Washington State Expands Sales Tax to Tech and Digital Services

Washington State Senate Bill 5814 significantly broadens the application of the state’s sales and use tax. These increases are one component of several tax bills the state legislature and governor passed to address a multi-billion-dollar budget deficit facing Washington state over the next four years.

Broadening the Application of the Washington State Sales Tax

The Washington state retail sales tax is a 6.5% state-level tax on retail sales. When added to local taxes, the total tax rate can exceed 10%. The tax is imposed on consumers and collected by the seller. Beginning October 1, 2025, the term “retail sale” now includes:

1. Information technology technical consulting services.
2. Information technology training services, technical support, and other services.
3. Custom website development services.
4. Investigation, security services, security monitoring services, and armored car services.
5. Temporary staffing services.
6. Advertising services including both digital and nondigital services, with some exceptions such as web hosting services and domain name registration.
7. Live presentations including, but not limited to, lectures, seminars, workshops, or courses where participants attend either in-person or remotely.

Except for 5 and 7 above, retail sales do not include sales between members of an affiliated group.

Prewritten computer software was previously subject to the sales tax and the new law clarifies custom software and the customization of prewritten computer software are also subject to the sales tax as of October 1, 2025.

Digital automated services were taxable under previous law, but the new law clarifies that services for telehealth and telemedicine as defined in RCW 18.134.010 and RCW 48.43.735 are not considered to be digital automated services.

Finally, many of the services that are newly taxable under the retail sales tax will now be treated as “Retailing” under the Washington Business & Occupation Tax rather than treated as “Services.” This change means that many businesses will have a lower direct tax burden as Retailing is taxed at .471%, while Services are taxed at 1.5 - 1.75%.

One-Time Prepayment of Sales Taxes in June 2027

Monthly filers with $3,000,000 or more of taxable retail sales during calendar year 2026 must make a prepayment of 80% of the state sales tax collected during the June 2026 reporting period. This payment is due by June 25, 2027. Any corrections to the amount paid must be made on the regularly filed tax return due on or before July 26, 2027.

Failure to make the full payment by the due date will result in a one-time 10% penalty. The penalty may be waived by the Department of Revenue if the taxpayer provides documentation proving that their June 2027 taxable retail sales are less than 80% of the taxpayer’s June 2026 taxable retail sales.

Other Changes

The new law expands the definition of tobacco products that are subject to the Other Tobacco Products excise tax to include products containing nicotine derived from tobacco or created synthetically. The law exempts products approved by the Food and Drug Administration for the cessation of tobacco use. It also imposes an additional $.10 per cigarette excise, among other provisions.

If you need help understanding these changes to Washington sales taxes, our state and local tax team can help.