Washington Expands Retail Sales Tax to Services

States are increasingly reaching beyond the traditional, narrowly enumerated list of taxable services to expand the taxable base. Washington’s ESSB 5814 is one of the most aggressive recent examples: effective October 1, 2025 (and amended effective July 1, 2026), it redefined what constitutes a “retail sale” under Washington’s revised code (RCW 82.04.050) to pull seven previously exempt service categories into the sales tax base. Additionally, the enrolled bill rewrote key parts of the Digital Automated Services (DAS) framework. The Washington legislature has also passed a follow-up bill that sunsets most of this expansion effective January 1, 2029 (advertising services excepted).

The Newly Taxable Categories:

1. Advertising — design, campaign planning, lead generation, internet ad placement (web hosting, domain registration, and most traditional media ads excluded)
2. IT services — help desk, support, training, consulting, data processing (hosting and payment processing excluded)
3. Custom website development (same hosting/domain-registration exclusions as above)
4. Live presentations — workshops, seminars, interactive courses (accredited classes, tutoring, performances, sporting events excluded)
5. Investigation, security, and armored car services (locksmiths excluded)
6. Temporary staffing (direct hires, independent contractors, paymaster arrangements excluded)
7. Custom software / customization of prewritten software (unmodified off-the-shelf software excluded)

The Washington State Department of Revenue (DOR) has issued interim guidance statements for each category pending permanent rules. Full guidance.

Digital Automated Service (DAS) Changes and the Professional Services Carve-Out

ESSB 5814 also eliminated the DAS exclusion for services “primarily involving human effort,” meaning a digitally delivered service can no longer avoid tax just because a human performs the work. One exception survived: DOR confirmed professional services (law, accounting, engineering, architecture) were not added to the retail sale definition and can continue reporting under the prior B&O (Business & Occupation tax) classification. A new telehealth/telemedicine exclusion was also added.

Litigation Is Pending — Keep Collecting

Comcast sued Washington in Thurston County Superior Court (filed 9/9/2025), arguing the advertising tax violates the federal Internet Tax Freedom Act (a federal law that bars states from imposing discriminatory or multiple taxes on internet access and electronic commerce) by taxing digital ads while exempting most traditional media. However, statutes are presumed constitutional, and taxpayers should continue collecting and remitting under current guidance unless and until the court rules otherwise. WA DOR established a temporary Penalty Relief Program to assist taxpayers who did not implement these updated taxability determinations before or as they took effect. The program covers uncollected/unpaid tax for periods 10/1/2025–12/31/2026, waives penalties only (tax and interest still due), and requires application via DOR’s Voluntary Disclosure portal by September 30, 2027. Program details.

Consumers of these newly taxed categories should also be aware of the updates; If a client purchases a newly taxable service (IT support, custom software, staffing, advertising, etc.) for use in Washington and the vendor’s invoice shows no sales tax, the obligation shifts to the purchaser as consumer use tax. This is a common audit finding worth checking during an accounts payable review.

Part of a Broader Trend

This expansion of taxable services is not isolated to Washington. Maine repealed its Service Provider Tax effective January 1, 2026 and folded those services into the general sales tax base, also adding digital audiovisual and audio works (streaming subscriptions) to its taxable category. Texas and Maryland began taxing select B2B services in 2025. Bills were also introduced in Georgia, Kansas, Pennsylvania, and Wyoming that could expand those states’ taxable bases. State legislatures continue to weigh extending sales tax to digital goods and prewritten software as one option for adjusting to a services-driven economy.