Washington Releases Interim Guidance on Taxable Services Under ESSB 5814 (Existing Sales Contracts)

The Washington Department of Revenue (DOR) has issued interim guidance to clarify how businesses should handle tax collection and reporting for contracts signed before the effective date of upcoming Engrossed Substitute Senate Bill (ESSB) 5814 changes, which is October 1, 2025.

ESSB 5814 significantly expands the definition of a “retail sale” to include a wide range of services, making them subject to Washington’s retailing business and occupation (B&O) tax and retail sales tax. Newly taxable services include:

• Information technology services
• Custom website development
• Investigation, security, and armored car services
• Temporary staffing services
• Live presentations
• Advertising services
• Sales of custom software and customization of prewritten software

Treatment of existing contracts

Contracts signed and executed before October 1, 2025 may be exempt from retail sales tax if they meet all of the following conditions:

• The contract was finalized before the effective date.
• The services under the contract are scheduled to be provided on or after October 1, 2025.
• The services would be considered taxable “retail sales” under the new law.

If these criteria are met, the contract may qualify for transitional relief. However, this relief is temporary and will expire on March 31, 2026. After that date, even qualifying contracts will be subject to retail sales tax unless otherwise exempt.

Impact of contract modifications

Any material changes made to an existing contract after October 1, 2025—such as changes in scope, pricing, duration, or parties involved—will void the transitional relief. Once altered, the contract becomes fully taxable from the date of modification.

Examples of material changes include:

• Adding or removing parties to the contract
• Expanding the scope of services
• Adjusting financial terms or contract duration

Minor administrative updates (e.g., changing a contact email) should not trigger tax liability.

Special scenarios

• Fully paid contracts before Oct. 1, 2025: These are considered completed transactions and are not subject to sales tax, regardless of when services are delivered.
• Recurring billing contracts: Payments made through March 31, 2026, are exempt if the contract remains unchanged.
• Partially paid Contracts: Only the prepaid portion is exempt; any remaining balance paid after March 31, 2026, is taxable.

Next steps

Permanent guidance is expected in the coming months. In the meantime, businesses should:

• Review existing contracts for eligibility
• Consider prepaying for services to maximize transitional relief
• Avoid making material changes to contracts unless prepared for immediate tax implications

Our State & Local Tax Practice has experience and knowledge of state tax jurisdictions across the country. Fill out the form on this page to connect with a member of our SALT practice to evaluate your tax standing in light of these new rules.