The Washington Department of Revenue (DOR) recently issued a series of interim guidance statements as a follow-up to the May enactment of legislation SB 5814 (c. 422), which greatly expands the state’s retail sales tax to a variety of additional services as of October 1, 2025. These statements offer numerous examples as a general guide. A review of all the facts and circumstances must be undertaken to determine the actual tax outcome of a particular situation.
General Language in Statements
Most of the statements provide sourcing guidance, highlight resales, address qualification for the multiple points of use (MPU) exemption, explain whether nonprofits are taxable, address sales between members of an affiliated group, and detail how to determine a taxpayer’s retailing business and occupation (B&O) tax amount and the correct retail sales tax rate. In addition, the statements add that even though a service provider does not have physical presence nexus standards, a collection and remittance responsibility may exist when the provider exceeds the state’s economic nexus/gross receipts thresholds.
Interim Guidance Statements Issued
The legislation defines taxable advertising services as all digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements. The guidance provides examples of what constitutes an advertising service. Excluded from the definition of advertising services are web hosting and domain name registration; services rendered with respect to newspapers, printing, or publishing, radio, and television broadcasting within the state; and certain services in respect to deemed out-of-home advertising.
Sales of custom software and the customization of prewritten software are a retail sale as of October 1, 2025. Before then, such sales were taxable under the service and other activities B&O tax classification. The guidance statement provides definitions of custom software and the customization of prewritten software.
As of October 1, 2025, custom website development services are considered a retail sale subject to both the state’s retailing B&O tax and retail sales tax if sold to a consumer. Website development services mean the design, development, and support of a website provided by a “website developer” (defined in the guidance statement) to a customer. The DOR considers website consulting and training services to be taxable as website development services.
The legislation eliminates general digital automated services (DAS) exclusions for services that involve primarily human effort, live presentations, advertising, and data processing. However, these exclusions will still apply for sales between members of an affiliated group. New exclusions will be added for telehealth and telemedicine. Questions have arisen whether certain professional services can now be taxed as digital automated services. The DOR has stated that it was not the Legislature’s intent that professional services be taxable solely because such services can be furnished through DAS. Nevertheless, providers may be consumers of digital products used in performing or facilitating their services, requiring them to pay tax on these purchases. The guidance presents numerous examples and scenarios related to professional services.
Information Technology Services
As of October 1, 2025, providers of information technology (IT) services are generally required to 1) report gross income from sales of IT services under the retailing B&O tax classification, and 2) collect and remit retail sales tax. Pursuant to the guidance, any services that support or assist IT infrastructure are taxable as an IT service. Such services include, but are not limited to, providing network assessments, planning, design, migration services, network security services, system upgrades, and other network maintenance services to a client’s information technology infrastructure. Additional examples of what constitutes, and does not constitute, an IT service are provided.
As of October 1, 2025, the sale of live presentations is a retail sale. Thus, live presentations are subject to both the retailing B&O tax and retail sales tax if sold to a consumer. “Live presentations” include lectures, seminars, workshops, or courses where participants attend either in person or remotely via equipment that allows for the audience and instructor to interact with each other in real time. A live presentation requires a fee, charge, or any other exchange of consideration to be taxable. The guidance provides numerous examples of what qualifies, and what does not qualify, as a live presentation. Consideration will be given to a presentation’s purpose and structure, whether the activity allows for real-time interaction, and whether the presentation allows for more than one attendee.
Sales of investigation, security, security monitoring, and armored car services as of October 1, 2025, are retail sales subject to the B&O tax and retail sales tax if sold to a consumer. Investigation services for purposes of the guidance statement are private detective services, background check services, fingerprint services, bounty hunting services, private investigation services, lie detection and polygraph services, missing person tracing services, and skip tracing services. Until it gathers more information, the DOR will treat this list as exclusive as of now but may add additional categories. The guidance statement provides examples of security, security monitoring, and armored car services.
As of October 1, 2025, “temporary staffing services” are deemed a retail sale subject to the B&O tax and retail sales tax if sold to a consumer. “Temporary staffing services” means providing workers to other businesses, except for licensed hospitals, for a limited period of time to supplement their workforce and fill employment vacancies on a contract or for fee basis. The DOR will consider whether a taxpayer recruits and hires its own employees, finds other organizations that need the services of those employees, assigns those employees on a temporary basis to perform work at or services for the other organizations to support or supplement the other organizations’ workforces, and customarily attempts to reassign the employees to other organizations when they finish each assignment. A taxpayer that meets all these considerations is generally subject to retailing B&O and retail sales tax (except for the placement of temporary workers to a licensed hospital) as providing temporary staffing services. The interim guidance statement provides numerous examples, including the use of independent contractors and third-party contractors.
Ryan’s Take and Action Steps
The guidance is clearly labeled as “interim guidance,” which means that it can be revised by the DOR. All Washington-based service providers or out-of-state providers with Washington customers need to examine the guidance statements to better ascertain their correct tax status of their sales as of October 1. While the examples provided should help guide taxpayers, a correct tax determination is made on a case-by-case basis dependent upon the facts of each sale. Ryan tax specialists can assist in evaluating a service provider’s Washington sales to see if its services are newly taxable or remain exempt as of the October 1 effective date.
TECHNICAL INFORMATION CONTACTS:
Zack Reif
Principal
Ryan
602.955.1792
zack.reif@ryan.com
Laraine Nebrida
Director
Ryan
713.629.0090
laraine.nebrida@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.
- Topics
- Zachary L. Reif
- Transaction Tax