Facing a large four-year budget deficit during the 2025 legislative session, Washington lawmakers enacted substantial expansions to business and occupation (B&O) and retail sales taxes. The first of these tax hikes, a new sales taxes on services, takes effect on Oct. 1, 2025. These taxes are expected to raise $3.6 billion for the state budget over the next four years.
SB 5814 expanded retail sales taxes to the following services:
- Temporary staffing (hospitals are exempt)
- Advertising
- Live presentations
- Security
- IT services and custom software.
WSHA was the only group to successfully negotiate an exemption to the new sales tax on temporary staffing, saving hospitals an estimated $80 million per year.
The financial impact of the remaining new sales taxes on hospitals is uncertain. The Department of Revenue released interim guidance statements to interpret the new sales taxes, but the application of the new taxes that may be most impactful to hospitals—such as the taxes on IT services and custom software—remain somewhat unclear. During the legislative session, hospitals estimated at least a $17 million annual impact from SB 5814.
One of the interim guidance statements DOR issued relates to existing contracts. If a contract for one of the newly taxable services was entered into prior to Oct. 1, 2025 and is fully paid but the services continue beyond October 1, the services will not be subject to the new sales tax. If both services and payments are ongoing, the sale will not be taxed through March 31, 2026. Beginning April 1, 2026, the service provider will begin to pay taxes on newly taxable services for ongoing contracts.
Please see DOR’s webpage on implementation of SB 5814 for more information about the expansion of sales taxes on services. (Ashlen Strong)