Introduction
Washington’s ESSB 5814, effective October 1, 2025, significantly expands the state’s sales and use tax base. Passed during the 2025 legislative session, the law amends RCW 82.04 and RCW 82.08 to reclassify many services that were previously taxed only under the “service and other activities” B&O category, subjecting them instead to retail sales tax and the retailing B&O tax.
New Taxable Services
Beginning October 1, 2025, the following categories of services will be reclassified as retail sales:
- Information technology services: includes help desk, training, network system support, and several other related activities.
- Custom software and software customization: includes charges for code and the right to access and use software.
- Custom website development: includes website development, design and support.
- Advertising services: includes search engine marketing, monitoring and evaluation of website traffic and many other services, both digital and non-digital.
- Live presentations: includes lectures, seminars, workshops or courses in person or on the internet (but excludes certain educational related events).
- Investigation and security services: includes background checks, security guards, personal and event security, as well as some monitoring and other related services.
- Temporary staffing services: includes providing workers on a temporary basis.
These categories will be subject to both sales tax and the B&O retailing classification, unless a clear exemption applies. See the Special Notices linked above or the new statutory language in ESSB 5814 for more details.
Expansion of Digitally Automated Services
In addition to the above new retail services, ESSB 5814 eliminated certain exclusions from digital automated services, including:
- Advertising
- Data processing
- Primarily human effort
The removal of the primarily human effort exclusion has raised concerns that now certain professional services that involve software in some form may now be subject to sales tax. The Department has provided some guidance which indicates that most professional services will likely not be taxed, but questions remain. See the Department’s FAQ on this topic here. In the FAQ the Department states:
Generally, accountants and lawyers provide professional services that are subject to business and occupation (B&O) tax under the Service and Other Activities classification….… if the service provider uses email or an online portal to receive files from their client or provide the results of their services, that alone would not cause the sale of the service to be considered a DAS. However, if the service provider offers a portal where their customer can choose from various do-it-yourself templates and merely have the results reviewed by the services provider, they could be considered a DAS. See the Department’s FAQ on this topic here.
Conclusion
The implementation of ESSB 5814 on October 1, 2025, is fast-approaching. Key sectors such as tech, creative services, HR/staffing, and training must take immediate steps to assess their exposure and comply with the new tax structure. KOM Consulting is advising clients to:
- Inventory service offerings to determine which now fall under the expanded retail classification;
- Review contracts and separate taxable vs. non-taxable elements;
- Assess nexus for out-of-state service providers;
- Prepare billing and invoicing systems to collect and remit sales tax; and
- Submit DOR ruling requests for ambiguous or hybrid services.
This legislation marks a significant shift in Washington’s approach to taxing services, particularly those that straddle the line between digital and professional labor. Proactive compliance will help avoid audits, penalties, and client disputes as the effective date nears. For personalized guidance or to schedule a taxability review, contact: