Washington State has enacted significant amendments to its sales tax laws under Engrossed Substitute Senate Bill (ESSB) 5814, scheduled to take effect on October 1, 2025.
This legislation represents one of the most comprehensive expansions of the retail sales tax base in recent history and will have far-reaching implications for a wide range of service providers.
Business Services Impacted
The new law extends sales tax obligations to numerous services delivered to customers in Washington State that were previously exempt, including the following:
- Digitally Automated Services – any service delivered over the internet
- Advertising and Marketing Services
- Information Technology Services
- Security and Investigative Services
- Temporary Staffing Services
- Live Presentations
- Customization of Software
- Custom Website Development
If any of the above apply to your business, please carefully review the information provided by the Department of Revenue. If the Department determines that the sales tax applies to your business, the company must pay the sales tax even if it was not collected from the customer. A late payment penalty of up to 29% will also be charged in addition to interest.
While interim guidance is coming from the Department of Revenue, this is not expected until early September. You can review the initial guidance from the Washington Department of Revenue here: Services newly subject to retail sales tax.
For some of these services, the determination of what is subject to sales tax is very “fact intensive”. If you are unsure of how these changes affect your business, you may want to request a revenue ruling from the Department of Revenue. In a revenue ruling request, you outline the facts of services offered and the Department of Revenue will advise on how to report the services offered and whether sales tax will apply.
Recommended Actions for Businesses
If your business is required to collect the new sales tax, these sweeping changes will affect not only how businesses provide services, but also how they contract, invoice, and collect tax. We strongly recommend the following:
- Review your service offerings
- Assess and amend contracts
- Update billing and collection processes
- Train internal teams
For cash-basis Department of Revenue filers, you’ll want to ensure that all your Washington customers have paid any invoices prior to October 1st. Otherwise, if those invoices are paid on or after October 1st, sales tax will need to be remitted on those payments (regardless of whether you charged sales tax).
Final Thoughts
The October 1, 2025 implementation date gives businesses a short window to prepare for compliance with a vastly expanded retail sales tax base in Washington. Proactive planning now can help mitigate the risk of unexpected tax liabilities later.
Given the complexity and potential ambiguity in interpreting the new rules, we encourage business clients to call us for guidance.