11.10 2025

Washington Expands Sales Tax

Washington Expands Sales Tax—Here’s What’s Changing Under Senate Bill (ESSB) 5814

On May 20, 2025, Washington State approved major tax legislation that significantly raises Business & Occupation (B&O) and sales taxes, introducing billions in additional tax burdens across the state. Beginning October 1, 2025, many businesses and services previously exempt from sales tax will now be included under Washington’s retail sales tax system. In response, the Department of Revenue (DOR) has begun notifying over 90,000 businesses to prepare for compliance and review the new requirements in detail.

 

Will This Affect My Business??

Under the new law, these businesses will fall under the definition of “retail sale” and be subject to retail sales tax including:

  • Information technology services
  • Custom website development services
  • Investigation, security, and armored car services
  • Temporary staffing services
  • Advertising services
  • Live presentations
  • Sales of custom software and customization of prewritten software
  • Modification of digital automated services (DAS) exclusions

 

What Business Owners Should Do

  1. Check the DOR website – There’s a whole section on “services newly subject to retail sales tax” with guidance.
  2. Read interim guidance – DOR has published detailed interim guidance (IGSs) for each type of service now taxed.
  3. Update your contracts, invoices, and client communications – If your business sells these services, you may need to add sales tax to your billing.
  4. Ask for help – If you’re not sure how the tax applies in your situation, you can request a letter ruling or reach out to DOR.
  5. Stay informed – These are interim rules, and more permanent regulations are expected to follow.

 

Complexities & Complications

  • Contracts signed before Oct. 1: If you locked in a contract before the law changed and paid before then, you may be exempt.
  • Live presentations: Whether tax applies may depend on the attendee location.
  • Temporary staffing: Taxability depends on how staffing is arranged (agency vs contractors).
  • DAS exclusions : The law is tweaking what counts as a “digital automated service,” so some services that were excluded are no longer.
  • Interim guidance: These are not yet final rules. DOR is taking feedback, and tax policy could shift after the 2026 legislative session.

Bigger Picture

  • This change is part of a major revenue-raising package passed by the state.
  • According to the Seattle Metro Chamber of Commerce, DOR is telling businesses to pay taxes now if you’re unsure, then possibly get reimbursement later if guidance changes.
  • There’s some concern and pushback: not everyone’s thrilled, especially small businesses that may now bear a heavier tax burden. 

Bottom Line

  • If you’re a business offering any of these newly taxed services, you need to act now: read the DOR guidance, potentially change your billing, and talk to your customers.
  • If you’re a customer buying these services, don’t be surprised if your bill has a new “sales tax” line item starting October 1.
  • Washington’s tax rules are shifting—and for a lot of service businesses, this isn’t a small change, it’s a big one.

For more information visit: 

dor.wa.gov

Seattle Metropolitan Chamber of Commerce

Washington State Hospital Association+1