Key Takeaways
|
Engrossed Substitute Senate Bill (ESSB) 5814 added new business activities to the definition of retail sales. This means businesses must begin collecting sales tax on these services on Oct. 1, 2025.
Additionally, income derived from these activities is subject to the Business and Occupation (B&O) tax under the Retailing classification.
Sales of custom software and customization of prewritten software
As of October 1, 2025, Washington State will expand its sales tax framework to include custom software services. This means that businesses providing custom software, such as developing, programming, or tailoring software to a client's specifications, are now required to collect retail sales tax on these services. This change aligns the tax treatment of custom software services with that of other retail services, irrespective of the specific activities performed by the software developers.
Information technology services
The definition of taxable information technology services is expansive and covers a wide array of technology services. Services like website development are now subject to sales tax. Taxable IT services also include data entry, data processing training, and help desk services.
Security services
Investigation, security, and armored car services are now subject to Washington sales tax. This includes security system monitoring, guard and patrol services, background checks, and armored car transportation.
Temporary staffing services
Beginning October 1, 2025, Washington State will require businesses to collect retail sales tax on temporary staffing services. This change means that the taxability of temporary staffing services will no longer depend on the specific activities performed by the temporary staff. Temporary staffing services involve providing workers to other businesses for limited periods to supplement their workforce and fill employment vacancies on a contract or fee basis.
However, there is an exception: temporary staffing services provided to hospitals licensed under chapter 70.41 or 71.12 of the Revised Code of Washington (RCW) are not considered a retail sale. Income received from providing temporary staffing services to a hospital will continue to be taxable based on the activity engaged in by the assigned worker(s).
Advertising services
Beginning October 1, 2025, Washington businesses will be required to collect retail sales tax on advertising services. Additionally, gross income from these activities will be subject to the B&O tax under the Retailing classification. This change standardizes the tax treatment of advertising services, irrespective of the specific activities performed by the advertising professionals.
Advertising services encompass both digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements. These services include, but are not limited to:
- Layout, art direction, graphic design, mechanical preparation, production supervision, placement, referrals, acquisition of advertising space, and rendering advice concerning the best methods of advertising products or services.
- Online referrals, search engine marketing, lead generation optimization, web campaign planning, acquisition of advertising space in internet media, and monitoring and evaluation of website traffic for purposes of determining the effectiveness of an advertising campaign.
Certain services such as web hosting, and service rendered with respect to newspapers, radio and out-of-home advertising are not enumerated as taxable advertising services.
Live presentations
Live presentations include, but are not limited to, lectures, seminars, workshops, or courses where participants attend either in person or via the internet or telecommunications equipment that allows audience members and the presenter or instructor to give, receive, and discuss information with each other in real-time.
- Sales of custom software and customization of prewritten software
- Modification of digital automated services (DAS) exclusions
Please fill out the form on this page to connect with a member of our State & Local Tax Practice to start planning for any of these changes that may impact your business.
Have a Question?
Complete this form to ask our professionals a question.
By submitting this form, you agree to be contacted by UHY.
Author
LEO VARNER
Partner, UHY LLPManaging Director, UHY Advisors
Leo Varner leverages more than 23 years of experience in state and local tax matters to lead UHY's National State and Local Tax practice. He assists clients from a broad range of industries and has a proven track record in navigating complex regulatory landscapes, providing strategic state tax solutions, and optimizing tax structures for clients. Leo specializes in tax controversy, helping clients to mitigate tax exposure and to recover tax overpayments.