Washington expands tax to services starting October 1, 2025.

Washington is expanding the services subject to sales tax in the state starting Wednesday (October 1, 2025). Some services that were previously exempt are now subject to taxation following the enactment of Engrossed Substitute Senate Bill (ESSB) 5814 in May 2025.

What Is ESSB 5814?

Engrossed Substitute Senate Bill (ESSB) 5814 is a Washington state law that expands the scope of services subject to retail sales tax. It was passed in 2024, signed on May 20, 2025, and would take effect on October 1, 2025. The bill aims to modernize Washington's tax code by including more service-based transactions. Among the affected sectors are technology and digital.

ESSB 5814 targets digital automated services, custom software development, IT support, and website creation. These categories were previously exempt or taxed under different classifications.

The new bill reflects the trend toward service-based and digital economies, ensuring the tax system remains sustainable and effective. By adding more services to what constitutes taxable "retail sales," the bill also removes specific exclusions, including those that are previously tax-exempt.

Which Services Will Be Taxed Starting October 1

According to the Washington Department of Revenue, ESSB 5814 has removed services previously excluded from what's considered as digital automated services (DAS), such as:

• Services involving humans

• Live presentations

• Advertising services

• Data processing services

Washington will start collecting taxes for the following services beginning October 1, 2025.

• Advertising services

• Live presentations

• Information technology services

• Custom website development services

• Investigation, security, and armored car services

• Temporary staffing services

• Sales of custom software and customization of prewritten software

How Businesses React To WA Sales Tax Update

Businesses are unhappy with the recent changes in Washington. The Shah family, who have been operating Creative Hands art studio in Bothell, admitted they were surprised by the update, King5 reported.

Although the additional tax will be passed down to their customers, some are not as happy and have reportedly dropped out of their classes already. Wendy Poischbeg, CEO of the Greater Everett Chamber of Commerce, adds that the change will affect many, including nonprofits. She even encouraged businesses to start the "difficult conversation" with their clients.

"It's hitting everyone from small businesses to nonprofits, which is pretty unprecedented," said Poischbeg. "Folks don't realize this is going on. And there is a lot of ambiguity as to what programs or services are taxable."

Entrepreneurs need to be aware of the sales tax update in Washington. Failure to adhere to the recent bill could put them at risk of paying penalties of up to 29%.

Compliance Tips: What Companies Should Do Now

For businesses whose services are now taxable, you should be prepared to fulfill your new obligation. To be compliant, carefully review all your services and determine which ones fall within the updated definition of retail sales. You should update the invoicing, point-of-sale, and accounting systems.

Remember that failure to collect and remit sales tax could result in penalties, audits, or reputational damage. Automation can streamline the transition. Instead of you manually tracking the taxability rules that change in your jurisdiction, let Kintsugi automate the process to ensure compliance.

The Kintsugi platform setup aligns with Washington's latest regulation, so you don't need to worry about the latest tax changes. Additionally, automation reduces human error, delivers audit-ready documentation, and provides you with more free time, allowing you to focus on what matters – driving business growth. So, don't delay - book a demo with Kintsugi today.