Washington State Professional Services sales tax

As of October 1, 2025, the state of Washington collects a sales tax on many, Maybe the majority, Professional business services.

Therefore, if you are a business professional who sells your services? You want to know how the new Washington State Professional Services sales tax works. You want to know where and when it is applied. And you also want to understand how you can or should respond constructively. (You have some options here).

Another comment before starting to hit. This is still a little Neblinous. Who knows how this ends. The discussions seem to be underway among the political leaders about whether this tax on sales to professionals was what they intended and if it should continue the law. And now in the details.

How the Washington State Professional Services Tax works

Normally, states do not impose sales tax on professional services. And for a long time, the tax laws of the state of Washington worked in the same way.

But in fact, professional services often enter into a category, digital automated services, which states can and can subject to taxes on retail sales.

What is a digital automated service? Here is the legal definition: a digital automated service (cited by the Washington Revised Code) “It means any electronically transferred service that uses one or more software applications.“

Therefore, a simple language reading: email? Online portals? Video conferences? Your phone? All those use one or more software applications to electronically transfer text, files, video or audio. Therefore, professionals who use these tools to provide services potentially I need to calculate and raise taxes on retail sales. Except for one thing: an exclusion applied to this work in the past.

Historically, although professional services looked like a digital automated service, the excluded state law (and here again) “Any service that mainly implies the application of human effort by the seller, and the human effort originated after the client requested the service.”

In April 2025, however, the legislature hit the language in bold above using Senate bill absorbed 5814A couple of weeks later, Governor Ferguson signed the bill, and now professional services may be subject to taxes on retail sales.

What companies should deal with the new sales tax

Probably if he is a Washington state professional, he must calculate, collect and send taxes on Washington state sales from October 1, 2025. (And if you are a resident of the Washington state, you must pay taxes on sales of the Washington state when you buy professional services).

Only to be clear, remember the trigger here is a professional use software to provide the service, all the following items probably count as automated digital services and, therefore, trigger taxes on retail sales:

• A consultant performs a lot of investigations and then offers the results of the investigation through a transmission videoconference. This transmission videoconference software results in the activity is as a retail sale.
• A researcher writes a technical document and then sends an email to the client. The email software triggers the classification of the service as a retail sale.
• A fiscal accountant prepares a tax declaration and then offers the statement using an online portal. The online portal results in the tax declaration is in question as a digital automated service.
• An accountant provides remote general accounting services through quickbooks online or perhaps through a remote desktop connection to Quickbooks desktop software. Quickbooks online software or Windows remote desktop connection software activate service as a retail sale.

A clarification: a professional could deliver any of these services in a non -digital and not automated way. The consultant can deliver a presentation in person (although perhaps he should not use PowerPoint?) The researcher can Couer or Hand deliver the research work. The fiscal accountant can print a copy of the tax declaration and ask customers to collect it in person. An accountant could work on the site. These alternatives allow the professional to avoid classification as a digital automated service.

But many professionals? Yes, they have adopted technology. They use software to automate and accelerate their work. And at this stage, reconfigure workflow to escape sales tax? That seems not very practical.

How business and occupations taxes and rates change

There is more than to know here. The change in the state rule on how fiscal accounting works offers some new benefits.

On the one hand, the special tax and occupation tax rate probably decreases. Business tax rates and retail sales (B&P) are executed .471 percent (so little less than half percent). The services of B & O tax rates are generally operating 1.5 percent for small businesses and then 1.75 percent for larger companies.

In addition, although the B & O of the services of the services are often applied all the income of a company, the tax rate of retail sales is applied to sales in the state.

A professional services firm with $ 1,000,000 in revenue in the past paid a B& O Tax of 1.5% or 1.75% in $ 1,000,000 of income. But half of the company’s services go to customers outside the State? The new Sales Tax of Washington State Professional Services $ 500,000 to new lower retail sales .471% B&D taxes.

The fall in B & o obviously does not “pay” taxes for retail sales perhaps 10 percent. But it can partially compensate for the company for the new compliance costs and the clients that it loses due to the effective increase of 10 percent in prices. And that is the following what to talk about.

The price elasticity means that the Professional Services Company will filter customers and income

An important practice management point to mention.

If their services cost 10 percent more due to the new sales tax, some customers will probably change their purchase habits.

In the case of a fiscal accounting firm, for example? Some customers can go to a retail tax coach where the coach delivers a paper copy of the tax declaration after collecting the numbers. (A deliverable document saves the sales tax).

And a fiscal accountant should not be completely surprised if a client moves to a fiscal accounting firm outside the State. Technically, that company will not have to follow the accounting rules of the Washington State Sales Tax unless it provides more than $ 100,000 of services to the Washingtonians. (The Washington client must still pay the tax as a use tax).

How big will this wear grow? My conjecture is 3 percent. This percentage of lost businesses reflects the usual elasticity of professional services, -.3. (That is less 30%). In other words, an increase in the price of 10 percent for customers and customers customers less than 30% is equivalent to a change less than 3%.

Accounting things you want to do for sales tax

Before finishing this, some steps I think we take:

1. Get good address information in the accounting system so that we can obtain sales correctly because these sales are obtained in the place where a customer uses the service. (You can use the state search tool here.
2. Configure your accounting system to correctly calculate the correct sales tax rates in invoices. This will be a headache. Washington segregates the State in hundreds of local sales tax jurisdictions. I wish I don’t have more than a few dozen. If you do, use a sales tax service. By the way, in Quickbooks it will configure sales tax code articles.
3. Alerts customers and customers about the new highest effective price if you now need to start charging sales taxes. We cannot protect our customers from this new cost. We can warn you.
4. Clearly differentiate the remaining services from retail sales in invoices. For example, if you meet a customer on the site, that is clearly a professional service and not to retail sales.
5. Explore the services of disagreement. A $ 1,000 tax declaration, for example, could be disaggregated in a tax declaration of $ 900 (not subject to sales tax) and then the following delivery options: $ 100 for the delivery of the portal (subject to the sales tax), $ 200 for the delivery on paper sent (not subject to sales) or collection of “counteract” free (it is also not subject to the sales tax). This approach adds risks unless we first obtain a clear guide from the income department. But disaggregation could work
6. If you are reading this blog post before October 1, 2025, complete that work in progress before October 1. Do you try to raise for that work before October 1, since, although technically it should not be subject to the sales tax unless it has been carried out after October 1? God, you never know what position the State could take.

Related articles

The state of Washington promulgated a lot of changes in state tax laws in April and May 2025. These two blog posts describe in detail two significant changes for many small companies owners:

The changes in the deduction of commercial interest of family property qualified by Washington for 2025 and the future years.

Baches at tax rates on state assets, which can explore using our updated version of Taxes on Washington 2025 assets