Washington Enacts Tax Bills Expanding Retail Sales Tax Impact

The Governor of Washington recently enacted several revenue-raising bills to address the increasing budget deficit. Among these bills, three have a significant impact on retail sales tax in the state, by repealing sales tax exemption on specified sales, changing the applicable sales tax rate on specific transactions, and expanding the retail sales tax base to include certain services.

Impact on Taxable Persons

Under Senate Bill 5794, starting from January 1, 2026, sales of precious metal bullion and monetized bullion are no longer exempt from sales tax and business and occupation taxes (B&O taxes). Additionally, the bill imposes a 1.5% or 1.75% B&O tax on the rental of space at self-service storage facilities, effective April 1, 2026, under the Service and Other provisions.

Bill 5801 includes two changes to the sales tax rate applicable to passenger car rentals. Firstly, the applicable tax rate will increase to 11.9% in 2026 and then decrease to 9.9% in 2027. Additionally, the sales tax on motor vehicles will rise to 0.5% in 2026.

Starting from October 1, 2025, under the Bill 5814, the retail sales tax base will include services such as IT training, technical support, and other services including, network operations assistance, help desk services, network system support, data entry, and data processing services, and custom website development services, defined as the design, development, and support of websites provided by developers to customers. Additionally, services such as investigation, security services, security monitoring, and armored car services also fall under the scope of the definition of sale at retail. 

Furthermore, the tax base will be broadened to include temporary staffing services, except in situations where they are supplied to licensed hospitals, as well as live presentations, such as lectures, seminars, and courses. These presentations can be delivered in person, via the Internet, or through other similar means that allow participants to interact in real-time with the presenters.

One additional significant change is the introduction of advertising services to the definition of taxable retail sales. Advertising services subject to sales tax encompass both digital and non-digital activities involved in creating, producing, or distributing advertisements. These activities include online marketing methods such as search engine marketing, lead generation, referrals, and campaign-related tasks, such as planning, monitoring, and evaluation.

Conclusion

The three-piece legislation introduces significant changes to the rules governing retail sales. Among the three bills, Bill 5814 may be the most impactful, as it significantly expands the tax base by subjecting many services to sales tax. Therefore, taxable persons operating in the IT, digital, and services industry should carefully consider the new rules and determine to what extent they apply to them.

Source: KPMG, Senate Bill 5794, Senate Bill 5801, Senate Bill 5814