Washington’s new sales tax law, Engrossed Substitute Senate Bill 5814 (ESSB 5814), is a fundamental shift for many service businesses. As of October 1, 2025, a range of services previously exempt from sales tax are now taxable. This change requires immediate attention and planning to avoid penalties and ensure compliance. At Lewis Group CPAs, we’re here to help you navigate these new rules and ensure your business is ready.
The Services Now Subject to Tax
The new law expands the definition of “retail sale” to include several specific categories of services that were previously only subject to the Business & Occupation (B&O) tax. You’ll want to pay close attention to this, as it could mean a complete change to your invoicing and bookkeeping. Some of the most notable services that will now be subject to sales tax include:
- Advertising services, particularly digital ads.
- Information technology (IT) services, including tech support and data processing.
- Custom website development and software customization.
- Live presentations, like webinars, workshops, or training courses.
- Investigation and security services.
- Temporary staffing services.
For many businesses, this is a big adjustment. It’s a lot to handle, and let’s be honest, it’s easy to make a mistake when you’re just trying to run your business.
The Murky Waters of Professional Services
One of the biggest sources of confusion is the rule change about “digital automated services” (DAS). Historically, the DAS exemption applied to many services that primarily involved the application of human effort. The new law removes this exemption.
While this change does not automatically make traditional professional services like accounting, legal work, or engineering taxable, it creates an area of uncertainty. The key question is whether a service that relies on electronic delivery—for example, a financial report delivered via email—is now considered a taxable DAS. The Washington Department of Revenue has issued some clarifying guidance, but the language is still broad and open to interpretation. This is a critical area to watch, and one where expert guidance can make a significant difference.
That’s why we offer comprehensive tax planning and strategy services for business owners. We can help you determine if your specific services are now taxable and assist with setting up the right systems to ensure you’re compliant. This isn’t just about avoiding penalties; it’s about protecting your business and making sure your financial house is in order. We’re here to help you make sense of the new rules and give you peace of mind.
You can find more details about this evolving situation directly on the Washington Department of Revenue’s website. They are continuously updating their guidance and provide tools to look up tax rates, which just goes to show how complex this really is.
What Business Owners Need to Do to Comply
To comply with these new regulations, business owners must take the following steps:
1. Determine if Your Services Are Now Taxable
- Review the list of newly taxable services provided by the Washington Department of Revenue (DOR) to see if your business activities are now subject to sales tax.
- Be aware that while professional services like legal or accounting were not traditionally taxed, the new laws may impact some of these services if they fall under the new, broader categories, particularly those involving information technology or “digital automated services.”
- If your business provides a mix of taxable and non-taxable services, you must correctly classify and report each type of service.
2. Register with the Washington Department of Revenue (DOR)
- If you have a business nexus in Washington (physical presence or exceeding the economic nexus threshold of $100,000 in gross retail sales in the state), and you provide any of the newly taxable services, you must register with the DOR.
- You can apply for a business license and sales tax account through the DOR’s Business Licensing Service.
3. Collect the Correct Sales Tax Rate
- The state sales tax rate in Washington is 6.5%, but local sales taxes can vary significantly, bringing the total rate up to over 10% in some areas.
- Washington is a “destination-based” sales tax state, which means you must charge the tax rate of the location where the customer receives the service, not your business location. The DOR provides a tool to help you look up the correct sales tax rate by address.
- You are responsible for collecting the tax from your customers on all taxable sales.
4. File and Remit Taxes
- Sales tax is considered “trust funds” and must be remitted to the DOR.
- You will be assigned a filing frequency (monthly, quarterly, or annually) by the DOR.
- You must file and pay your sales and use tax, as well as the Business & Occupation (B&O) tax, with the DOR on a timely basis. B&O tax is a separate tax on gross receipts and still applies to all businesses, regardless of whether their services are subject to sales tax.
- You can file and pay your taxes online through the DOR’s website.
5. Update Your Business Operations
- Invoicing and Accounting: Adjust your accounting and invoicing systems to correctly calculate and apply the sales tax to newly taxable services. This is a crucial step to ensure you are collecting the right amount and can accurately report it.
- Pricing: You may need to reconsider your pricing strategy to account for the new sales tax, as it could impact your competitiveness.
- Record-keeping: Maintain excellent records of all taxable and non-taxable sales, deductions, and exemptions.
Important Notes
- Guidance from the DOR: The Washington Department of Revenue has been releasing interim guidance statements on the new law and is a primary resource for business owners.
- Professional Assistance: The complexities of sales tax laws can be challenging. Many businesses may find it beneficial to work with a tax professional such as Lewis Group CPAs to ensure they are meeting all the new requirements.
- Penalties: Failure to collect, file, and remit sales tax on time can result in penalties and interest charges.
Our team at Lewis Group CPAs understands the intricacies of Washington’s tax code. If you have any questions, get in touch with us today. You can call us directly at (360) 896-8221 or contact us to set up an appointment.
