- Washington House Bill 2081, signed into law on May 20, 2025, raises Business and Occupation Tax (B&O) rates for many taxpayers.
- Washington Senate Bill 5814 imposes sales tax on temporary staffing services, custom software, and related services.
B&O Tax Rates
Effective October 1, 2025, businesses’ (including affiliated groups) B&O tax rate under the “Service and Other Activities” classification will be taxed based on their prior calendar year’s gross income in that category. The tax rates are as follows:
- When gross income is less than $1 million, the tax rate remains at 1.5%.
- Between $1 million and $4,999,999.99 of gross income, the tax rate increases to 1.75%.
- When gross income is $5 million or more, the tax rate increases to 2.1%.
Exceptions apply to hospitals and select advanced computing businesses, which continue to be taxed at 1.5%.1
Additionally, effective January 1, 2027, for any classification that previously had B&O tax rates of 0.484% and 0.471%, the new tax rate is 0.5%. This includes manufacturing, retailing, and wholesaling.2.
Finally, the bill introduces a 0.5% B&O tax rate surcharge on taxpayers with more than $250 million in gross receipts per calendar year. Exemptions to this surcharge include taxpayers that pay a different type of surcharge such as advanced computing and financial institutions, manufacturers and sellers of manufactured goods, and wholesalers and retailers of fuel. The surcharge is effective January 1, 2026.3.
Forvis Mazars Insight:
A taxpayer subject to the services and other activities classification should be prepared immediately to pay more B&O tax to the extent they have gross income over $1 million. Washington’s decision to increase tax rates stands in contrast to the trend in many other states, which are moving toward tax rate reductions.
Temporary Staffing
Effective October 1, 2025, temporary staffing services in Washington are subject to retail sales tax.4. The state defines these services as providing workers to other businesses for short-term assignments to supplement their workforce or fill vacancies on a contract or fee basis. However, services provided to hospitals licensed under RCW 70.41 or 71.12 are exempt from sales tax.5 For B&O tax purposes, Washington classifies income from temporary staffing services under the “retailing” category unless provided to hospitals.
On September 17, 2025, Washington issued guidance on the taxability of temporary staffing services.6 Under this guidance, manufacturers, construction companies, and temporary staffing firms that resell services purchased from another provider may issue a resale certificate to exempt those purchases from sales tax. Staffing agencies accepting such certificates must report the transactions as “wholesaling” for B&O tax purposes.
Forvis Mazars Insight:
Historically, Washington’s taxability of temporary staffing was complex but largely exempt from retail sales tax. The historic taxability of temporary staffing followed the actual activity performed by the temporary employee. For example, if the temporary employee was a clerk in a retail shop, it would be a taxable service and would be classified under “retailing” for B&O purposes. However, if the temporary employee was a warehouse worker for a wholesaler, it would be an exempt service and classified under “wholesaling” for B&O tax purposes. Now, Washington is incentivizing employers to hire more employees rather than pay tax on top of temporary staffing expenses.
Manufacturers and construction companies, and temporary staffing resellers will benefit from the ability to present resale certificates to exempt temporary staffing services from sales tax. However, Washington has yet to clarify the scope of this exemption. It remains uncertain whether other industries—such as wholesalers, retailers, and transportation companies—can also use their resale certificates to avoid tax on staffing services.
Custom Software and Related Services
Effective October 1, 2025, Washington imposes retail sales tax on numerous information technology (IT) related services. Newly taxable services include training, technical support, help desk services, network operation and support services, network system support, data entry services, data processing services, and implementation services.7 Additionally, custom website, custom software development and sales, and customization of prewritten software is subject to retail sales tax.8
Forvis Mazars Insight:
The new law is part of an expanding trend of broadening states’ sales tax base on more IT related services. Washington issued lengthy guidance with definitions for the newly taxable IT related services on September 12, 2025.9 It will be imperative to clearly distinguish between a nontaxable professional service and a taxable IT related service.
Washington’s imposition of tax on custom software and related services follows a similar trend in by other states. Maryland began imposing a 3% sales tax on data services, information technology services, system software publishing services, and application software publishing services on July 1, 2025.
Existing Contracts
Washington issued guidance on August 29, 2025, which clarified the sales tax treatment of existing contracts for services impacted by Senate Bill 5814.10 Sellers with existing contracts with customers in place prior to October 1, 2025, are not required to collect sales tax on such existing contracts until April 1, 2026, provided there is not a “material change or amendment” in the contract. Examples of material changes and amendments include a change in the parties to the contract, change to underlying contract activities, a change in rights, responsibilities or obligations, and a change in the term, amount, or period the contract is in effect.
How Forvis Mazars Can Help:
Forvis Mazars can assist you in understanding the impact of these law changes on your Washington Excise Tax filing responsibilities and your potential tax liability. We will also be closely following the issuance of any related regulations or FAQs related to these changes.
- 1 Wash. Rev. Code § 82.04.290(2)(a)(iii)
- 2 Wash. Rev. Code §§ 82.04.240, 82.04.250(1), and 82.04.270
- 3 2025 WA H 2081, Adopted
- 4 Wash. Rev. Code § 82.04.050(3)(j)
- 5 Wash. Rev. Code § 82.04.050(3)(j)
- 6 Interim guidance statement regarding changes made by ESSB 5814 for Temporary Staffing Services, 9/17/25.
- 7 Wash. Rev. Code § 82.04.050(3)(g).
- 8 Wash. Rev. Code § 82.04.050(6)(a).
- 9 Interim guidance statement regarding changes made by ESSB 5814 for information technology services, 9/12/25.
- 10 Interim guidance statement regarding contracts existing prior to October 1, 2025, and changes made by ESSB 5814, 8/29/25.