Important Changes to Washington Sales Tax and B&O Tax

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Rödl & Partner Tax Matters, Volume 2025-13, published September 17, 2025

The Washington Department of Revenue has provided guidance on significant changes passed into law under Senate Bill (ESSB) 5814. The changes expand the state’s sales tax and B&O tax base, as well as increase B&O tax rates. These changes will take effect on October 1, 2025.

Sales and Use Tax

The following services will now be subject to sales tax starting October 1, 2025:

Additionally, 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. Services which meet the revised definition of Digital Automated Services will now be subject to sales tax and the B&O retailing tax classification.

Business and Occupation (“B&O”) Tax

The services subject to sales tax will also be subject to B&O tax effective October 1, 2025. The chart below provides the classification of each service for B&O purposes.

Additionally, taxpayers computing B&O under the Service and Other Activities B&O tax classification will compute tax based on a new three-tiered tax rate, based on a taxpayer’s gross revenue.

Summary of Tax Treatment Changes (Effective October 1, 2025)

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Note that some taxpayers previously not subject to Washington sales tax or B&O tax may find they now have taxable sales into the state. Businesses without a physical presence in Washington have nexus if Washington gross receipts are at least $100,000 in 2024 or 2025. Businesses with nexus and providing these services to Washington customers are required to register and comply with the tax treatment of these activities. Taxpayers already registered and complying in Washington should review their services provided to customers in the state and update their compliance accordingly.

Washington Department of Revenue publishes all Special Notices on their website. We encourage you to review how these changes may impact your business tax compliance. If you have any questions or need assistance in preparing for these changes, please do not hesitate to contact your Rödl and Partner advisor.

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