According to a post by the Washington State House Democrats, the state of Washington is currently facing a $16 billion deficit for this year.
How will the state generate more revenue? Increasing taxes, of course! As of October 1, 2025, Washington is implementing some major changes to the State’s Sales Tax and Business & Occupation tax, also known as B&O tax, including changes to rates, additional surcharges, and new rules to the taxability of services.
Digital and Other Services Now Taxable
Washington expanded their taxation to various services as of October 1, 2025, and many companies in the digital services space will be affected. Retail sales tax will now apply to a broader range of digital services, including customization of software, IT support and training services, digital advertising, data processing services for payroll and human resources, and custom website development. Live events and temporary staffing services will also be subject to sales tax.
Not only will all of these services be subject to retail sales tax, but the B&O tax will change from ‘services and other’ to ‘retailing’. This actually has a positive impact on businesses selling into Washington, as the retailing B&O rate is lower than the ‘services and other’ excise tax they were formerly paying.
The taxability of digital goods in Washington will impact businesses in the digital economy entirely, especially those previously exempt or taxed under different classifications.
Overall, this expansion’s expected impact on the tech, media, and professional service industries will force businesses to reevaluate how they operate in Washington.
Do I have to turn on tax today?
There is a temporary extension for contracts entered into prior to October 1, 2025, through April 1, 2026. This means that you may be able to breathe for a few more months before collecting and remitting sales tax. But even this is nuanced for contracts with no substantial changes. Be wary of the “fine print” on this!
But wait… there’s more!
Be on the lookout for more changes in Washington coming January 1, 2026. These changes include rate increases and new surcharges that might affect your business.
Many B&O tax rates are being raised as efforts in Washington to increase overall state revenue and modernize its tax model. This change affects marketplaces of companies in retail, the services industry, and manufacturing.
No really… there is more
Washington will place a temporary revenue surcharge on businesses earning $250 million or more in revenue sourced to Washington. This surcharge of .5% will be on any taxable income over $250 million, and should be reported on your Washington Excise tax return.
If your industry is impacted by any of these changes, now is the time to act. Need help assessing how these changes will impact your business? We’re here to help. Contact info@milesconsultinggroup.com for more information.
