New Sales Tax on Services Expands Washington State’s Tax Base by Christian J. Burgos, CMI, JD, LLM
Under a new law that took effect on Oct. 1, 2025, the state of Washington is imposing and collecting retail sales tax on certain business activities that were previously exempt from taxation. Vendors providing services, such as advertising, IT support and temporary staffing, must prepare their businesses to comply with the law and begin collecting and remitting sales tax to the state.
Washington legislators passed Engrossed Substitute Senate Bill (ESBS) 5814 in 2025, expanding the definition of retail sales in the state to include the following business service activities:
- Advertising
- Custom software sales and development
- Custom website development
- Customization of prewritten software
- Information technology (IT) training and support, including help desk, data entry and data processing, network operations and support
- Investigation, security monitoring and armored car services
- Live presentations, including in-person and online seminars, workshops and educational courses
- Temporary staffing (excluding staffing for hospitals)
While expanding Washington’s retail sales and use tax base, the law also has significant implications for businesses and their customers within and outside the state.
For example, applicable service providers in Washington must immediately register with the state to begin collecting sales tax and take the time to update their contracts, invoicing systems, statements of work (SOWs), scoping statements and exemption workflows to ensure they are collecting the required sales tax. Remote providers selling their services to customers in Washington must also review their customer footprints and update sourcing data and contract language to ensure they collect and remit tax on transactions that meet Washington’s economic nexus thresholds. Finally, customers of these service providers must understand the impact on the taxes they must now pay on previously untaxed services and maintain documentation for any applicable exemptions.
Special Considerations for Advertising Services
Washington state’s new taxation on services applies to a broad range of digital and nondigital advertising services related to the creation, preparation, production or dissemination of advertisements, including, but not limited, advertising advice, graphic design and art direction; production supervision; acquisition of ad space; search engine marketing and lead generation optimization; web campaign planning; and the monitoring and evaluation of website traffic for purposes of determining the effectiveness of advertising campaigns.
Advertising services that are specifically excluded from taxation include web hosting services, domain name registrations, and services “rendered in respect to” newspapers, printing/publishing, and in-state radio/TV broadcasting; as well as billboards, street furniture, transit, in-store/point-of-sale, live-event signage, naming rights and fixed signage.
Recognizing the complexity of advertising services, the Washington Department of Revenue issued interim guidance to help service providers and their customers apply the law appropriately. For example, Washington generally sources the sales of tangible personal property or retail-taxable services to the location where the purchaser/customer receives the product or service. If the exact location(s) are known or allocated (e.g., by ZIP code or other agreed-upon method), the sale should be apportioned accordingly. Otherwise, the vendor should apply the sourcing hierarchy of the purchaser’s address in the seller’s records (i.e., the address at the time of sale or where the vendor provided the service).
The interim guidance also addresses and contrasts the sourcing of creative services from advertising dissemination services, while also covering reseller and direct-pay permits, purchases made by nonprofits and government entities, wholesale treatment in limited subcontracting scenarios and affiliated-group transactions.
Businesses should work with their trusted advisors and CPAs to understand their responsibilities under ESBS 5814 and take all necessary steps to alter their operations and come into compliance with the law.
About the Author: Christian J. Burgos, CMI, JD, LLM, is a director of Tax Services with Berkowitz Pollack Brant, where he helps domestic and international clients navigate the complexities of state and local tax (SALT) compliance across the country. He can be reached at the CPA firm’s New York, NY, office (646) 213-7600 or info@bpbcpa.com.
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