 530 arrangements.

Most trading LLCs and S corporations do not qualify.

Conservative Planning Considerations for Washington Traders

Until Washington issues clearer guidance, traders may wish to evaluate whether their facts make the activity resemble an active trading business.

Potentially higher-risk facts could include:

  • operating through a trading LLC or S corporation,

  • electing Section 475 MTM,

  • claiming federal trader business expenses, including Schedule C reporting for individuals,

  • maintaining a dedicated trading office,

  • employing staff or contractors,

  • operating sophisticated trading infrastructure,

  • or engaging in extremely high-volume systematic or algorithmic trading.

By contrast, potentially lower-risk facts may include:

  • personal investment accounts,

  • no trading entity,

  • no affirmative federal trader posture, where consistent with the taxpayer’s actual facts,

  • no Section 475 election,

  • no Schedule C reporting for trader business expenses,

  • longer holding periods,

  • and investment-oriented activity.

Some traders using an LLC taxed as a partnership or an S corporation may consider temporarily ceasing trading activity through the entity and leaving it idle while awaiting additional Washington guidance or legislative developments later this year, or resuming trading in an individual account.

That approach may preserve the entity structure while reducing current facts that could support a Washington “engaging in business” position.

However, suspending trading activity prospectively would not necessarily eliminate potential exposure for prior years if Washington later asserts that the entity had previously been engaging in business.

Washington’s nexus and B&O rules can also apply to entities with Washington contacts even when the entity itself is organized outside Washington, so multi-state structures require careful analysis.

Section 475 Revocation Timing Matters

A trader that made a valid Section 475(f) election generally must follow IRS procedural guidance to revoke it, typically by filing the revocation statement by the original due date, without extensions, for the prior-year return corresponding to the year of change.

For calendar-year taxpayers, revocation affecting 2026 treatment generally required action by approximately April 15, 2026, subject to weekend, holiday, and IRS procedural rules.

Entity taxpayers and fiscal-year taxpayers should confirm the applicable unextended return due date and procedural statement requirements.

If a taxpayer no longer qualifies as a trader in securities or commodities for federal purposes, the continued application of a prior Section 475(f) election becomes a federal tax issue requiring careful analysis. Taxpayers should not assume Section 475 treatment automatically continues merely because a prior election was made.

Given the uncertainty surrounding Washington B&O tax exposure, traders should carefully evaluate Section 475 election and revocation timing with qualified tax counsel.

Recommended Conservative Posture

Until Washington provides clearer trader-specific guidance, conservative planning may include:

  • carefully evaluating whether TTS and Section 475 benefits outweigh Washington B&O exposure,

  • reducing facts that resemble institutional trading businesses,

  • avoiding unnecessary business formalities,

  • evaluating whether continued trading activity inside entities remains appropriate,

  • and modeling potential B&O exposure assuming realized gains may be taxable without loss netting.

These considerations are risk-management factors, not a recommendation to disregard actual business facts or take inconsistent federal and state positions.

Washington has periodically offered voluntary disclosure and compliance programs for taxpayers with unresolved B&O exposure. Traders concerned about prior-year exposure should evaluate available options with qualified state tax counsel based on the rules in effect at that time.

Watch Item

If DOR’s future investment-income guidance includes examples for high-volume individual traders, single-member trading LLCs, S corporation trading entities, or Section 475 traders, those examples could materially change the risk analysis described in this article.

Primary Authorities Referenced

  • RCW 82.04.080

  • RCW 82.04.4281

  • RCW 82.04.460(2)

  • Antio, LLC v. Washington Department of Revenue

  • ESHB 2081 (2025), codified in relevant part in RCW 82.04.4281

  • Washington Department of Revenue investment income guidance

Final Thoughts

Washington law already contains the potentially harsh mechanics:

  • trading gains included in gross income,

  • no deduction for losses,

  • and unresolved standards for determining when active trading constitutes “engaging in business.”

At the same time, the legislature acknowledged that personal investing by individuals generally is not “engaging in business” and directed DOR to issue additional guidance and examples.

Unfortunately, Washington still has not clearly explained where active trading falls on that spectrum.

Until DOR issues formal trader-specific rules, examples, or safe harbors, Washington residents and trading entities with Washington nexus engaged in high-volume or professional-style trading should treat potential B&O exposure as a material risk requiring careful planning and modeling.

We will continue monitoring DOR guidance and developments closely.

Disclaimer

This article is for educational purposes only and does not constitute legal or tax advice. Traders should consult qualified tax counsel regarding Washington B&O tax exposure, Trader Tax Status, Section 475 elections, entity planning, and multi-state nexus issues.

Gross Receipts and Entity-Level Taxes on Traders in 2025: State and City Risks

September 25, 2025 | By: Robert A. Green, CPA

State and city gross receipts taxes may apply to traders in unexpected ways. Learn which jurisdictions pose risks, which offer exemptions, and how to plan.

Most traders focus on federal tax planning, including qualifying for Trader Tax Status (TTS), making a Section 475(f) mark-to-market election, and selecting the correct entity (or sole proprietorship) for health, retirement, QBI benefits, and SALT cap workaround strategies. But state and local entity-level and sole proprietorship taxes can add unexpected costs.

Traders occupy a gray area in state and local tax law. They may file a Schedule C (sole proprietor business) for deducting expenses, but trading gains and losses are reported elsewhere: capital gains on Form 8949/Schedule D or, if electing Section 475 MTM, ordinary gains and losses on Form 4797. Crucially, traders have no customers or gross receipts — they trade their own capital for net gains or losses. By contrast, dealers (who must use Section 475 MTM) hold securities as inventory, serve customers, and generate gross receipts from sales.

Trading with TTS is not a “business” for purposes of state and local gross receipts taxes (GRT). Traders do not have customers like broker/dealers do. They trade for their own account, just more actively than passive investors. They are not listed as a type of business for GRT or business license purposes, nor are they explicitly excluded from GRT. If traders are deemed included, they should have zero gross receipts because they derive no revenues from customers. If state authorities nevertheless attempt to include trading income in GRT, it should be based on net trading gains — not gross proceeds — and must factor in offsetting trading losses. Washington State has suggested otherwise, which is why its B&O tax poses a special risk to traders. This mirrors issues we explored in our Los Angeles Business Tax post, where traders argued their gross receipts were $0.

This distinction explains why many gross receipts taxes were not designed to capture proprietary traders, though enforcement sometimes pushes into this uncertain area. Traders should document the lack of customer revenue whenever responding to city or state notices. There is also a risk of misclassification—especially when using S-Corps for Section 475—since some cities treat all S-Corps as businesses subject to GRT unless proven otherwise. For a real-world example, see our coverage of Los Angeles City’s business tax and traders.

How Traders Typically File

  • Sole proprietors (most traders with TTS): File Schedule C for expenses on Form 1040.

  • LLCs taxed as partnerships: Sometimes used for the PTET SALT cap workaround or to qualify for investment partnership state exemptions.

  • S-Corps: Useful for deducting officer health insurance premiums and making retirement plan contributions, but at risk for entity-level taxes in certain jurisdictions. (e.g., CA 1.5% franchise tax, IL 1.5% replacement tax, and NYC General Corporation Tax (GCT) 8.85% all on net income.)

👉 Entity choice drives state and local tax exposure.

State and Local Case Studies

Many GRT regimes have substantial thresholds ($1M or more) and relatively low tax rates, which makes it unlikely the states and cities will capture or significantly harm most traders.

*Note: This section focuses on PTEs (S-Corps, LLCs, partnerships) and sole proprietorships, since traders rarely use C-Corps. Most states already impose separate corporate-level taxes on C-Corps — see Tax Foundation: State Corporate Income Tax Rates for details. Many states and cities assess GRT to C-Corps.

Gross Receipts / Excise-Type Taxes

Delaware – Gross Receipts Tax

  • Applies to: PTEs and sole proprietorships

  • Delaware Division of Revenue – Gross Receipts Tax

  • Tax type: Gross receipts tax

  • Rates: Range from 0.0945% to 0.7468%, depending on industry.

  • Exemption: $100,000 per month, or $300,000 quarterly, or $1.25M annually.

  • Trader impact: Trading gains are likely exempt, as they are not receipts from goods or services.

Hawaii – General Excise Tax (GET)

  • Applies to: PTEs and sole proprietorships

  • Hawaii Dept. of Taxation – GET

  • Tax type: 4% general excise on gross income (goods/services). Straddles the line between sales tax and GRT.

  • Exemption: None.

  • Trader impact: Trading gains are likely exempt, not being “services.”

Los Angeles, CA – City Business Tax

Nevada – Commerce Tax

  • Applies to: Business entities with Nevada gross revenue over $4,000,000 (certain statutory exemptions apply)

  • NV Dept. of Taxation – Commerce Tax

  • Tax type: Gross receipts tax.

  • Rate: 0.051%–0.331% over threshold.

  • Exemption/Threshold: ≤ $4M Nevada gross revenue; entities at or below $4M generally have no filing requirement.

  • Trader impact: Many traders fall below the $4M threshold. Nevada law also provides a passive entity exemption (including certain partnerships that only earn investment income). Treatment of own‑account trading gains as “gross revenue” is not explicit; facts and classification matter.

New Mexico – Gross Receipts Tax

  • Applies to: PTEs and sole proprietorships

  • NM Taxation & Revenue Dept. – Gross Receipts Tax

  • Tax type: Gross receipts tax. Straddles the line between sales tax and GRT.

  • Rate: Base 5.375%, with local add-ons up to 9.5%.

  • Exemption: None.

  • Trader impact: Trading gains are likely exempt.

Ohio – Commercial Activity Tax (CAT)

  • Applies to: PTEs and sole proprietorships

  • Ohio Dept. of Taxation – CAT

  • Tax type: Gross receipts tax.

  • Rate: 0.26% over threshold.

  • Exemption: ≤ $6M receipts (2025).

  • Trader impact: Trading gains are likely exempt.

Oregon – Corporate Activity Tax (CAT)

  • Applies to: PTEs and sole proprietorships

  • Oregon Dept. of Revenue – CAT

  • Tax type: Gross receipts tax.

  • Rate: $250 plus 0.57% above $1M receipts.

  • Exemption: ≤ $1M receipts.

  • Trader impact: Receipts from sales of capital assets (IRC §§1221/1231) are excluded from commercial activity; Section 475 MTM ordinary income may not be excluded if total Oregon receipts exceed $1M.

Philadelphia, PA – BIRT and NPT

  • Applies to: PTEs and sole proprietorships

  • Philadelphia Dept. of Revenue – BIRT

  • Tax type: Gross receipts and net income tax.

  • Rates: 0.1410% on receipts; 5.71% on net income.

  • NPT: 3.74% (residents); 3.43% (nonresidents).

  • Exemption: $100k exclusion repealed in 2025.

  • Trader impact: Traders may argue for zero gross receipts; NPT is not owed if no customers.

San Francisco, CA – City Gross Receipts Tax

  • Applies to: PTEs and sole proprietorships

  • SF Treasurer – Gross Receipts Tax

  • Tax type: Activity-based, 0.16%–0.65% by category.

  • Exemption: ≤ $5M receipts (Prop M, effective for 2025 filings).

  • Trader impact: Traders may argue for zero gross receipts.

Washington State – Business & Occupation (B&O) Tax

Washington Cities – Local B&O Taxes

  • Applies to: Businesses in cities like Seattle and Tacoma

  • Tax type: City-level B&O or gross receipts taxes, in addition to state B&O

  • Trader impact: Gray area; risky if losses are not allowed.

Other California Cities – Local Gross Receipts Taxes

  • Applies to: Businesses in cities like Beverly Hills, Oakland, San Mateo, Santa Monica

  • Tax type: Local gross receipts or business activity taxes, varying by city

  • Trader impact: Similar arguments as in Los Angeles — traders may be able to claim zero gross receipts.

Income / Franchise / Replacement Taxes

California – Franchise & LLC Fees

  • Applies to: S-Corps and LLCs (not general partnerships)

  • CA Franchise Tax Board – S-Corps

  • Tax type: 1.5% S-Corp franchise tax on net income; LLC fees $900–$11,790.

  • Trader impact: Statutory exposure for LLCs and S-Corps.

Illinois – Replacement Tax

  • Applies to: Partnerships and S-Corps; investment partnerships exempt

  • IL Dept. of Revenue

  • Tax type: 1.5% replacement tax on net income.

  • Exemption: Investment partnerships are exempt.

  • Trader impact: S-Corps exposed.

Kentucky – Limited Liability Entity Tax (LLET)

  • Applies to: LLCs, S-Corps, and similar entities; not sole proprietors.

  • KY Dept. of Revenue – LLET

  • Tax type: 0.095% gross receipts or 0.75% gross profits; $175 minimum.

  • Exemption: Qualified investment partnerships are exempt.

  • Trader impact: Trading gains are exempt as QIP. S-Corps can be included in QIP, along with partnerships.

New Hampshire – BPT & BET

  • Applies to: PTEs and sole proprietorships

  • NH Dept. of Revenue – Business Taxes

  • Tax type: Business Profits Tax (BPT) 7.5% on net income;
    Business Enterprise Tax (BET) 0.55% on the enterprise value.

  • Exemption: BPT < $109k receipts; BET < $298k enterprise value.

  • Trader impact: MTM traders at risk; non-MTM lower risk. See GreenTraderTax: NH Business Taxes for Traders

New York City – GCT & UBT

  • Applies to: S-Corps (GCT); partnerships/sole props (UBT)

  • NYC Dept. of Finance – UBT

  • Tax type: General Corporate Tax (GCT) 8.85% on net income;
    Unincorporated Business Tax (UBT) 4% on net income.

  • Exemption: 100% trading partnerships/sole props are exempt from UBT.

  • Trader impact: S-Corps exposed to GCT.

Tennessee – Franchise & Excise Taxes

  • Applies to: All entities except sole proprietors

  • TN Dept. of Revenue – Franchise & Excise

  • Tax type: Excise tax 6.5% on net income;
    Franchise 0.25% on net worth (min $100).

  • Exemption: FONCE (Family-Owned Non-Corporate Entity) exempts qualifying family-owned non-corporate entities from both taxes. Tennessee does not treat S-Corps as non-corporate, so they are excluded from the FONCE exemption.

  • Trader impact: Qualifying partnerships and LLCs can be exempt; S-Corps remain exposed.

Texas – Franchise (Margin) Tax

  • Applies to: S-Corps, LLCs, and partnerships (GPs of individuals exempt)

  • Texas Comptroller – Franchise Tax

  • Tax type: 0.75% margin tax (0.375% retail/wholesale).

  • Exemption: ≤ $2.47M receipts with adjustments; GPs of individuals exempt.

  • Trader impact: S-Corps/LLCs exposed.

Bottom Line

State and local gross receipts and entity-level taxes are highly jurisdiction-specific. While many states and cities either exempt or effectively exclude trading gains, others leave the rules ambiguous. Traders should carefully consider their filing status (sole proprietor vs. entity), election choices (e.g., Section 475 MTM), and entity form (S-Corp vs. partnership) to minimize unexpected exposure. In practice, thresholds are high, and most traders will not owe tax; however, gray areas exist in places like Washington, Los Angeles, New Hampshire, and Philadelphia that deserve attention.

Resources

This post’s facts and thresholds were cross-checked against the Tax Foundation’s 2024 survey of state gross receipts taxes, an authoritative source on state-level GRT regimes.

Los Angeles Business Tax and Traders: Why Gross Receipts May Be $0

September 18, 2025 | By: Robert A. Green, CPA | Read it on

The City of Los Angeles has begun mailing Business Tax Registration Certificate (BTRC) notices to residents, including traders eligible for trader tax status (TTS) who file a Schedule C for Section 162 business expenses only.

For these own‑account traders (no clients, no advisory fees, not broker‑dealers), a reasonable position is that taxable “gross receipts” are $0 because they make no sales to customers or provide services. However, LA has not published an explicit exemption for traders, and the City’s Stockbrokers page under LAMC §21.49 states that “stockbrokers trading on their own accounts” are subject to tax on net trading profits. That rule was designed for broker‑dealers with customers, but LA may misapply it to retail traders. Expect possible questions or documentation requests. If the City insists on registration, traders can consider the Small Business Exemption (≤ $100,000 receipts).

What Los Angeles Requires

  • Who must register: Anyone “engaged in business” in the City must obtain a BTRC or claim an exemption. See LAMC §21.03.

  • Nexus rule: Performing work in Los Angeles for seven or more days per year triggers business registration.

  • Passive investment income: Dividends and interest alone do not count as business activity.

  • Stockbrokers rule: Under LAMC §21.49, stockbrokers—including those trading on their own accounts—pay tax on commissions, fees, and net trading profits. This rule targets registered broker‑dealers with clients, but officials could apply it against retail traders.

  • Tax rates: Professions and occupations (including stockbrokers) are taxed at $4.25 per $1,000 of gross receipts (about 0.425%). See the City’s Know Your Rates page.

How Traders Report Income Federally

  • Capital gains/losses: Report on Form 8949 and Schedule D.

  • Section 475 MTM traders: Report ordinary gains/losses on Form 4797, Part II.

  • Schedule C: Used only for business expenses such as data, platforms, and home office—not trading gains or losses.

Because Schedule C shows expenses only, the City may assume gross receipts exist. Some traders with minimal expenses skip filing a Schedule C, but skipping it does not conclusively exempt them from LA business tax. The Office of Finance uses Franchise Tax Board data matching and flags Schedule C, Schedule D, or Form 4797 activity to issue AB63 discovery notices. Traders should explain that they report gains and losses correctly and that they have no customer receipts. Notices sometimes arise from a trader’s use of Form 4797, Part II for Section 475 MTM, which is titled “Sales of Business Property” but remains the correct form for traders.

IRS Topic 429 lists the factors used to determine TTS: holding periods, frequency and size of trades, pursuit of livelihood, and time devoted. It also notes that expenses go on Schedule C. Gains and losses from trading are not subject to self‑employment tax. Federal recognition of TTS does not automatically create taxable gross receipts under LA’s code, since traders still lack customer‑facing revenues.

Pass‑through entities eligible for TTS, including LLCs/partnerships and S‑Corps, also report business expenses and use Form 8949 (realization) or Form 4797 (MTM). These entities may also receive LA notices, and the same $0 gross receipts position applies.

Illustrative Examples

  • Profitable Trader: An LA‑based trader earns $1 million in net trading gains for the year, with no clients and only personal capital at risk. For federal tax, those gains go on Form 8949/Schedule D or Form 4797. For the LA business tax, a reasonable position is that there are no customer receipts, so taxable gross receipts equal $0. If misclassified as a “stockbroker” under §21.49, the tax could reach 0.425% of $1 million = $4,250.

  • Losing Trader: Another trader incurs $100,000 in net trading losses. For LA, again, the position is no gross receipts, so no business tax applies. If misclassified as a stockbroker, LA might attempt to treat gross receipts as trading profits net of losses ($0 here).

Traders vs. Broker/Dealers

  • Dealer: Buys and sells securities as a business, holds inventory, earns spreads, and registers with regulators.

  • Agent (Broker): Executes trades for clients and earns commissions.

  • Principal: Trades for their own account, often taking the other side of customer trades.

  • Market‑maker: A dealer that continuously quotes bid/ask prices and provides liquidity, always trading against customers.

All of these categories involve customers or counterparties. If a dealer, agent, principal, or market‑maker also makes some proprietary trades, regulators may lump that together with customer business. Retail traders are different—100% of their trades lack customers—which supports a $0 gross receipts position.

LAMC §21.49 specifies that an agent or broker who also deals as principal must include trading profits in gross receipts. LA could try to invoke this if it views a trader as fitting that bucket. That rule makes sense for market‑makers and dealers acting as principals in broker/dealer activity, where customer business is always involved. But retail traders are different: they have no clients and all of their trades are proprietary. Applying §21.49 to them stretches the law beyond its intent and remains a misclassification risk, not a clear obligation.

City Notices and AB63 Enforcement

The City of Los Angeles Office of Finance Enforcement Division (AB63 Unit) issues these notices using Franchise Tax Board data. Taxpayers must either:

  • Complete a Business Tax Application (AB63) to register, or

  • File an AB63 Alternative Form to assert exemption.

The letters warn that failure to respond may result in estimated assessments and penalties. Traders should complete the AB63 Alternative Form, state clearly that they trade solely for their own account, and explain that they have no clients. On the form, check: “I am not subject to City business tax – see the back of this notice and indicate the reason why you are not subject to the tax.”

See: City of LA – AB63 Program FAQ

Guidance and Call to Action

For own‑account traders, the LA business tax should not apply. But because no specific exemption exists and the City taxes “stockbrokers trading on their own accounts” under §21.49, expect questions and potential registration requirements. If LA insists on registration, the Small Business Exemption can provide relief. This exemption applies when worldwide gross receipts are ≤ $100,000 and must be claimed annually.

Our advice:

  • Respond promptly and keep written records.

  • State the facts clearly—you trade only for your own account and have no customer revenues.

  • Be transparent but firm—acknowledge TTS for federal purposes, but clarify it does not create taxable gross receipts locally.

  • Keep documentation—copies of AB63 forms, correspondence, and federal filings. Contact the City’s Business Tax Liaison if needed.

If you’ve received a BTRC notice, contact us. In a consultation, Green, Neuschwander & Manning, LLC can provide customized response letters, exemption declarations, and guidance to resolve these notices quickly and try to avoid unnecessary LA business tax assessments.

Disclaimer: This post is for informational purposes only and does not constitute legal or tax advice. Consult your own tax advisor regarding your specific situation.

Darren Neuschwander, CPA, contributed to this blog post. 

Sources

Final Tax Reform Bill Preserves SALT and PTET Deductions for Traders and Professionals

July 3, 2025 | By: Robert A. Green, CPA | Read it on

Traders and professionals win as Congress drops PTET restrictions and expands the SALT cap in final tax deal.

After weeks of deliberation, revisions, and intense advocacy, the Senate and House have passed the final version of the One Big Beautiful Bill Act (OBBBA, H.R. 1), sending it to President Trump for signature on Independence Day. The final legislation maintains critical tax benefits for traders and other professionals by preserving access to state and local tax (SALT) deductions and the pass-through entity tax (PTET) workaround. (July 4th update: the president signed it.)

How the SALT Cap Debate Evolved

The original Tax Cuts and Jobs Act (TCJA) capped the SALT itemized deduction at $10,000 per year, causing tax increases for many professionals in high-tax states. In response, 37 states adopted PTET regimes allowing pass-through businesses—like LLCs, partnerships, and S-Corps—to deduct SALT at the entity level and bypass the cap. This workaround became vital for service businesses and traders who qualified for trader tax status (TTS).

The House version of H.R. 1 proposed increasing the SALT cap to $40,000 in 2025 with phaseouts based on income, but controversially denied PTET deductions to specified service trades or businesses (SSTBs)—including accountants, lawyers, doctors, and traders. The original Senate draft mirrored some of these restrictions, proposing a 50% cap on the PTET deduction.

The Senate Heard Our Voices

Thanks to strong feedback from CPAs, industry leaders, and affected taxpayers—including traders—Senate Republicans revised their position. On July 1, the Senate passed a new version of the bill that:

  • Increases the SALT cap to $40,000 in 2025, with 1% annual inflation indexing through 2029. The cap reverts to $10,000 in 2030.

  • Preserves full PTET deductibility for all pass-through businesses, removing earlier proposals that would have limited this benefit or excluded SSTBs.

  • Implements a phaseout of the SALT cap benefit for modified AGI above $500,000, adjusted upward annually.

This revised Senate bill retained the SALT workaround while avoiding discrimination against SSTBs, and it passed the Senate on July 1.

Final Passage by the House

On July 3, the House approved the Senate’s version without any amendments, ensuring that the bill would proceed directly to the President’s desk in time for the July 4 deadline. This legislative alignment locked in the Senate’s more favorable approach to SALT and PTET deductions.

Why This Matters to Traders and Professionals

The final legislation avoids the unfair treatment proposed in earlier versions and maintains parity between pass-throughs and C corporations. Traders with TTS who operate via PTET-eligible entities can continue to deduct state taxes at the entity level, significantly lowering their federal tax liabilities.

The AICPA welcomed this outcome, with President and CEO Mark Koziel emphasizing that removing PTET limits was vital for fairness and simplicity in the tax code. The final result ensures continuity for millions of small businesses and traders.

Final Thoughts

This legislative victory was hard-won and shows the power of informed advocacy. By preserving the SALT cap workaround and maintaining access to PTET deductions for all professions, the final tax reform bill supports a fairer and more competitive environment for traders and service businesses.

Senate Tax Bill Preserves SALT Workaround for Traders and SSTBs

| By: Robert A. Green, CPA | Read it on

Update July 3: Final Tax Reform Bill Preserves SALT and PTET Deductions for All Pass-Throughs

House and Senate agree on a $40,000 SALT cap for 2025 and maintain full PTET deduction access.

In a fast-track move to finalize tax reform before the July 4 recess, the House on July 3 passed the Senate’s July 1 version of the One Big Beautiful Bill (OBBBA/H.R. 1) without any further amendments, sending the legislation directly to the President’s desk for signature.

The Senate’s final version included substantial improvements to SALT and PTET provisions compared to earlier drafts and the House bill.

Final SALT and PTET Provisions Now in the Bill:

  • SALT Cap: Set at $40,000 for 2025, with 1% inflation indexing through 2029, before reverting to $10,000 in 2030. (See additional July 3 details below.)

  • PTET Deduction: All limitations removed. The bill preserves full access to the PTET SALT deduction for all pass-through entities, with no carveouts for SSTBs, ensuring parity with C corporations and reducing complexity. The SALT cap workaround survived intact. 

Good news for traders and other professionals: In order to meet the July 4 deadline, the House accepted all of the Senate’s changes without alteration. As a result, these SALT and PTET provisions—favorable to pass-throughs and SSTBs—are now part of the final legislation, pending the President’s expected signature on July 4.

Update July 1: Senate Final Tax Bill Brings Good News for Traders
Crucially, the Senate removed the 50% limitation on the PTET deduction, preserving TCJA’s current law treatment and avoiding SSTB exclusions.

The American Institute of CPAs (AICPA) has expressed strong support for the changes made in the Senate’s final version of the “One Big Beautiful Bill Act,” particularly revisions to the state and local tax (SALT) provisions. The House-passed version of the bill would have increased the SALT cap to $40,000 but phased it out at high income levels—and controversially denied the SALT PTET (pass-through entity tax) deduction to specified service trades or businesses (SSTBs), including traders eligible for trader tax status, accountants, attorneys, and doctors. These professionals would have been subject to the SALT cap at the individual level and denied the pass-through SALT cap workaround that many businesses in 37 states currently use. Under current TCJA law, all pass-through business entities can utilize a SALT cap workaround solution if their resident state offers this option and they elect to use it. 

The June 28 Senate Finance draft proposed extending the $10,000 SALT cap and introducing a new 50% limitation on the PTET deduction that would have applied to all pass-through entities, not just SSTBs.

However, in the final text passed by the Senate on July 1, key SALT changes were made:

  • The Senate-passed version would increase the SALT cap to $40,000 in 2025, $40,400 in 2026, and by an additional 1% in 2027-2029. The cap would revert to the current $10,000 in 2030.

  • The Senate-passed bill also calls for phasing out the deduction at a modified adjusted gross income of $500,000 in 2025, but would set the phaseout threshold at $505,000 in 2026 and increase it by 1% thereafter. The Senate, like the House, would not reduce the cap to below $10,000 via income-based phaseouts.

  • Crucially, the Senate removed the 50% limitation on the SALT PTET deduction, preserving TCJA’s current law treatment, allowing full deductibility of SALT PTET on state tax returns. The SALT cap workaround remains unchanged

This move was welcomed by the AICPA, which emphasized that the final bill maintains tax parity between pass-through entities and corporations, avoids complexity, and supports the competitiveness of small businesses. The organization warned that reimposing PTET limits would have introduced confusion and unfairness into the tax code.

As the bill proceeds to reconciliation, I will closely monitor the process to ensure the final legislation maintains the Senate’s more inclusive treatment of SALT and PTET deductions.

Update June 28: Senate Modifies SALT Cap and PTET Deduction in Latest Draft

On June 27, 2025, Senate Republicans released a revised version of their draft tax bill. Most notably, it increases the SALT deduction cap to $40,000 for tax year 2025, with a gradual phase-down through 2029, before reverting to the original $10,000 cap. Additionally, the Senate retains the PTET deduction for all pass-through entities, but introduces new limits: an individual’s total SALT deduction—including PTET—is capped at the sum of the standard $10,000 SALT deduction plus the greater of $40,000 or 50% of the PTET amount paid on their behalf. This still represents a more inclusive approach than the House version, which excludes SSTBs. This blog post is updated for the revised June 27 Senate bill.

Original article published June 25:
The Senate takes a more balanced approach to SALT and PTET rules, avoiding punitive carve-outs and restoring deductions for traders and service professionals.

Senate Republicans released a draft tax reform bill on June 16 that sharply diverges from the House’s approach to the state and local tax (SALT) deduction and the pass-through entity tax (PTET). Unlike the House version, which aggressively targets specified service trades or businesses (SSTBs), the Senate draft restores PTET deductions for all pass-throughs, offering welcome relief to traders, CPAs, and other professionals.

Senate Holds the Line on $10,000 SALT Cap.

The 2017 Tax Cuts and Jobs Act (TCJA) expires after 2025, caps the SALT itemized deduction at $10,000 annually. In response, 37 states enacted PTET regimes allowing pass-through entities to deduct state taxes at the entity level, effectively bypassing the SALT cap for eligible business owners. This is known as the SALT cap workaround solution. 

The House bill proposes raising the SALT cap to $40,000 with income-based phaseouts. It denies PTET deductions to SSTBs and retains the PTET deduction for non-SSTBs like manufacturers and tech companies. By contrast, the Senate draft initially kept the SALT cap at $10,000 as a placeholder.

However, the June 27 Senate revision expands the SALT deduction cap to $40,000 for 2025, with a gradual phase-down over four years, returning to $10,000 by 2030. This revision reflects negotiations aimed at easing the SALT burden in high-tax states.

PTET Deduction Extended to All Professions, with Limits

In a notable departure from the House bill, the Senate version eliminates SSTB exclusions. Instead, it applies a uniform PTET limitation: an individual’s total SALT deduction—including PTET—is capped at:

  • The standard $10,000 SALT cap plus

  • The greater of $40,000 or 50% of the PTET tax paid on their behalf.

This structure is intended to curb perceived abuses of high PTET payments while maintaining fair access to SALT relief. While more restrictive than the current law—which in many states allows near-total deduction—this framework avoids discriminatory carve-outs against service professionals. Under the Senate proposal, traders operating in PTET-eligible entities and qualifying for trader tax status (TTS) would retain access to this key deduction. However, sole proprietors, employees, and investment companies are not eligible for TTS and remain excluded.

Outlook and Next Steps

The Senate Finance Committee’s draft remains under discussion, with a floor vote anticipated as early as late June. If the Senate passes the bill, it will proceed to House-Senate reconciliation. The outcome will determine whether PTET parity and SALT deduction relief endure in the finalized legislation.

As many taxpayers discovered under the TCJA, SALT cap limitations have been a major driver of increased federal tax bills, especially in high-tax states. The Senate proposal takes a more balanced approach, extending PTET relief without penalizing service professionals.

GreenTraderTax will continue monitoring developments and advising traders and professionals on year-end planning implications.

PTET Deduction Cap (June 27 Senate Draft – Section 70601)

“An individual’s total SALT deduction, including any PTET passed-through, is limited to:

  1. The regular $10,000 cap on SALT deductions ($5,000 MFS), plus

  2. The greater of:

    • $40,000 ($20,000 for married filing separately), or

    • 50% of the total PTET paid on their behalf.

Additionally, PTETs that fail federal eligibility criteria—such as those in jurisdictions without individual income tax or with inflated entity-level rates—would be disallowed.”  (SALT Alert: Senate Tax Bill Targets SALT Cap Workarounds, Including New Limits on PTET Deductions, from Supra.com)

Darren Neuschwander, CPA, contributed to this article.

Washington’s B&O Tax Targets Traders After New Ruling

May 30, 2025 | By: Robert A. Green, CPA | Read it on

Update (Sept. 21, 2025): Washington’s Small Business B&O Tax Credit can reduce annual B&O to $0 when the net B&O tax due is under $1,920 (Annual Table 1 for Service & Other Activities). However, per RCW 82.04.080 and the WA DOR’s “Investment income” guidance, gross income includes gains realized from trading with no deduction for losses. That means high-volume traders may exceed the credit threshold even in net-loss years. Effective October 1, 2025, HB 2081 introduces tiered rates for Service & Other Activities. (We submitted a formal inquiry below to the Department of Revenue for clarification, but as of this date, no response has been received.)

Service & Other Activities B&O Rates and Credit Breakpoints

Period Gross Receipts B&O Rate Approx. Maximum Gross Receipts Fully Offset by Small Business Credit*
Before Oct. 1, 2025 All amounts 1.5% ≈ $128,000
On or after Oct. 1, 2025 Up to $1,000,000 1.5% ≈ $128,000
  $1,000,001 – $5,000,000 1.75% ≈ $110,000
  Over $5,000,000 2.1% ≈ $91,000

* These breakpoints reflect where B&O tax before credits equals $1,920, the 2025 annual Small Business Credit cutoff.

Details and Examples

Example 1: Small Business Credit wipes out tax

A Washington resident trader reports $120,000 in trading gains and $150,000 in losses during 2025. For B&O purposes, only the gains count. At the 1.5% Service & Other Activities rate, the tax before credits is $1,800. Because the net B&O tax due is below $1,920, the Small Business B&O Tax Credit fully offsets the liability, leaving no B&O tax due.

Example 2: Credit no longer applies

Another trader reports $2,000,000 in gains and $2,300,000 in losses. Again, losses do not reduce the B&O base, so the taxable gross income is $2,000,000. At the 1.5% rate, the B&O tax before credits is $30,000. The Small Business Credit phases out long before this level, so the trader owes the full $30,000 B&O tax, despite having an overall net trading loss.

Update Effective July 1, 2025

  • “The Department of Revenue is offering a temporary expanded Voluntary Disclosure Program under ESSB 5167. For more information, including FAQs about this program, see our Investment Income Voluntary Disclosure Program webpage.
  • Effective Jan. 1, 2026, Engrossed Substitute House Bill (ESHB) 2081 addresses the business and occupation (B&O) tax deduction for certain investments, including incidental investment income and investment income for qualified person(s).”

Original Post May 30, 2025

With the Antio court decision and HB 2081 now law, day traders may be pulled into Washington’s business tax system.

Before tax year 2025, traders considered their personal and trading entity accounts exempt from Washington State Business & Occupancy (B&O) tax, a revenue-based tax on businesses.

What’s New

Lots have changed, and we are tackling the potentially harmful implications for traders. Two significant events happened: the Antio court decision of October 24, 2024, and House Bill 2081, which was signed into law on May 20, 2025. The Washington Supreme Court ruled in Antio, LLC v. Washington State Department of Revenue that the investment income deduction under RCW 82.04.4281 applies only to income incidental to the taxpayer’s main business activity. Antio eliminated the investment income deduction for entities if investment income was more than 5% of net income. For a trading entity, it’s 100%. HB 2081 confirmed Antio and made exemptions for Family Investment Vehicles and Collective Investment Vehicles.

We have some significant questions. Please take a look at our letter to DOR below. In summary, do traders using a personal account and Trader Tax Status trigger B&O tax? Can trading entities qualify for a Family Investment Vehicle or Collective Investment Vehicle exemption?

The Washington Department of Revenue (DOR) has taken a firm stance on B&O tax, which could affect active traders residing in the state.

Strategy Considerations

Washington-based traders should carefully evaluate whether to elect Trader Tax Status (TTS) and Section 475 MTM, both of which offer federal tax advantages but may affect B&O tax exposure. For example, using Section 475 means gains and losses are considered ordinary income, potentially strengthening the case that net income—not gross gains—should apply for B&O tax purposes, if applicable, and we hope it’s not.

Prior postures asserting that the Washington B&O tax doesn’t apply to trading entities or to individual traders may have been defensible in prior years, but with recent appeals rulings and interpretations, it’s time to reassess. The DOR has promised additional guidance, which traders should monitor closely.

Family Investment Vehicle (FIV) Exemption — Do Traders Qualify?

Under HB 2081, a Family Investment Vehicle (FIV) must be:

  • An estate or trust (inter vivos or testamentary),

  • With beneficiaries limited to family members or nonprofits, or a qualified tuition program.

This definition does not include family offices or for-profit trading entities. Accordingly, a typical trading entity, including a husband-wife LLC or S-Corp, does not qualify for the FIV exemption. These entities are neither estates nor trusts, nor do they meet the statutory beneficiary restrictions.

Collective Investment Vehicle (CIV) — What Qualifies?

HB 2081 defines Collective Investment Vehicles (CIVs) with the following requirements:

  • Derive at least 90% of gross income from investment income;

  • Have multiple investors, including at least one unrelated person;

  • Be managed by an external investment advisor or fund manager;

  • Hold only passive investment assets;

  • Be organized and operated as an investment fund for the benefit of investors.

CIVs are intended for pooled vehicles such as hedge funds, private equity funds, and mutual funds. These entities typically meet the requirements.

By contrast, a for-profit trading entity operating with trader tax status does not qualify for the CIV exemption. It generally lacks unrelated investors and does not appoint an outside fund manager. It is not operated as a pooled investment vehicle for third-party beneficiaries.

Enactment of HB 2081

On May 20, 2025, Governor Ferguson signed HB 2081 into law, which enacts sweeping changes to Washington’s B&O tax regime. Key provisions include:

  • Permanent rate increases for several classifications.

  • A new progressive rate structure for service-based businesses.

  • A 0.5% B&O surcharge beginning in 2026 on companies with $250 million+ in taxable income.

  • New exemptions for Collective Investment Vehicles (CIVs) and Family Investment Vehicles (FIVs), with strict eligibility standards.

Traders and investors must now determine how this law impacts their specific tax obligations, especially if they are using trading entities.

B&O Tax Rate Overview

Washington’s B&O tax applies to gross receipts, not net income. The applicable rates vary by business classification:

  • Service and other activities (which may include investment income entities):

    • Previous rate: 1.5%

    • Under HB 2081:

      • 1.5% for businesses under $1 million in gross receipts

      • Ranges up to 2.1% for businesses exceeding $25 million

  • A 0.5% surcharge applies beginning in 2026 for businesses with over $250 million in WA gross receipts.

These rates may apply to trader entities not qualifying for FIV or CIV exemptions. Importantly, the law does not allow deductions for trading losses, unless otherwise clarified.

It’s not clear if DOR considers frequent traders to be engaged in business and subject to the B&O tax. We need them to answer our below questions.

Can Traders Offset Trading Gains with Trading Losses?

If B&O tax applies to traders then what is the taxable amount? According to RCW 82.04.080, gross income of the business includes gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest income, dividends, and other investment-related income without any deduction for losses.

A literal reading of this rule indicates that only trading gains are included—not trading losses. This implies that a trader with overall net yearly losses must still pay the B&O tax on gross trading gains.

A similarly situated Washington trader could attempt to assert that their net trading results—not just trading gains—better reflect their business gross income for B&O tax purposes. This argument may hold more weight if the trader’s investment activity is their primary business, and if their situation is more akin to a dealer in securities who typically reports net revenue. However, traders don’t have customers, whereas dealers do.

Gross receipts on services should equate with net trading gains, calculated as gross proceeds on securities trades minus purchases of securities sold. For futures, net trading gains are reported on Form 1099-B. A trader can have significant proceeds and yet have a net trading loss.

Letter to the Washington Department of Revenue (DOR)

We submitted the following formal inquiry to the Department of Revenue, requesting clarification. As of September 21, 2025, we have not received a response.

Washington B&O Tax: Does It Apply to Traders?

Dear DOR, kindly answer the following B&O tax questions. As background, kindly see my blog post on GreenTraderTax.com dated May 30, 2025.

  1. Confirm that persons not engaged in business are not subject to B&O tax on investing income. From the DOR website: “Persons who are not engaging in business are not subject to B&O tax on their income earned from investing. This category includes individuals who are not engaged in business and who invest their own personal assets.”

  2. Confirm that persons not engaged in business are not subject to B&O tax on trading gains. Trading is short-term oriented, whereas investing has a longer-term focus.

  3. What does it mean for a person to be “engaged in business”? If a trader does not earn revenue from investment advice, has no brokerage license, and is not a dealer, what else qualifies for a business?

  4. Does DOR recognize the IRS classification for “trader in securities” (see IRS Tax Topic 429)? We call it “trader tax status” (TTS).

  5. Is a TTS trader deducting expenses on Schedule C and using Form 4797 engaged in business for B&O purposes?

  6. Does a trading or investment entity owned by a trader with no outside investors, whether using TTS or not, qualify for a FIV or CIV exemption from B&O tax?

  7. If subject to B&O tax, should the tax base be net trading gain/loss? Does the law truly disallow losses? A trader might trade one security hundreds of times per day, and the activity only makes sense when trading gains are combined with losses.

  8. Can you confirm B&O tax applies to net gains (proceeds minus cost basis), not just gross proceeds?

These answers are urgently needed, as traders have moved to WA seeking lower tax burdens. If B&O tax applies to their trading, they must be warned.

Sincerely,
Robert A. Green, CPA
CEO, GreenTraderTax.com
Forbes Contributor

What You Can Do

  • Forward this blog post to your tax advisor or Washington State legislator.

  • Contact the Washington Department of Revenue and request published guidance for individuals trading for their own account or through an entity solely used for trading.

  • Share this post with your trading community to raise awareness of these new tax risks.

Darren Neuschwander, CPA, and Adam Manning, CPA, contributed to this blog post. 

Resources

  • RCW 82.04.080 – Gross income of the business defined

    Washington law defines gross income and explicitly disallows deductions for losses.

    RCW 82.04.080

  • WA Department of Revenue – Investment income

    Explains that gross income includes gains from trading, with no deduction for losses.

    DOR: Investment income

  • WA Department of Revenue – Small Business B&O Tax Credit

    Annual tables showing the $1,920 cutoff for Service & Other Activities.

    DOR: Small Business Tax Credit Tables

  • WA Department of Revenue – B&O tax rate changes (HB 2081)

    Special notice on the new tiered rates effective October 1, 2025.

    DOR: B&O tax rate changes

  • Antio LLC v. Department of Revenue (Wash. Sup. Ct. Oct. 24, 2024)

    Case holding that investment income is not automatically deductible under the “amounts derived from investments” exemption.

    Antio case summary – PwC

    Antio case summary – CBIZ

It’s Hard For Traders To Move Out Of New York For Tax Purposes

May 3, 2024 | By: Robert A. Green, CPA | Read it on

In today’s digital world, some people, especially traders, can operate their economic activities while traveling around the U.S. and the world. Some land in one place and change tax domicile, while others continue traveling and never establish a new domicile. The problem is that some states, like New York and California, continue to subject people to resident taxation until they change their domicile.

Historically, in an inter-state move, a family hired a shipper to move their home contents from a prior permanent home to a new one in another state. In that case, their domicile changed on the moving date. It gets more complicated when the family moves their home contents to storage and starts their travels for months or even years.

For example, a family moved out of a New York State home in February 2024 but doesn’t plan to move into their new home in Florida until October 2024. They are spending the interim months traveling around the country and the world. NYS would likely consider this taxpayer a part-year resident until the actual move-in date in Florida in October 2024 and a non-resident of NYS after that date.

The new permanent home requirement with a change of domicile seems unreasonable when the interim months turn into years or never happen. People can move freely without the physical realities of historic domicile rules crafted before the Internet and remote working revolution.

Domicile and tax resident vs. non-resident rules vary by state; most have subjective and objective tests. State tax auditors focus on enforcing residency rules.

New York State domicile rules
NYS subjects domiciled residents with resident taxation on worldwide income reported on Form IT-201. People domiciled in other states but working in NYS file a non-resident Form IT-203 reporting NYS-source income, including wages and business income, but not portfolio income. Telecommuting to a virtual job in an NYS office from an out-of-state domicile is considered NY-source income filed on an NYS non-resident tax return. (there is a “convenience of the employer rule”)

Some assume that moving out of state might be enough to stop owing NYS resident taxes. They are wrong. NYS requires residents to complete a move with a change of domicile, which includes establishing a new permanent home in a new state or country. Some taxpayers don’t achieve these requirements and are stuck in limbo.

See the New York State Department of Taxation and Finance publication 88: General Tax Information for New York State Nonresidents and Part-Year Residents. (Read the domicile rules on pages 5 – 8).

“You can have only one domicile. Your New York domicile does not change until you can demonstrate that you have abandoned it and established a new domicile outside New York State.”

  • “A change of domicile must be clear and convincing. Easily controlled factors such as where you vote, where your driver’s license and registration are issued, or where your will is located are not primary factors establishing domicile. To determine whether you have, in fact, changed your domicile, you should compare:
    • the size, value, and nature of use of your first residence to the size, value, and nature of use of your newly acquired residence;
    • your employment and/or business connections in both locations,
    • the amount of time spent in both locations;
    • the physical location of items that have significant sentimental value to you in both locations; and
    • your close family ties in both locations.”

Many people living and working in New York City purchase a second home just outside the city in the tri-state area. Some are tempted to change their domiciles outside NYC, which piggybacks NYS domicile rules. The above factors apply in determining if a second home passes muster as a primary permanent home for a change of domicile. A goal is to avoid NYC resident taxation which ranges from 3.078% to 3.876%.

There are two exceptions to the NYS domicile rules: the 30-day test for days spent in NYS and the 548-day test for time spent while traveling outside the U.S. The 30-day test requires a new permanent home, whereas the 548-day test for international travel does not.

“Even if your domicile is New York State, you are not a resident if you meet all three conditions in either Group A or Group B as follows:”

The 30-day test: (Group A)

“1. You did not maintain any permanent place of abode in New York State during the tax year; and

  1. You maintained a permanent place of abode outside New York State during the entire tax year; and
  2. You spent 30 days or less (a part of a day is a day for this purpose) in New York State during the tax year.”

The 548-day test: (Group B)

“A New York domiciliary can be treated as a nonresident if they:

-Are present in a foreign country or countries for at least 450 days out of a 548-day period.

-Spend 90 days or less in New York during that 548-day period, along with their spouse and minor children.

-During any partial calendar year within the 548-day period, the ratio of days spent in New York vs. the total days in that partial year does not exceed the ratio of the partial year days to 548 days.” (See an example in the NYS law here.)

NYS statutory resident test

  • “Generally, if your domicile is not New York State you are considered a New York State nonresident. However, you are a New York State resident for income tax purposes if your domicile is not New York State, but you maintain a permanent place of abode in New York State for more than 11 months of the year and spend 184 days or more (any part of a day is a day for this purpose) in New York State during the tax year.”

New Yorker moves to Florida
These past few years, heightened by the COVID-19 pandemic, many traders and hedge fund employees moved from high-tax states, including New York and Connecticut, to Florida, which does not have an income tax. Others moved from high-tax California to Washington and Texas, which also don’t have an income tax.

Some NYS “snowbirds” are reckless in applying the stringent rules for changing domicile. For example, they might keep their permanent large home in NYS, where they have a closer connection in business and family matters, and buy or rent a small apartment in Florida, barely meeting the 183-day requirement for becoming a Florida resident. If NYS considers that they never changed domicile from NYS to Florida, then its 30-day test applies, not the NYS 183-day statutory residence test.

State domicile rules are complex and involve many subjective factors. Each case can be different, and it’s based on the taxpayer’s intent, facts, and circumstances. Many over-rely on objective formalities like voting and license and underweight subjective factors like family, relative home values, and closer connections.

Relying on antiquated domicile rules crafted before modern technologies and newer ways of living and working is unfair.

Prompt questions for an  AI engine:

  • What are the rules for a change of domicile in New York State?
  • I moved out of NYS to travel and never established a new permanent home. Will NYS tax authorities still consider me domiciled in NYS?

Links:

Star Johnson, CPA, contributed to this blog post. 

 

 

Don’t Miss The Election For The SALT Cap Workaround

October 5, 2021 | By: Robert A. Green, CPA | Read it on

Many states recently enacted “SALT cap workaround” legislation enabling pass-through entities (PTE) to deduct entity-level SALT payments as a business expense in place of non-deductible itemized deductions over the “SALT cap” of $10,000 per individual tax return. Currently, 20 states have enacted this legislation, and others are considering it.

The SALT cap workaround is not automatic in most states; the owner must file an election for PTE treatment by the deadline, which varies by state. The PTE election deadline for New York State is October 15, 2021. Connecticut’s pass-through entity (PTE) tax for the SALT cap workaround is mandatory, which is unique. In most states, the owner can make the election with a timely filed tax return, which is more convenient.

It’s also essential in most states to pay PTE estimated taxes. For a 2021 business expense deduction on the federal return, make the estimated tax payments before December 31, 2021.

See my updated blog posts on the SALT cap workaround below. As an excerpt, here are some of the updates for NYS and CA.

You can also search “SALT cap workaround” for your state. Several states published FAQs, and many local CPA firms have blog updates about it. 

This alert applies to pass-through entities (PTE), including LLCs, taxed as partnerships or S-Corps. It’s doesn’t apply to sole proprietors. For traders, the PTE must be eligible for trader tax status (TTS).

New York State

NYS Tax Department: New guidance and election application for optional pass-through entity tax (NYS Tax Dept, August 25, 2021) The New York State Tax Department has issued a technical memorandum and webpage to provide information on the new optional PTET.

New York State’s New Pass-Through Entity Tax – The CPA Journal (CPA Journal Aug. 2021)
“Election. To file and pay PTE tax, an eligible partnership or S corporation must make an irrevocable election by the first estimated payment due date, which is March 15 of the calendar year prior to the year in which the PTE tax return is required. The election is made annually and will be effective for the current taxable year. For the 2021 tax year only, an election must be made by October 15, 2021.”

NYS Tax Department: Deadline approaching to opt into pass-through entity tax (PTET) (NYS October 6, 2021)
“To opt-in: Log in to your S corporation’s or partnership’s Business Online Services account. (If the business doesn’t have an account, we recommend creating one by October 8 to avoid missing the election deadline.).”

California

SALT workaround elective pass-through entity tax (Spidell’s California Minute July 18, 2021)

Pass-through entity tax FAQs released by FTB (Spidell September 30, 2021)
“The FTB anticipates releasing the new pass-through entity tax voucher before December 2021. That voucher will provide instructions on how to make the elective tax payment going forward. Note that for federal purposes, the entities will only benefit from the reduction of net income on the 2021 K-1s if the payment is made before the end of the entity’s 2021 taxable year.”

Help with pass-through entity elective tax FAQs (FTB)
“A qualified entity must make the election on its original, timely filed return.” That means the 2021 PTE return due to be filed in 2022.

Other blog posts:

How to Deduct State and Local Taxes Above SALT Cap

Unlock State & Local Tax Deductions With A SALT Cap Workaround. See updates by state.

Trader Tax Battle Of The States: Nevada Vs. New Hampshire

July 15, 2016 | By: Robert A. Green, CPA

Traders have unique tax issues on state and local income tax returns for business entities and individuals. Moreover, state and local tax regimes vary significantly. The preferred business entity for a trader is an S-Corp pass-through entity, which is free of entity-level federal taxation. Some states and cities subject S-Corps to taxation. (Read our recent blog post: A Few States Tax S-Corps: Traders Can Reduce It.)

In my five-part series “Trader Tax Battle Of The States,” I focus on state and local tax systems for S-Corps, LLCs, and partnerships. I mention basic information about individual income tax, estate and inheritance tax regimes. The numbers listed below are the states ranking by population.

35. Nevada:

NV enacted a Commerce Tax (CT), and the first fiscal year-end for this new tax regime is June 30, 2016. Per the CT sites below, “CT is imposed on businesses with a Nevada gross revenue (GR) exceeding $4,000,000 in the taxable year.” There are two exemptions applicable to a trading or investment company:

– “Passive entities are exempt if 90% of income is portfolio income, including capital gains from the sale of real property, gains from the sale of commodities traded on a commodities exchange and gains from the sale of securities.”

– Also exempt: “Intangible investments entity if it only owns and manages intangible investments, such as investments in other entities, bonds, patents, trademarks. Intangible investments include, without limitation, investments in stocks, bonds, notes and other debt obligations.”

COMMERCE TAX NEWS
COMMERCE TAX QUESTIONS AND ANSWERS
Exempt Status Entity Form for Exempt Entities registered with NV Secretary of State

NV does not have an individual income tax regime.

NV does not have an estate or inheritance tax system.

NV is one of the best states for traders.

42. New Hampshire:

NH has an 8.5% Business Profits Tax (BPT) “assessed on income from conducting a business activity within NH. Every business organization, organized for gain or profit carrying on business activity within the state is subject to this tax. However, organizations with $50,000 or less of gross receipts from all their activities are not required to file a return,” per Taxpayer Assistance – Overview of New Hampshire Taxes.

NH includes TTS trading gains in gross receipts for BPT.

NH also has a 0.75% Business Enterprise Tax (BET) assessed on the Enterprise Value Tax Base (EVTB). The base is the “sum of all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise, after special adjustments and apportionment,” per above NH site.

NH has a limited individual income tax regime: A 5% tax on interest and dividend income, and no taxes on wages, capital gains, and other personal income.

NH does not have an estate tax or inheritance tax.

This blog post completes our five-part series “Trader Tax Battle Of The States.”

Attend our Webinar or watch the recording afterward: Trader Tax Battle Of The States.

Trader Tax Battle Of The States: New Jersey, Washington & Massachusetts

July 14, 2016 | By: Robert A. Green, CPA

Click to read Green's blog post in Forbes.

Click to read Green’s blog post in Forbes.

Traders have unique tax issues on state and local income tax returns for business entities and individuals. Moreover, state and local tax regimes vary significantly. The preferred business entity for a trader is an S-Corp pass-through entity, which is free of entity-level federal taxation. Some states and cities subject S-Corps to taxation. (Read our recent blog post: A Few States Tax S-Corps: Traders Can Reduce It.)

In my five-part series “Trader Tax Battle Of The States,” I focus on state and local tax systems for S-Corps, LLCs, and partnerships. I mention basic information about individual income tax, estate and inheritance tax regimes. The numbers listed below are the states ranking by population.

11. New Jersey:

NJ has an S-Corp Minimum Tax (MT) based on NJ gross receipts (GR), which includes net trading gains. It is $375 for less than $100,000 GR, $562.50 for less than $250,000 GR, $750 for less than $500,000 GR, $1,125 for less than $1M GR, and $1,500 if $1M GR or more. See S Corporation – MINIMUM TAX on Corporation Business Tax Overview.

NJ has a Partnership Filing Fee: “For New Jersey Gross Income Tax purposes, every partnership or limited liability company (LLC) that has income from sources in the State of New Jersey, or has a New Jersey resident partner, must file the New Jersey Partnership return, Form NJ-1065. The $150/partner fee is not to exceed $250,000 for each partnership with more than two partners. Assessed on partnerships with more than two partners AND having income or loss derived from New Jersey sources…,” per Partnership Filing Requirements.

NJ has a progressive individual income tax system, and the top rate is 8.97% on income over $500,000.

NJ individual income tax rates are lower than New York State/City rates, but many traders pay higher taxes in NJ because it does not allow deductions for most losses*. That includes business losses, caused by trading business expenses, net capital losses and net Section 475 ordinary trading losses. NJ only allows certain itemized deductions. NJ’s restrictions on deductions translate to higher effective tax rates. Many traders have net losses in some years, and they do not find tax relief in NJ.

*NJ Notice: “ALTERNATIVE BUSINESS CALCULATION DEDUCTION FOR CERTAIN BUSINESS ENTITIES CONSOLIDATION AND CARRYFORWARD. Effective for tax years beginning on or after January 1, 2012, (NJ) establishes an alternative business calculation deduction under the New Jersey Gross Income Tax Act with the intent of giving income tax relief to taxpayers with business losses. The new legislation provides a deduction which uses a calculation that consolidates business income and/or loss and allows taxpayers to carry forward unutilized losses.” (See examples in the notice.)

NJ has an estate tax rate up to 16% and an exemption of $675,000, which is the lowest exemption in the country.

NJ has an inheritance tax rate up to 16%.

With high individual tax rates, disallowance of most losses*, high minimum tax on S-Corps, and the lowest estate exemption in the country, NJ is one of the worst tax states for traders.

13. Washington:

WA has a Business & Occupation Tax (B&O) assessed on gross receipts from business activities. See Business & Occupation tax. Tax rates vary by classification, with the highest rate 0.15% applying to a service business.

WA exempts a trading company from B&O tax, providing it does not have other types of income like management fees or profit allocation (carried interest) in a hedge fund. (Learn more on the WA site: Income derived from investments.)

WA does not have an individual income tax system.

WA has the highest estate tax rate (20%) in the country, and the estate exemption is 2.054M.

WA is a good tax state for traders to live in, but not a good place to pass away, if you exceed the estate exemption.

14. Massachusetts:

MA subjects S-Corps to a 0.26% Corporate Excise Tax (CET). It’s applied to MA tangible property or taxable net worth (TNW), which includes trading equity capital and undistributed trading income. The minimum CET is $456, which translates to $175,384 TNW. On $500,000 TNW, CET is $1,300. See MA Corporate Excise Tax.

S-Corps with high gross receipts, which includes net trading gains, may also be subject to an income tax measure of CET. “S-Corps with total receipts of $6 million or more are liable for the income measure of the corporate excise at the following rates: 1.83% on net income subject to tax if total receipts are $6 million or more, but less than $9 million; or 2.75% on net income subject to tax if total receipts are $9 million or more,” per MA tax site.

Most trading companies have trading gains under $6M, so they do not owe the income portion of CET. If you expect trading gains significantly over $6M, consider a dual entity structure: A trading general partnership, which is free of all CET, and an S-Corp management company paying the $456 minimum CET.

MA requires an LLC to file an annual report with a $500 fee. MA does not require an annual report from a general partnership.

MA has an individual income tax regime, with two flat tax rates for 2016. Per MA Personal Income Tax:

– 5.1% tax rate on earned income (salaries, wages, tips, commissions) and unearned income (interest, dividends, and certain capital gains);

– 5.1% tax rate on long-term capital gains (except collectibles);

– 12% tax rate on short-term capital gains, and Section 475 MTM ordinary income from trading gains earned by business traders who made a timely Section 475 election.

MA has an estate tax rate up to 16%. MA has an estate exemption of $1M, which is low among the fifteen states that have an estate tax regime.

Most MA residents pay individual income taxes at the 5.1% rate, which is competitive. But, traders owe the higher 12% rate on short-term capital gains and Section 475 ordinary income, which makes MA a bad tax state for traders.

Attend our Webinar or watch the recording afterward: Trader Tax Battle Of The States.

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