Washington will expand the state’s retail sales tax base and reallocate certain revenues into new Business & Occupation (“B&O”) tax categories. Under Senate Bill 5814, many B2B service transactions that were previously exempt, such as digital advertising, IT support, staffing, and custom software development, will now be classified as retail sales and subject to sales tax.
What Is Changing?
Beginning October 1, 2025, the following services will be treated as retail sales subject to sales tax in Washington:
- Digital automated services (DAS), which were previously taxable but now include services involving primarily human effort, advertising, live presentations, and data processing
- Advertising services, including digital advertising, SEO, campaign management, and similar services
- Information technology services such as training, technical support, help desk, network operations, and data processing
- Custom software development, customization of prewritten software, and sales of custom software
- Custom website development and website support services
- Temporary staffing services (with a limited exemption for hospital staffing)
- Live presentations, including lectures, seminars, courses, and interactive training sessions
- Investigation, security guard, monitoring, and armored car services
This means businesses providing these services must begin collecting retail sales tax and reclassify these receipts from the higher-rate “Service and Other Activities” B&O category to the lower-rate “Retailing” category. While the B&O tax rate will decrease, the broader sales tax obligation will increase the total tax burden on transactions.
Another consequence for multistate service providers is that any services previously reported under the “Service and Other Activities” B&O category, and now reclassified under “Retailing,” will no longer be apportionable for B&O purposes. Even if the true benefit of the service is realized across multiple states, sourcing will follow retail sales rules, meaning the entire receipt will be assigned to Washington if the primary benefit is received here, and excluded entirely if the primary benefit is received outside the state. These transactions will now be “all in” or “all out” of Washington for B&O purposes.
Who Will This Impact?
Businesses that provide or purchase the above services should prepare now for the changes. Affected groups include, but are not limited to:
- Advertising and marketing agencies
- Temporary staffing companies
- Technology companies and service providers (software, IT, SaaS, website development)
- Out-of-state service providers doing business in Washington
- Professional services firms purchasing IT or software services
- Manufacturing, retail, and distribution businesses relying on IT, staffing, and security services
- Healthcare organizations purchasing IT and staffing services (telehealth remains exempt)
How to Proceed?
Businesses should first verify whether they must register with the Washington Department of Revenue. Any business with a physical presence in Washington, or more than $100,000 in combined gross receipts sourced to the state, must register for a Washington business license.
For any company required to register for a Washington business license, the following steps are recommended:
- Verify that the WA excise tax account is active and can be accessed via My DOR.
- Review product offerings where sales tax is not currently being collected to determine whether sales tax will need to be collected going forward.
- Update invoicing systems to collect sales tax on newly taxable services.
- Review vendor contracts to determine whether vendors will charge sales tax or if Washington use tax must be remitted.
- Evaluate how new sales tax costs on purchases may need to be incorporated into customer pricing.
- Ensure revenue is reported under the correct B&O tax classification.
- Verify that the B&O sourcing methodology is updated for sales of services that will now be reported under the retailing B&O classification.
Early preparation will help avoid disruptions when the law takes effect and avoid any tax exposure related to the law change. For guidance tailored to your situation, please contact the Sensiba SALT Team.
