Service Income Apportionment

The apportionment of service income allows businesses to divide their taxable revenue and their taxes proportionately among the Washington cities in which they do business.  Businesses that report revenue under the classification of "Service and Other Business Activities" on their City of Seattle business tax return will calculate apportionment of this revenue.

Examples of businesses that report service income include accountants, lawyers, architects, engineers and many other professional service firms.  If any of these businesses serve customers within the City of Seattle and/or in other Washington cities, they will calculate how that service income should be apportioned.

If your business does not have income to report under the classification of "Service and Other Business Activities," you will not calculate apportionment. Please note that income from intangibles, such as royalties, are not included in the apportionment calculation even though they are reported in that same category. Income from intangibles is sourced to the taxpayer's domicile (headquarters).

What's new

Effective Jan. 1, 2020, the method used to apportion service revenue between jurisdictions has changed to comply with the Revised Code of Washington 35.102.130 under House Bill 1403 in 2019. This new method utilizes a market-based sourcing approach to determine how taxable service income is apportioned among multiple jurisdictions. Essentially, the new apportionment method redefines "customer location" for purposes of apportionment.

Customer Location

To calculate service income apportionment, it will be important to have record of the customers' location. The definition of "customer location" depends on whether the customer is a business.

For customers engaged in business, the "customer location" is:

  1. Where the services are ordered from;
  2. The customer's billing/mailing address, if the location from which the services are ordered is not known; or
  3. At the customer's commercial domicile if none of the above is known.

For customers who are not engaged in business, a homeowner for example, the "customer location" is:

  1. If the service requires the customer to be present, it is where the service is performed;
  2. If the customer is not required to be physically present, it is the customer's residence; or if the location of the customer's residence is not known, it is the customer's billing/mailing address.

Information you will need

Before you begin to calculate the apportionment of your service income, gather the following information:

  • Total service receipts
  • Total service payroll costs
  • Total Seattle service payroll costs
  • Location of each of your customers (see definition above.)

Calculating the Service Income Apportionment

You can calculate service income apportionment on our online portal, FileLocal, when you file your tax return.  If you have not registered your business on FileLocal, please do so now. Beginning in 2020, you will no longer be able to use the Seattle Electronic Filing System (SELF) to file your tax returns if you have service income. FileLocal user fees will apply. You may download a worksheet to calculate service income apportionment if you would like to file your taxes on paper.

Alternative apportionment

Taxpayers may apply and request an alternative apportionment method, but they must be able to clearly demonstrate that the alternative method better reflects their business activities than the prescribed two-factor method that is specified in the Seattle Municipal Code.

Read the application instructions.

Get more information

You can read the Seattle Municipal Code for more details about the apportionment of service income.

Service Income Apportionment Worksheet for 2020-present

Service Income Apportionment Worksheet for Periods Before 2020

City Finance

Jamie Carnell, Interim Director
Address: 700 Fifth Ave., 4th Floor, Seattle, WA, 98104
Mailing Address: P.O. Box 34214, Seattle, WA, 98124-4214
Phone: (206) 684-8484
Hours: 8:30 a.m.-4 p.m.

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City Finance manages the financial operations of the City of Seattle and oversees the City’s financial controls and enterprise reporting while working to achieve the goals set by the Mayor and the City Council.