Changes Coming to the Washington Sales Tax Landscape on October 1, 2025
In May 2025, Washington enacted multiple tax bills into law, including Senate Bill 5814 (SB 5814)[1], which takes effect on October 1st and will broaden the sales and use tax base and the Business and Occupation (B&O) tax retailing classification to include several new services. SB 5814 will also expand the reach of Washington’s Other Tobacco Product Tax to include synthetic tobacco, effective January 1, 2026. The sales tax prepayment requirement, which was part of the Legislature’s earlier version of SB 5814 was not included in the final version of SB 5814 signed into law.
The Department of Revenue conducted public “Listening and feedback sessions” in July, has recently released Interim Guidance Statements for newly taxable services, and in the coming months, will be drafting updates to Washington Administrative Codes and Excise Tax Advisories which are impacted by SB 5814. Please note, state-level B&O changes enacted via House Bill 2081, such as modifications to B&O tax rates, are not addressed in our comments.
Services which are excluded from Digital Automated Services until September 30, 2025 and will become taxable on October 1, 2025
Washington began imposing sales tax on services the State uniquely defined as “Digital Automated Services” in 2009, for which the law contained various exclusions. The State’s revised definition of “digital automated services” will now eliminate exclusions for live presentations, advertising services, data processing services, and services which “primarily” involve human effort, which the existing regulation defined as involving more than 50% human effort. Services which meet the revised definition of Digital Automated Services will now be subject to sales tax and the B&O retailing tax classification.
The revised definition of Digital Automated Services preserves the exclusion for “mere data storage” and introduces a new exclusion for “Telehealth” and “Telemedicine” services.
SB 5814 establishes newly taxable services, some of which overlap the elimination of exclusions from the State’s revised Definition of Digital Automated Services:
- Advertising Services – SB 5814 defines "advertising services" to mean all digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements. However, SB 5814 provides for a number of exclusions, including services rendered in respect of newspapers, printing or publishing, radio and television broadcasting, and “out of home” advertising, e.g. billboard and street furniture advertising and signage at live events.
- Information Technology Services – Newly taxable are IT training, technical support, and other services such as network operations and support, help desk services, in-person hardware/software training, system support, data entry, and data processing. These services, which were once classified under the service classification, will now be subject to the B&O retail classification.
- Website Development – Services related to the design, development, and support of a website are now subject to tax.
- Custom Software and Customization of Pre-written Software – Under the changes enacted by SB 5814, custom software and customization pre-written software, regardless of the method of delivery, are taxable. This includes the right to access and use custom software.
- Temporary Staffing Services – The taxability of temporary staffing services will no longer be based on the activities performed by the temporary staff. For example, fees for services of temporary staff which performed taxable construction services, were already subject to Washington sales and use tax. All temporary staffing services will now become a taxable service subject to sales tax and retailing B&O, except for staff provided to certain hospitals.
- Live Presentation services, including lectures, seminars, workshops, and courses delivered live either in person or remotely via the Internet or other remote means. The Department’s Interim Statement, June 9, 2025, clarified that charges for live presentations made by public and private elementary or secondary schools are not retail sales subject to sales tax, though such schools may owe tax on their purchases of Live Presentations from third parties, when such presentations are not within the school’s accreditation.
- Security, Investigation, and Armored Car Services – This includes background checks, security guard and patrol services, security system installation and monitoring, and armored transport services.
Expansion of Other Tobacco Tax to include Synthetic Tobacco products
Beginning January 1, 2026, SB 5814 expands the definition of tobacco products for purposes of the Other Tobacco Tax, to include products that contain nicotine, whether derived from tobacco or created synthetically. The OTP tax is in addition to retail sales and use, B&O, and “litter taxes” that may apply.
A&M Tax Says
Some onlookers have expressed concern that Senate Bill 5814’s imposition of sales tax on “advertising services”, of which the definition excludes many non-digital types of advertising, is a potential violation of the Internet Tax Freedom Act. Purchasers of digital advertising services should closely monitor this area, for potential developments, as their vendors commence to collect sales tax on advertising services.
As with any tax law change, A&M suggests that both sellers and purchasers update their policies, procedures, sales and business and systems to map-in newly taxable services and the applicable sourcing rules. While broad-based tax rules such as SB 5814 can be simple to map for taxability, sourcing will always be key. We also suggest considering whether a resale exemption could apply to some purchases of newly taxable services. Not sure if your purchase or sale falls into the new rules? A&M can help.
