- Washington Senate Bill 5814 (the “Bill”), signed into law on May 20, 2025, imposes sales tax on many advertising services.
- The Bill modifies the Revised Code of Washington (RCW) Section 82.04.050, effective October 1, 2025, significantly expanding the definition of “sale at retail” or “retail sale” to include advertising services.
- This change marks a substantial shift for businesses in the marketing and media sectors, as services that were previously exempt from retail sales tax will now be subject to taxation.
- Companies providing advertising services, whether digital or traditional, should understand the scope of these changes and take proactive steps to facilitate compliance.
Expanded Scope of Advertising Services
The Bill broadly defines taxable “advertising services” to include all digital and non-digital services related to the creation, preparation, production, or dissemination of advertisements.1 This includes creative functions such as layout, art direction, and graphic design, as well as production supervision and strategic services like media placement and acquisition of advertising space.2 Digital marketing activities, including online referrals, search engine marketing, lead generation optimization, and web campaign planning, are also taxable.3
Certain activities remain excluded from this definition. Services related to newspapers, printing and publishing, and radio or television broadcasting are excluded, as are billboards, transit ads, and in-store displays. These distinctions are critical for businesses to correctly identify which services are taxable and which remain exempt.4
Sourcing Rules for Advertising Services
One of the most significant compliance challenges under the revised law involves sourcing. If the advertisement has been disseminated or its distribution location or locations is known, the service is sourced to the location or locations where the advertisement is or will be distributed. This means that businesses must track where ads are delivered or targeted, which can be complex for multi-state campaigns.5
The law allows reasonable estimates, provided the seller and the purchaser agree on the allocation, and the estimate is documented prior to dissemination. For example, if an online advertising campaign targets one store’s ZIP code in Washington and two ZIP codes in Oregon, the charge may be allocated proportionally, such as one-third to Washington, if both parties agree and the allocation is reasonable. This flexibility is intended to prevent over or under reporting of Washington tax when campaigns span multiple jurisdictions, but it also places a premium on clear documentation and mutual agreement.
When advertising services are provided before any decisions about distribution are made—such as graphic design, layout, or other pre-dissemination activities—Washington sources the sale to the purchaser’s location. For example, if a graphic design firm designs a web-based banner ad, but the distribution locations are not yet determined and cannot be known to the designer, Washington sources the sale to where the purchaser “receives” the service. In Washington’s provided example in the interim guidance, this would be wherever the marketing department of the purchaser is located.6
Forvis Mazars Insight:
Washington’s interim guidance outlines several methods for sourcing advertising services under the expanded tax rules. When distribution locations are specified in the contract and payment occurs before dissemination, those terms govern, allowing for proportional allocation across jurisdictions if documented by the time of invoicing. For performance-based campaigns, sourcing may rely on digital indicators such as IP addresses or geolocation data to determine where ads are viewed, which the Washington Department of Revenue (“WDOR”) explicitly recognizes as valid indicators of dissemination location. If the seller cannot determine the location at the time of billing, the transaction defaults to the purchaser’s address on file, though the WDOR cautions against using out-of-state addresses in bad faith when Washington dissemination is known. For creative services provided without dissemination, sourcing is based on where the purchaser reviews the work, often at the client’s marketing office.
To mitigate risk, businesses should review their invoicing and contract practices. Agreements should clearly specify sourcing methodology, allocation percentages, and documentation requirements. Maintaining contemporaneous records of agreed-upon estimates, so long as they are reasonable, and distribution data will be essential to defend against audit challenges. Implementing internal controls and training staff on the new requirements can further reduce compliance risk.
Impact on Existing Contracts
Existing advertising service contracts that extend beyond October 1, 2025, should be reviewed promptly in light of Washington’s updated guidance issued on August 29, 2025. The WDOR clarified that sellers with contracts in place prior to October 1, 2025, are not required to collect sales tax on those agreements until April 1, 2026, provided there is no “material change or amendment” to the contract. Material changes include modifications to the parties involved, the underlying activities, rights or obligations, or adjustments to the term, amount, or duration of the agreement.7
Forvis Mazars Insight:
Many existing contracts do not address sourcing or allocation methods; therefore, businesses should consider amending agreements to include provisions that align with the revised statute and the interim guidance, such as clear language on how charges will be allocated for multi-jurisdictional campaigns. Proactively updating contracts and facilitating compliance with these guidelines will help businesses avoid disputes and unexpected tax exposure under the new rules.
How Forvis Mazars Can Help
The inclusion of advertising services in Washington’s retail sales tax base represents a significant compliance challenge for businesses. Forvis Mazars can assist you in understanding the impact of these law changes on your Washington tax filing responsibilities and your potential tax liability. We will also be closely following the issuance of any related regulations or FAQ’s related to these changes. Contact us for more information.
- 1RCW § 82.04.050(3)(k)(i)
- 2RCW § 82.04.050(3)(k)(i)(A)
- 3RCW § 82.04.050(3)(k)(i)(B)
- 4RCW § 82.04.050(3)(k)(ii)
- 5“Interim Guidance Statement Regarding Changes Made by ESSB 5814 for Advertising Services,” Washington State Department of Revenue, September 17, 2025.
- 6“Interim Guidance Statement Regarding Changes Made by ESSB 5814 for Advertising Services,” Washington State Department of Revenue, September 17, 2025.
- 7“Interim Guidance Statement Regarding Contracts Existing Prior to October 1, 2025, and Changes Made by ESSB 5814,” Washington State Department of Revenue.