Alert

Among the changes for taxpayers in Washington’s 2025 legislative session is SB 5814 (the Bill), which altered the tax treatment of several specific services and modified the exclusions from the definition of digital automated services (DAS).

Effective October 1, 2025, sales of the services named in the Bill will be considered retail sales, which makes them subject to both the retailing business and occupation (B&O) tax and retail sales tax, unless an applicable exemption applies.

These services include:

• Advertising services;
• Live presentations;
• Information technology (IT) services;
• Custom website development services;
• Security services, including Investigation, security, and armored car services;
• Temporary staffing services; and
• Custom software and prewritten software.

The Washington Department of Revenue (DOR) has devoted substantial resources to develop and publish guidance for taxpayers to aid in their evaluation of the potential impact of the changes in the Bill. While the DOR implements permanent guidance, to date, Washington has published interim guidance statements on a majority of the changes, as discussed below.

Advertising Services

The Bill’s definition of advertising services is broad and covers both “digital and non-digital services related to the creation, preparation, production, or dissemination of advertisements.”  Examples include graphic design, search engine marketing, and lead generation optimization, among many others.

The guidance also provides specific exclusions from advertising services, including web hosting services, domain name services as well as advertising connected with newspapers, printing and publishing, and radio or television broadcasting. Additionally, out-of-home advertising, such as billboards, transit ads, and place-based advertising, such as in-store signage, among others are excluded.

For sourcing purposes, advertising services are subject to tax based on the location where the services are received by the purchasers. The statement provides additional default sourcing rules based on the seller and purchaser locations, when known and not known. Generally, advertising services are sourced to the location where ads are disseminated or consumed. For example, if advertising services are consumed in known locations, such as specific cities or zip codes, tax is proportionally allocated there. However, if the exact location is unknown, sellers may use reasonable and consistent sourcing methodologies based on the guidance and examples provided.

Advertising services may qualify for specific exemptions including the multiple points of use (MPU) exemption or the resale exemptions when certain specific criteria are met.

See the DOR’s full interim guidance on advertising services, including detailed examples.

Live Presentations

Live presentations are broadly defined to include “lectures, seminars, workshops, or courses where participants attend either in person or via internet or telecommunications equipment that allows the audience members and the presenter or instructor to give, receive, and discuss information with each other in real time.” A taxable live presentation session must allow for more than one attendee and requires consideration between involved parties such as a registration or ticket fee.

The guidance provides the new tax treatment for live presentations applies to a wide variety of personal and professional enrichment offerings, including art or music classes, business training workshops, CPR instruction, continuing professional education, and driver's education.

Further, the guidance also provides specific exclusions from live presentations, including, but not limited to, one-on-one instruction, such as private music lessons or tutoring, performances, such as concerts and plays, prerecorded presentations, athletic and fitness programs already covered under separate tax classifications, movies, and classes provided by preschools and sports events.

For sourcing purposes, live presentations are subject to tax based on where the presentation is received by the purchaser. For in-person events, tax is determined by the event location. For remote sessions, tax is sourced to the location of the attendees; however, if that information is not available, businesses should use the purchaser’s billing address or other business records. For hybrid presentations, sourcing is based on each attendee’s attendance method, so in person, the location of the event and remote, the physical location of the purchaser.

See the DOR’s full interim guidance on live presentations, including detailed examples.

IT Services

Any services that support or assist information technology infrastructure are taxable as IT services including network assessments, planning, design, migration, network security, and system upgrades. Examples of IT services include support services, such as help desk services; migrating services and support; onboarding/offboarding services, such as setting up user laptops; network diagnostics support; and troubleshooting software issues, among others. Further, the guidance defines data processing services in relation to IT services.

Excluded from IT services are web hosting, domain registration, payment processing services and other IT services that are separately classified as a retail sale such as custom website development services.

For sourcing purposes, IT services are subject to tax based on the location where the services are received by the purchaser. If IT services are provided at multiple locations, and the locations are known, the IT services must be sourced proportionally to those locations. If the location of receipt of the IT services is unknown, the guidance provides methods for how the IT services should be sourced, including detailed examples, based on the specific facts of the transactions.

See the DOR’s full interim guidance on IT services, including detailed examples.

Custom Website Development Services

The DOR has defined website development services to include “the design, development and support of a website provided by a website developer to a customer.” This includes services that are performed for new and existing websites but excludes web hosting and domain registration. Custom website development services provided by a website developer include website design services such as planning, programming, testing, and deployment; development services; and support services, including monitoring site performance and website optimization; and related consulting or training.

For sourcing purposes, custom website development services are sourced under RCW 82.32.730 using the standard hierarchy—generally where the purchaser first receives or uses the service. If the location of use is unknown, sourcing defaults to the purchaser’s address in the seller’s records, the billing address, or, as a last resort, where the retail service was provided by the seller. If services are received at multiple locations, the seller and purchaser may reasonably allocate the sale across those locations, provided the allocation is documented by the time of invoicing.

Custom website development services may qualify for specific exemptions including the MPU exemption or the resale exemptions when certain specific criteria are met.

See the DOR’s full interim guidance on custom website development services, including detailed examples.

Security Services

Investigation services generally include activities such as interviews, surveillance, and behavioral analysis. Examples include private detective work, background checks, fingerprinting, bounty hunting, polygraph testing, tracing missing persons, and skip tracing. The list is currently exclusive, but the DOR may expand it in future guidance. Further, the guidance provides that security-related services include, but are not limited to, security guard and patrol services, personal and event security, armored car transportation of cash and valuables, and security system monitoring—including electronically transferred systems like alarm monitoring. Alarm monitoring services, previously treated as DAS, will be considered retail sales even if they do not meet the DAS criteria effective October 1, 2025.

Certain services are explicitly excluded from the classification of security services, such as locksmith services, forensic accounting, internal human resources investigations not purchased from third parties, cybersecurity services that are covered by IT services, and process servers.

For sourcing purposes, security services are subject to tax based on the location where the services are received by the purchaser. The guidance provides additional default sourcing rules based on the seller and purchaser locations, when known and not known. If security services are provided at multiple locations, and the location is known, the security services must be sourced proportionally to those locations. If the location of the security services is unknown, the guidance provides a method for how such services should be sourced, including detailed examples.

See the DOR’s full interim guidance on security services, including detailed examples.

Temporary Staffing Services

Temporary staffing services is defined as providing workers to other businesses, excluding licensed hospitals, on a temporary basis to supplement their workforce, with the staffing agency in charge of recruiting, hiring, and reassigning employees. A taxpayer engaging in temporary staffing services also typically attempts to reassign the employees to other organizations when they complete their assignments.

Certain services are explicitly excluded from the classification of temporary staffing services including direct hires, independent contractors, paymaster services and individuals who provide payroll services to affiliated businesses, seasonal agricultural workers, and outsourcing to a third-party independent contractor, such as an outsourced call center.

For sourcing purposes, temporary staffing services are subject to tax based on the location where the services are received by the purchaser. The guidance provides additional default sourcing rules based on the seller and purchaser locations, when known and not known. If the location of the service is known, such as with in-person temporary workers, the physical location of the purchaser is used. If the temporary workers are providing services remotely, the services are received at the location where the purchaser’s staff is being supplemented. If temporary staffing services are provided at multiple locations, and the locations are known, the services may be sourced and allocated to those locations, either based on number of hours billed or a reasonable method agree upon at invoicing, including proportional allocation; however, if the locations are unknown, businesses should use the purchaser’s billing address or other business records.

See the DOR’s full interim guidance on temporary staffing services, including detailed examples.

Custom Software

Custom software is defined as "software created for a single person.” Customization of prewritten computer software is defined as “any alteration, modification, or development of applications using or incorporating prewritten computer software for a specific person.” This includes “individual configuration of software to work with other software and computer hardware.”

Certain services are explicitly excluded from the classification of customization of prewritten computer software, such as routine installation. The guidance provides examples to clarify what is and is not considered custom software, including the treatment of bundled services. A program written entirely from scratch for one client is custom software. Similarly, modifying a software package with substantial changes to suit a specific client’s needs qualifies as customization.

For sourcing purposes, sales of custom software and customized prewritten computer software are subject to tax based on the location where the services are received by the purchaser. If the location of use is unknown, sourcing defaults to the purchaser’s address in the seller’s records, the billing address, or, as a last resort, where the retail service was provided by the seller. If the purchaser uses the software in multiple locations and the locations are known, the sale must be allocated, either proportionally or equally, among those jurisdictions. If the multiple locations of the services are unknown, the guidance provides a method for how such services should be sourced, including detailed examples.

Certain exemptions from retail sales tax may still apply. Transactions between members of an affiliated group may not be considered retail sales if the statutory requirements are met. In some cases, a reseller permit may be used when customized prewritten software is resold by a third-party subcontractor, though certain conditions must be met, and the DOR acknowledges that such cases are uncommon. The MPU exemption can also apply when customized software is deployed concurrently inside and outside of Washington, provided that statutory requirements are satisfied.

See the DOR’s full interim guidance on custom software, including detailed examples.

DAS Exclusions

Effective October 1, 2025, the Bill repealed several exclusions that previously applied to DAS. As such, the DOR issued interim guidance which clarifies that while DAS are generally taxable, certain exclusions remain, such as for affiliated transactions and telehealth services.

Notably, the Bill eliminated the DAS exclusion for services that involve “primarily human effort.” Due to this repeal, the DOR addressed concerns around whether professional services that may meet the definition of DAS are under the retailing classification and therefore subject to retail sales tax. Specifically, professional services like legal, accounting, and engineering remain primarily subject to the service and other B&O tax classification and are not automatically taxed as DAS unless the service involves substantial automation of services. The guidance also provides detailed examples to illustrate the distinction between taxable DAS and non-taxable professional services.

For instance, a company providing accounting services that uses digital tools internally—such as databases or spreadsheet software—to perform its work but delivers results in paper form is not selling DAS and thus is not subject to retail sales tax on those services. Similarly, if the service results are delivered via email or a non-marketed digital portal without additional charges, the transaction remains a professional service, and the taxpayer is the consumer of the digital products used to transmit service deliverables. However, if the professional service includes providing clients access to an interactive digital platform, such as a legal document drafting portal, for a fee, that service is considered DAS and subject to retail sales tax.

Regarding data processing, the Bill removes the previous exclusion for data processing services, making them taxable under the retail sales tax and B&O tax regimes unless purchased for resale. Data processing is defined as the systematic performance of operations on data supplied by the customer to extract or convert information, including payroll processing, claims processing, and survey processing. While data processing is broadly taxable, the guidance notes that custom software development and prewritten software customization remain distinct and subject to separate rules.

For sourcing purposes, DAS sales are sourced to the location where the customer receives the service, determined by a hierarchy: the seller’s business location if the service is received there; otherwise, the customer’s known address or the address where the service is first made available. Proper documentation of customer locations and usage is essential for compliance and audit defense.

See the DOR’s full interim guidance on DAS, including additional detailed examples.

What’s Next?

The DOR has indicated that it will continue to publish guidance for Washington taxpayers on the impacted areas of the Bill. Taxpayers should review the guidance issued to understand the potential impact, if any, on their Washington sales tax filings.

If a taxpayer has previously sold services impacted by the Bill, the DOR has issued additional guidance on the impact to existing contracts.

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For more information on this bill or the potential impact on your tax filings, contact your firm professional.

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