Washington ESSB 5814 — what's now subject to sales tax after October 1, 2025?

Washington's ESSB 5814 took effect October 1, 2025 and expanded the state's retail sales tax to cover services that previously were B&O-tax-only (the gross receipts model). Newly retail-taxable categories include: digital advertising services, IT services (custom software development, computer system design, data processing, IT consulting), customization of off-the-shelf software, hosting and processing of customer data, and certain creative/design services. The expansion does NOT cover all services — professional services like legal, accounting, and medical remain non-retail. Custom-developed software was already partially in the tax base; ESSB 5814 closed gaps around customization, configuration, and integration.

If you sell digital advertising services, IT services, custom software development, or related services to Washington customers and exceed Washington's economic nexus threshold ($100k revenue, no 200-txn requirement), you're now responsible for collecting Washington's retail sales tax (6.5% state plus local rates, typically 8-10% combined) on those receipts. Before October 1, 2025, only B&O tax applied to most service sellers. The change moves Washington closer to Hawaii/New Mexico/South Dakota/West Virginia in the 'services taxable by default' direction.

If you were registered for Washington B&O only, you now need to upgrade your registration to retail sales tax responsibility. Use the Washington Department of Revenue's My DOR portal or the Business Licensing Service to update your account. Filing frequency may change based on revenue volume. Washington also requires sourcing rules for sales tax — the tax rate is generally based on where the customer/end user receives the service, not where you're located. For digital advertising services, the customer's location (the entity buying the ads, not where the ads are displayed) drives sourcing.

Washington's standard sales-tax penalties apply to newly-covered services: assessment penalties starting at 5% of tax due and rising to 25% based on lateness, plus interest (currently in the 9-29% annual range depending on timing). Washington has indicated it will be relatively lenient on first-time registrations for the newly-covered categories through 2026, but expects compliance from January 1, 2026 forward. Foreign-owned LLCs selling advertising or IT services into Washington should register and begin collection now if they haven't already.