For most people asking this question, the honest answer is that you should form your LLC in the state where you actually live and work, and that is usually Washington or Oregon rather than whichever one looks cheaper on paper. The two states tax business income in almost opposite ways: Washington charges no personal income tax but taxes gross receipts through the Business and Occupation tax, while Oregon charges no sales tax but taxes personal income at up to 9.9 percent. Which one costs you less depends almost entirely on your margins and where your customers are.
The comparison below sticks to what the two states publish themselves: fees from each Secretary of State, rates from each Department of Revenue. Rates change, sometimes mid year, so every figure carries the year it applies to.
Start with the home state rule
An LLC is registered in one state, but it owes registration wherever it does business. If you live in Portland, rent an office in Portland, and serve Oregon clients, forming a Washington LLC does not make your business a Washington business. Oregon will treat you as a foreign LLC transacting business in Oregon, and you will owe an Application for Authority plus an annual renewal there on top of everything you already pay Washington. That is two sets of fees, two registered agents, and two annual filings for one business.
That is why the “best state” framing usually collapses on contact with reality. The rule that holds up: register in your home state unless you have a specific reason not to, such as real property elsewhere or a genuine second location with employees. Delaware and Nevada pitches aside, a single owner consultancy gains nothing from a distant registration except cost.
What each state charges to form and keep an LLC
These are the published fees from each Secretary of State as of 2026. Both states charge extra for expedited handling, and both offer online filing that is faster and cheaper than paper.
| Item | Washington | Oregon |
|---|---|---|
| Form a domestic LLC | $180 (Certificate of Formation) | $100 (Articles of Organization) |
| Register an out of state LLC | $180 | $275 (Application for Authority) |
| Annual filing | $70 annual report | $100 annual renewal (domestic) |
| Expedited handling | $100 expedite, $150 same day | No standard expedite tier published |
| Statewide sales tax | 6.5 percent state plus local | None |
| Personal income tax | None | 4.75 to 9.9 percent (2025 brackets) |
Over five years, the pure registry cost is roughly $530 in Washington against $600 in Oregon. That difference is noise. The tax structure is where real money changes hands.
How Washington taxes an LLC
Washington has no personal income tax and no corporate income tax. Instead it runs a Business and Occupation tax on gross receipts, which means the tax applies to revenue before you subtract any costs. There are more than fifty classifications, and the ones most small businesses land in are:
- Retailing: 0.471 percent
- Wholesaling: 0.484 percent
- Manufacturing: 0.484 percent
- Service and other activities: tiered since October 1, 2025, at 1.5 percent under $1 million of prior year taxable income, 1.75 percent from $1 million to just under $5 million, and 2.1 percent at $5 million and above
Read the service tier carefully, because it is where consultants, agencies, and software shops sit. A one person consultancy billing $250,000 pays 1.5 percent of gross, which is $3,750 before any small business credit. There is a small business B&O credit that can reduce or wipe out the bill at low revenue, and it phases out as revenue climbs. Washington also runs a retail sales tax at 6.5 percent state level plus local add ons, so if you sell taxable goods or certain services you become a collection agent for the state.
The blunt point about a gross receipts tax: it does not care whether you made money. A reseller with a 6 percent gross margin pays B&O on the full sale price, not the margin. That is a meaningfully different burden than an income tax on profit. You can read the current rates on the Washington Department of Revenue B&O page.
How Oregon taxes an LLC
Oregon has no general sales tax, which is the headline most people know. What fewer people budget for is the Corporate Activity Tax, a second gross receipts style tax that applies to LLCs as well as corporations. The structure as published by the Oregon Department of Revenue:
- You must register within 30 days of passing $750,000 in Oregon commercial activity
- You must file a return once Oregon commercial activity exceeds $1 million
- The tax is $250 plus 0.57 percent of taxable Oregon commercial activity above $1 million
- You may subtract 35 percent of the greater of your cost inputs or your labor costs before applying the rate
Below $750,000 of Oregon revenue, the CAT is simply not your problem. That covers a large share of single owner LLCs, and it is the biggest structural advantage Oregon has over Washington for a small service business: Washington’s B&O starts biting immediately, Oregon’s CAT does not start until seven figures.
The trade is personal income tax. A default LLC is a pass through entity, so business profit lands on your personal return. Oregon’s 2025 rate chart runs 4.75 percent, 6.75 percent, 8.75 percent, and 9.9 percent, with the top rate starting above $125,000 of taxable income for a single filer and above $250,000 for joint filers. The 8.75 percent bracket starts low, at $11,100 single, so most working owners hit it. Details are on the Oregon Department of Revenue CAT page and its personal income tax pages.
Running the numbers on two typical businesses
Take a marketing consultancy billing $200,000 a year with $40,000 of expenses, so $160,000 of profit to one owner. In Washington the owner pays B&O service tax on the full $200,000 at 1.5 percent, roughly $3,000, and nothing on the profit. In Oregon the owner pays no CAT at all, but Oregon income tax on $160,000 runs into the 9.9 percent bracket at the top and produces a bill in the low five figures. Washington wins that one clearly.
Now take an equipment reseller doing $2 million in revenue with a 7 percent gross margin, so $140,000 of gross profit before overhead. In Washington the wholesaling or retailing B&O rate of roughly 0.48 percent on $2 million is about $9,600, on a business that may not clear $60,000 of net profit. In Oregon the CAT applies above $1 million, but after the 35 percent subtraction on cost inputs the taxable base shrinks a lot, and Oregon income tax only touches actual profit. The reseller usually does better in Oregon.
That is the whole comparison in two paragraphs: Washington punishes low margin, high volume businesses and rewards high margin ones. Oregon does the reverse. If you want a broader view of how state structure shapes business decisions, our comparison of Massachusetts and Washington covers the same tension from the employee side, and our look at Alabama versus Mississippi for an LLC shows how the math changes in low tax states.
Common mistakes and how to avoid them
Registering in the wrong state to chase a lower fee. A $80 difference in formation fee is erased the first time you have to foreign qualify. Register where you operate.
Assuming no income tax means no business tax. Washington’s B&O catches new owners constantly. You owe it on gross revenue, and you file it through the Department of Revenue, not the Secretary of State.
Missing the annual filing. Both states will administratively dissolve an LLC that stops filing. Reinstatement costs more than the report you skipped and can leave a gap in your liability shield.
Ignoring city taxes. Many Washington cities run their own B&O tax on top of the state one, and the Portland metro area layers regional taxes on top of Oregon’s. Check the city, not just the state. If you are also weighing where to put money to work, our roundup of the best states to invest in real estate uses a similar cost by cost method.
This is general information, not advice
Everything above is general information about publicly posted rates and fees, not legal or tax advice. Entity choice, elections such as taxation as an S corporation, nexus in a second state, and the treatment of a specific revenue stream all turn on facts this article cannot see. Before you file, talk to a CPA or attorney licensed in Washington or Oregon.
Frequently asked questions
Can I form a Washington LLC to avoid Oregon income tax?
Not if you live in Oregon. Oregon taxes its residents on income from all sources, so profit from a Washington LLC still lands on your Oregon return. The registration state does not determine where you owe personal income tax. Residency does. Changing that requires actually moving.
Which state is cheaper for a brand new one person business?
Oregon usually costs less in year one because the filing fee is $100 rather than $180 and the Corporate Activity Tax does not apply below $750,000 of revenue. Washington catches up quickly if you are profitable, since it takes nothing from your personal income.
Do I need a registered agent in both states?
Yes, if you are registered in both. Each state requires a registered agent with a physical street address inside that state. Many owners serve as their own agent in their home state and pay a commercial service in the second state, which typically runs $50 to $200 a year.
Does Washington’s B&O tax apply if I made no profit?
Yes. The B&O tax is levied on gross receipts, not net income, so a business that lost money still owes it on revenue. The small business credit can reduce or eliminate the bill at low revenue levels, but the obligation to register and file remains.
What happens if I sell to customers in both states?
You may create tax nexus in both. Washington will look at your Washington sourced receipts for B&O and sales tax collection, and Oregon will look at Oregon commercial activity for the CAT threshold. Selling across the river is common and manageable, but it needs a bookkeeping system that tags revenue by state from day one.
The bottom line
Washington and Oregon are close on registry cost and far apart on tax philosophy. Washington takes a small slice of every dollar of revenue and leaves your personal income alone. Oregon leaves small revenue alone and taxes the profit you take home, at rates that reach 9.9 percent. If your business is high margin service work with a working owner, Washington is usually the cheaper home. If it is volume driven with thin margins, Oregon usually is.
Whichever way the math points, the deciding factor is still where you actually operate. Pick the state where the work happens, budget for the second registration if you genuinely cross the border, and get a licensed professional to check the assumptions before you file. The fee difference is trivial. The tax structure difference is not.
