If you own or operate a self-storage facility in Washington state, you have a tax obligation that didn't exist three months ago.
Starting April 1, 2026, income from the rental or lease of storage space at self-service storage facilities is subject to Washington's Business and Occupation (B&O) tax under the Service and Other Activities classification.
The first quarterly payment deadline for self-storage facilities is July 25, 2026. Fox 59
That's 64 days away. And many operators are still running their businesses the same way they always have — unaware that a new tax obligation has been quietly accruing since April 1.
For decades, self-storage rental income in Washington was treated the same as any other real estate rental.
Prior to April 1, 2026, the rental income derived from self-storage facilities was considered rental of real estate and therefore not subject to B&O tax. That meant self-storage operators sat entirely outside Washington's B&O tax system — no filing, no remittance, no compliance burden on the rental income side. Fonoa
That changed with the passage of Engrossed Senate Substitute Bill 5794. The new law specifically changed this treatment by adding the business of renting or leasing individual storage space at self-service storage facilities to the class of business activity that must pay B&O tax. Fonoa
In passing ESSB 5794, the Legislature cited its interest in having a balanced tax system and modified existing exemptions in furtherance of its public policy interests. Fox 59
Translation: the exemption that protected self-storage income from B&O tax was eliminated. The Legislature decided storage facilities should be taxed like other service businesses — not like landlords.
Before getting into the specifics, it helps to understand what Washington's B&O tax actually is — because it works differently from sales tax and catches a lot of out-of-state business owners off guard.
Washington has no state income tax. Instead, it taxes businesses on their gross receipts through the B&O tax. The critical distinction: Washington's B&O tax on gross income applies regardless of whether a business operates at a profit or loss. The B&O tax base is not reduced by deductions for labor, materials, taxes, or other business costs. Fox 59
You pay B&O tax on every dollar of gross rental income — before expenses, before depreciation, before debt service. A facility running at a loss still owes B&O tax on its revenue.
For a self-storage business operating on thin margins, that structure matters. The tax isn't calculated on what's left over — it's calculated on what comes in.
The rental or lease of individual self-service storage space is subject to B&O tax at a rate of 1.5% or 1.75%, depending on the aggregate gross income of the business and its affiliates from the prior year. 10TV
The rate is applied to gross rental income — every dollar collected from tenants for storage unit rentals from April 1 onward. Operators with higher prior-year revenue pay the higher rate. Smaller operators pay the lower rate.
For a facility generating $1 million in annual rental revenue, the annual B&O tax obligation is $15,000 to $17,500. For a larger operation with $5 million in revenue, that's $75,000 to $87,500 per year — a meaningful new cost that wasn't there on March 31.
The new B&O tax applies specifically to rental income. But self-storage businesses often have other revenue streams — and the rules are different for each.
Rental income — B&O taxable, NOT subject to sales tax. Income from the rental or lease of self-service storage units is taxable under the Service and Other Activities B&O tax classification. You do not have to collect sales tax on the rental or lease income.
Retail sales (boxes, locks, packing tape, moving supplies) — subject to both retailing B&O tax AND sales tax. Income from sales of tangible personal property is taxable under the Retailing B&O tax classification, and you must collect sales tax.
Lien sales of defaulted unit contents — it depends. When a self-service storage business sells the contents of a storage unit to consumers, they must collect and remit retail sales tax. When sold to a reseller who provides a valid reseller permit or exemption certificate, no sales tax is required — but you must keep copies of all exemption documents.
The bottom line: rental income and retail sales are taxed under different classifications, at different rates, with different collection obligations. A storage facility that also sells packing supplies is juggling two separate B&O classifications and a retail sales tax obligation simultaneously.
Here's the compliance wrinkle that's catching the most operators off guard.
Before April 1, many self-storage businesses in Washington were on Active Non-Reporting (ANR) status — a filing classification that allows businesses below certain revenue thresholds to avoid regular filing requirements. Since storage rental income wasn't subject to B&O tax, many operators qualified and simply didn't file.
That changed on April 1.
Self-storage businesses no longer qualify for Active Non-Reporting status if their annual income is more than $125,000, even if they do not make retail sales. If you are currently on ANR status and your gross annual income is more than $125,000, you must update your filing frequency.
For most self-storage facilities — which routinely generate well above $125,000 in annual rental income — ANR status is gone. These businesses now need to file quarterly excise tax returns, add the Service and Other Activities classification to their account, and remit B&O tax on all rental income earned since April 1.
The first quarterly payment covers April, May, and June — three full months of rental income that has been accruing since the law took effect. Here's the action checklist:
1. Register if you aren't already. If you are not already registered with the Washington Department of Revenue, you must complete a business license application. You cannot file a B&O tax return without an active registration. WTHR
2. Add the new tax classification to your account. You will need to add the Service and Other Activities classification when you electronically file your next excise tax return. Log in to My DOR, click Get Started, click File Return in the Excise Tax Return panel, and click Add/Delete Tax Classifications.
3. Calculate your Q2 2026 gross rental income. Total all rental income received from April 1 through June 30. This is your B&O tax base for the first quarterly return.
4. Apply the correct rate. Determine whether your prior-year aggregate gross income puts you at the 1.5% or 1.75% rate. If you're unsure, start with 1.75% — you can true up if the lower rate applies.
5. File and pay by July 25. B&O tax returns must be filed online through Washington's Department of Revenue's MyDOR system. The July 25 deadline is firm. Late filing triggers penalties and interest. Fox 59
6. Update your ANR status if needed. If you were previously on ANR status and your annual income exceeds $125,000, update your filing frequency through My DOR or by calling the Department of Revenue at 360-705-6705 before you attempt to file.
The self-storage B&O tax is part of a larger pattern of Washington expanding its tax base in 2025 and 2026.
ESSB 5794 was one of several bills that eliminated or narrowed longstanding tax preferences. The same legislation also ended the B&O tax exemption for precious metals and bullion sales starting January 1, 2026 — Washington now taxes sales of precious metal bullion and monetized bullion as tangible personal property, imposing both retail sales tax and retailing B&O tax where applicable. WABX 107.5
Washington state relies on a combination of sales and B&O taxes rather than an income tax — and as the state faces ongoing budget pressure, the Legislature has been systematically narrowing exemptions that have historically sheltered certain industries from the tax base. Avalara
Self-storage is the latest industry to lose its exemption. It won't be the last.
If you own or operate any real-estate-adjacent business in Washington — parking facilities, marinas, RV parks, or other businesses that have historically been treated as real estate rentals — the self-storage change is a signal worth paying attention to.
The Legislature's decision to reclassify storage rentals as a service rather than a real estate transaction reflects a deliberate policy shift: activities that function like service businesses should be taxed like service businesses, regardless of whether they involve physical space. That logic could extend to other property-adjacent revenue streams that currently enjoy B&O tax protection.
The time to understand your exposure is before the Legislature acts — not after.
Operating a self-storage facility in Washington and not sure whether you're registered, which rate applies to your business, or how to handle the July 25 deadline? Book a free consultation with our team at sales.tax. We'll walk through your specific situation, calculate your Q2 exposure, and make sure your first filing is done correctly.