During the 2025 legislative session, state leaders passed a $9.4 billion revenue package, the largest tax increase in Washington state history. This package included bills that made changes to a myriad of existing state taxes, including ESSB 5814, which expanded the definition of “retail sales” to include several business services that were previously exempt from Washington State retail sales tax, including the following services:
- Information technology services
- Custom website development
- Investigation, security, and armored car services
- Temporary staffing services
- Advertising services
- Live presentations
- Sales of custom software and customization of prewritten software
- Modifications to digital automated services (DAS)
On October 1, 2025, the new rules for the Sales and Use and B&O taxes go into effect, impacting over 90,000 businesses statewide. The Department of Revenue (DOR) has issued interim guidance to help the business community prepare for compliance. Below is a list of the guidance issued to date—which is not yet finalized (DOR is still in the process of completing the project)— DOR is advising businesses to err on the side of caution, pay taxes on services now, and seek a reimbursement later if applicable.
- Existing Contracts
- Contracts signed and paid before Oct. 1 are exempt.
- Contracts signed before but paid after Oct. 1 may be partially taxable.
- Live Presentations
- Subject to sales tax based on attendee location.
- Exemptions include: one-on-one instruction and presentations as part of broader professional services.
- Temporary Staffing
- Staffing acquired through staffing agencies is subject to sales tax based on the location of the agency
- Independent contractors and outsourced third-party work are not taxable under this category.
- Digitally Automated Services (DAS)
- Professional services remain excluded, but legislative clarification may be needed in 2026, so continue tracking.
Implementing the changes to the state sales tax in ESSB 5814 is incredibly complicated, for both the business community and the Department of Revenue, and unfortunately, DOR was given a very short timeline in the legislation to issue new guidance. Therefore, DOR is recommending the following actions for Seattle Metro Chamber Members:
- Review service offerings for reclassification.
- Update contracts, invoices, and customer communications.
- Consult DOR’s interim guidance for industry-specific scenarios.
- Monitor legislative updates for further clarification.
After Oct. 1, 2025, continue monitoring DOR’s website for new guidance on the new taxable retail sales categories, and you can reach out to DOR directly to ask questions and provide feedback at rulings@dor.wa.gov. The department welcomes your questions and feedback, including areas where you think guidance is needed. Since this legislation is new, it may take longer than the standard 10-day waiting period to get a response. If you haven’t done so already, click here to sign up for email updates from DOR.
Seattle Metro Chamber policy team will continue to keep you updated as well, and we encourage you to share your feedback with your legislators and the Governor’s office in the coming months leading up to the start of the 2026 legislative session. DOR will be requesting legislation to fix challenges from ESSB 5814, and the state is facing another revenue shortfall for 2026, in the range of $4 to $8 billion for the 2025-2027 biennium. Your input is incredibly important. Please reach out to Director of Policy Sarah Clark to learn more about our advocacy.