Washington's B&O tax and Chicago's lease tax changes: what SaaS finance leaders should do now

If you manage finance for a SaaS company, the last six months brought a lot to keep up with. Washington expanded its sales tax base on October 1, 2025. Chicago raised its Personal Property Lease Transaction Tax from 11% to 15% on January 1, 2026. Maryland added IT services to its sales tax base last summer. Maine added digital audio and audiovisual services at the start of this year.

Each shift matters in a different way for SaaS companies, and the more useful question isn’t what changed, but what your team should be doing in response. Washington and Chicago carry the most weight for most SaaS providers, so we’ll start there.

Key takeaways: what these changes mean for SaaS

• Washington’s ESSB 5814 expanded what’s taxable, including custom software and the customization of pre-written software. If you sell into Washington, your existing contracts and your billing flows likely both need a fresh look.
• Chicago’s lease tax is now 15%, and it applies based on where your customer uses the service. SaaS providers headquartered anywhere in the country can owe this. Even a modest Chicago customer base creates real exposure if registration isn’t current.
• The trend is base expansion, not rate increases. Your sales tax footprint will keep shifting even when your business doesn’t change, so map it on a schedule rather than reacting to headlines.
• Audit attention rises when states have budget pressure, even where the underlying laws don’t change. Current documentation matters more than predicting which state moves next.

What Washington’s B&O tax changes mean for your SaaS company

If you sell SaaS into Washington customers, three things shifted in October 2025 that warrant your team’s attention.

First, ESSB 5814 expanded what counts as a “retail sale.” Custom software, customization of pre-written software, IT services, advertising, and a broader category of digital automated services are now subject to sales tax. The Washington Department of Revenue’s services page has the full list.

Second, contracts signed before October 1, 2025 may qualify for transitional relief. Current Washington Department of Revenue guidance indicates the transition extends into early 2026 for many existing arrangements, but eligibility depends on the contract terms. Multi-year SaaS deals with Washington customers warrant a careful read against the interim guidance.

Third, the 2025-2027 budget added a 0.5% B&O surcharge on taxable income above $250 million, effective January 1, 2026. That mostly affects larger providers, but it’s worth flagging if your group’s parent revenue puts you near the threshold.

Here are three actions your team can take to check your Washington tax position.

First, review your Washington customer contracts to identify which may qualify for transitional relief.

Next, update billing and tax engine logic to reflect the expanded retail sale definition.

Finally, check how your customization services are classified. We covered the full Washington package in our November 2025 update for teams who want the deeper detail.

If you’re unsure whether your existing Washington contracts qualify for transitional relief, that’s exactly the kind of focused review we can run for you in a short engagement. Get in touch and we’ll walk through your contracts.

What Chicago’s lease tax means for your SaaS company

Chicago’s Personal Property Lease Transaction Tax moved from 11% to 15% on January 1, 2026. That’s the second consecutive annual increase; the rate had already moved from 9% to 11% the previous year.

As a home rule city, Chicago taxes access to cloud-hosted software as a non-possessory computer lease, even though Illinois doesn’t tax SaaS at the state level. The trigger is the customer’s location, not the seller’s. A SaaS provider headquartered anywhere in the country can have a Chicago lease tax obligation if its customer uses the software in Chicago.

A four-percentage-point rate increase isn’t trivial for a SaaS company with even a modest Chicago customer base. It changes your effective price in that market, complicates billing if you previously absorbed the tax, and creates audit exposure if your registration isn’t current.

Here are some practical questions for your team to check your Chicago tax position.

First, how much of your revenue runs through Chicago customers?

Next, who’s responsible for absorbing or passing on the new rate?

Finally, is your registration up to date? We walked through the mechanics of the Chicago PPLTT in our PPLTT explainer.

The bigger pattern: bases are expanding, not rates

Step back from Washington and Chicago and the broader pattern is hard to miss. State legislatures aren’t raising headline sales tax rates that much. They’re broadening what counts as taxable.

Maryland added IT services at 3% in July 2025. Maine added digital audiovisual and digital audio services on January 1, 2026. Streaming services, software subscriptions, advertising, and data processing have moved into more states’ tax base over the last few years. The Tax Foundation’s 2026 state tax data describes the same pattern.

The reason behind it is more practical than ideological. Sales tax bases were originally designed for an economy of physical goods, and as consumption has shifted to services and digital products, those bases haven’t kept pace with state spending needs. Expanding the base is also less politically visible than raising the rate, which makes it the path most legislatures pick.

For SaaS companies, the question of where sales tax on SaaS applies in your footprint will keep moving. The state where you launched might still treat your service as exempt, while a state your customer just relocated to might not.

When budgets tighten, audit attention follows

State budget pressure tends to show up in audit activity before it shows up in legislation. We see it in the questions auditors ask: more notices, closer scrutiny of how products are classified, more probing on whether old nexus determinations still hold up. A SaaS company that has filed the same way in Washington or Illinois for three years might find the questions in 2026 are sharper than the questions were in 2023, even if its own operations haven’t changed.

Ensure your documentation is up-to-date: nexus studies, taxability decisions, and exemption certificates need to be current, not three years old. The companies that struggle in a sales tax audit are usually the ones reconstructing decisions made years earlier without a clear record of why. We covered this in our strategic guide on sales tax audit defense for finance leaders.

If your last nexus review was more than 18 months ago, that’s the gap worth closing first. Talk to us about a focused refresh rather than a full study from scratch.

A sustainable response: build a system that absorbs the change

The companies that handle this well don’t try to predict each new law; they keep their compliance work current so that new laws are a small adjustment rather than a fire drill. Four habits, in our experience, separate the ones who stay ahead from the ones who keep getting surprised.

Run regular taxability reviews. Are your products classified correctly under each state’s current rules? This matters most when a state changes its definitions, as Washington did this past fall.

Maintain monitoring discipline. Either your tax team tracks state Department of Revenue alerts, or you delegate that work to a consultant. Most SaaS finance teams don’t have the capacity to read every state revenue ordinance themselves.

Treat audit-readiness as a baseline, not a project. Documentation is key here; the companies that struggle in a sales tax audit are usually rebuilding decisions made years earlier without records.

Schedule periodic compliance check-ins. For a multi-state SaaS company over $10 million in revenue, an annual review of your sales tax footprint is reasonable. It catches drift before it becomes exposure. Add a check-in whenever you launch a product, enter a new state, or change pricing.

State sales tax changes will keep coming because state budgets keep rising and the digital economy keeps growing. Washington’s B&O changes and Chicago’s lease tax are today’s headlines; something else will be the headline in six months. Treat this as ordinary operational work and the headlines stop being a problem.

Ready to take stock of your state tax footprint?

If your team is trying to make sense of how Washington’s B&O changes, Chicago’s lease tax, or other recent state shifts affect your specific footprint, we’d welcome a conversation. Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our website.

Frequently asked questions

What changed in Washington’s B&O tax in 2025-2026?

Washington’s 2025-2027 budget includes a 0.5% B&O surcharge on taxable income above $250 million effective January 1, 2026, alongside increases to the advanced computing surcharge and the financial institutions surcharge. ESSB 5814 separately expanded the retail sales tax base to capture custom software, customization services, IT services, advertising, and a broader category of digital automated services. Most SaaS companies will feel the sales tax expansion before the B&O surcharge.

Is SaaS taxable in Chicago, and what is the Chicago PPLTT?

Yes. Chicago’s Personal Property Lease Transaction Tax (PPLTT) treats access to cloud-hosted software as a non-possessory computer lease and taxes it at 15% as of January 1, 2026. Illinois doesn’t tax SaaS at the state level, but Chicago does, based on where the customer uses the service. A SaaS provider with no physical Chicago presence can still owe the lease tax on its Chicago customers’ usage.

How does the Washington existing-contract transition work for SaaS providers?

Contracts signed and executed before October 1, 2025 may qualify for transitional relief on the new collection requirements, with current guidance indicating the transition extends into early 2026 for many existing arrangements. The Washington Department of Revenue has issued interim guidance, and SaaS providers with multi-year deals should check their specific contracts against that guidance to confirm eligibility.

Will state tax audits get tougher in 2026?

States facing budget pressure tend to scrutinize existing taxpayers more closely, even where the underlying laws haven’t changed. That can mean more sales tax audit notices, more questions about product classification, and closer attention to whether nexus determinations still hold up. Keeping documentation current is more useful than trying to predict which state will ask first.

How often should a multi-state SaaS company review its sales tax footprint?

For a SaaS company over roughly $10 million in revenue with customers across multiple states, an annual review is a reasonable baseline. Schedule additional check-ins when you launch new products, enter new states, change pricing structures, or pass thresholds that might trigger new nexus.