Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for Washington.

March 16, 2026

Washington Introduces New Tax on High-Income Earners

Authored by: Emilia Jarrin and Penny Sweeting, CPA

A bill in Washington State was sent to the governor on March 13, 2026, that would impose a new tax targeting individuals with income exceeding $1 million, marking a shift for a state that has traditionally not imposed a personal income tax. The bill indicates that beginning January 1, 2028, a 9.9% tax will be imposed on income above the $1M threshold and is intended to create a more progressive tax structure. Included in the bill is a new definition of “Washington base income” that starts with federal adjusted gross income and excludes typical deductions such as taxes paid to other states (including Pass-Through Entity Tax (“PTET”) payments) and charitable contributions up to $100,000. Also included in the bill is a new PTET regime.

Lawmakers expect the revenue generated to fund K-12 education and reduce reliance on regressive taxes like sales tax. The governor is expected to sign the bill. However, it is also expected the law will be challenged after enactment. The Washington State Constitution generally prohibits net income taxes on individuals. The prior capital gains tax was upheld as an excise tax for the right to transfer certain types of property. The pending millionaire’s tax is tied to Federal AGI and thus it is unlikely the state will be able to defend the tax as an excise tax.

Finally, it remains to be seen how the pending Washington millionaire’s tax will interact with the millionaire’s tax. Will an individual with $2M of capital gains be subject to the 9.9% capital gains tax plus the 9.9% millionaire’s tax, resulting in a combined rate of 19.8%? The State will have to provide guidance on this issue if and when the tax is enacted.

If you have questions about state personal income taxes, please reach out to a member of the Withum SALT Team.

February 3, 2026

Washington Updates Business and Occupation Tax Classifications

Authored by: Jessie Racioppi and Katie Nguyen, CPA

Effective January 1, 2026, Washington enacted the following updates to certain Services and Other Activities classifications. Taxpayers or affiliated groups with income less than $1,000,000 classified as Services and Other Activities in the prior year will be classified as “Services and Other Activities (less than $1,00,000 in the prior year).” Taxpayers or affiliated groups with income between $1,000,000 and $4,999,999 classified as Services and Other Activities ($1 million or greater in prior year) in the prior year will be classified as “Services and Other Activities ($1,00,000 to $4,999,999 in the prior year).” There will also be a new classification in 2026, “Services and Other Activities ($5,000,000 or More in the prior year).”

Gross income from gambling activities less than $50,000 will be classified as “Gambling Contests of Chance (less than $50,000 a year) and greater than or equal to $50,000 will be “Gambling Contests of Chance ($50,000 a year or greater).”

If you have any questions on how to classify your business activity for Washington B&O purposes, please reach out to a member of the Withum SALT Team.

December 18, 2025

Washington Disclosure Program Offers Business and Sales Tax Relief for International Sellers

Authored by: Courtney Easterday, MSA and Kiana McGowan, CPA, MBA

In November 2025, Washington State announced a special International Remote Seller Voluntary Disclosure Program (VDP), running from February 1 through May 31, 2026. This initiative offers foreign-headquartered businesses a rare opportunity to resolve past Washington tax obligations with significantly reduced risk. The program targets non-U.S. companies that have established substantial nexus in Washington, such as generating more than $100,000 in Washington-sourced receipts or maintaining a physical presence yet have never registered or reported taxes in the state. Key Benefits for Eligible Businesses include:

Shortened Lookback Period: Four prior years plus the current year for business & occupational tax, as well as just 12 months of reporting for uncollected sales tax.
Penalty Relief: Up to 39% reduction, provided the business has had no prior registration or enforcement contact during the statutory period.

Taxpayers who suspect they may have unreported Washington activity should act quickly. Early submission of a complete application can help secure the maximum relief available under this temporary program. Taxpayers should begin by reviewing their nexus status and gathering the necessary documentation to ensure timely compliance. For more information about the WA International Remote Seller VDA Program, please visit the state’s website here.

If you have questions about state sales tax relief programs, please reach out to a member of the Withum SALT Team.

December 17, 2025

Washington to Increase Advanced Computing Workforce Surcharge Beginning in 2026

Authored by: Emilia Jarrin and Katie Nguyen, CPA

Beginning January 1, 2026, Washington State will increase the Workforce Education Investment surcharge imposed on certain advanced computing businesses. The rate will increase from 1.22% to 7.5%. The surcharge tax base is gross income subject to the Business & Occupation (B&O) tax under the Service and Other Activities classification. The surcharge remains at 1.22% for reporting periods from April 1, 2020, through December 31, 2025. This surcharge applies to select advanced computing businesses, defined as members of an affiliated group with worldwide gross revenue exceeding $25 billion in the prior calendar year, provided at least one affiliate engages in advanced computing activities. In determining whether the revenue threshold is met, worldwide gross receipts from all affiliated entities are included, even if certain affiliates are otherwise exempt or excluded from the surcharge. Financial institutions, commercial mobile service providers, wired telecommunications transmission providers, and hospitals or provider clinics offering primary care, multispecialty, or surgical services are excluded from this definition. Taxpayers affected by the change should evaluate affiliated-group revenues and ensure Washington B&O tax reporting and payment processes are updated to reflect the higher surcharge, effective in 2026.

For additional information on the Advanced Computing Workforce Surcharge, please visit the Department’s website.

If you have questions about state gross receipts taxes, please reach out to a member of the Withum SALT Team.

November 19, 2025

Seattle City Council Ordinance Increases B&O Threshold, Tax Rates

Authored by: Brandon Spinella and Penny Sweeting, CPA

The Seattle City Council approved an ordinance raising business and occupation (B&O) tax rates while increasing the exemption threshold. Starting January 1, 2026, businesses taxed at the rate of 0.00222 (most businesses) will now be taxed at a rate of 0.00342, and those taxed at 0.00427 (services, transporting for hire) will now be taxed at a rate of 0.00658, with both rates dropping slightly in 2033. The threshold for paying B&O tax will rise from $100,000 to $2 million in annual gross receipts, and all businesses will receive a $2 million standard deduction beginning in 2026.

If you have any questions about the Washington B&O tax, please reach out to a member of the Withum SALT Team.

October 20, 2025

Washington Determines Litigation Services Sourced to the State of Litigation

Authored by: Courtney Easterday, MSA and Brian Meier, MSA

The Washington Court of Appeals recently upheld a decision by the Board of Tax Appeals, ruling that the value of litigation services provided by a law firm is received at the location where the legal proceedings take place—not at the insurance companies’ billing addresses. The case involved a firm operating in Washington and Oregon that had apportioned its income based on where its clients’ legal departments were located. However, the Department of Revenue argued that the benefit of the services was realized at the litigation’s venue: Washington.

Applying the state’s apportionment rules, the court emphasized the importance of where the service has a “helpful or useful effect.” It concluded that insurance companies hire local firms specifically to manage cases in Washington, and the true benefit arises from the legal work performed in court, not from administrative follow-up. As a result, the court affirmed that income from these services should be sourced to the state where the litigation is conducted.

If you have questions about how states apply market-sourcing apportionment rules, please reach out to a member of the Withum SALT Team.

October 6, 2025

Washington State to Impose New B&O Surcharge on Large Businesses

Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA

Starting January 1, 2026, businesses with Washington taxable income of $250 million or more annually will be subject to a 0.5% surcharge in addition to the existing Business & Occupation (B&O) tax. This surcharge applies only to income exceeding the $250 million threshold and will remain in effect until December 31, 2029. Certain types of income are exempt from the surcharge, including income from manufacturing, prescription drug sales, and qualifying food and food ingredient sales. For a full list of exemptions and additional details on the surcharge, please visit the state’s website here.

Businesses nearing or exceeding the $250 million taxable income threshold should evaluate their reporting classifications to ensure compliance and prepare for potential increases in tax liability.

If you have questions about gross receipts taxes, please reach out to a member of the Withum SALT Team.

September 29, 2025

Update: Washington Expands Sales Tax to Digital Services Under SB 5814

Authored by: Courtney Easterday, MSA, and Emilia Jarrin

Effective October 1, 2025, Washington State will implement a sweeping expansion of its retail sales tax under Senate Bill 5814, significantly altering the tax landscape for service-based industries. The legislation broadens the definition of taxable retail services to include a wide range of digital and professional offerings that were previously exempt, including IT consulting, custom software development, digital advertising, live presentations, and security services.

The bill introduces a “first use” sourcing rule, requiring businesses to determine where a customer initially uses a service to assess tax liability. This provision has raised concerns among industry stakeholders due to its complexity and potential compliance burdens.

The expansion is projected to generate approximately $3.6 billion over the next two years, helping to close a budget shortfall in the state’s operating budget. However, the measure has sparked significant opposition. More than 90,000 businesses are expected to be affected, and many have voiced concerns about the lack of clarity in implementation and the impact on their operations.

Legal challenges are already underway. Comcast has filed a lawsuit arguing that the tax on digital advertising services violates federal protections under the Internet Tax Freedom Act (“ITFA”), particularly because traditional media channels such as print and broadcast remain exempt – a claim that arguably violates ITFA’s prohibition on discrimination against digital commerce. The outcome of this litigation could have major implications for the law’s enforcement and revenue projections.

To support compliance, the Washington Department of Revenue has issued interim guidance and hosted listening sessions with affected businesses. Additional formal guidance is expected in the coming months.

As the state moves forward with implementation, both taxpayers and regulators will need to navigate the evolving legal and administrative landscape. Businesses are advised to review their service offerings, update contracts and invoicing practices, and consult state guidance to ensure proper tax treatment under the new rules.

If you have questions about the state tax treatment of digital goods and services, please reach out to a member of the Withum SALT Team.

September 16, 2025

Washington DOR Issues First Round of Guidance for Sales Tax Changes Effective October 1, 2025

Authored by: Brandon Spinella and Penny Sweeting, CPA

On September 17, 2025, the Washington State DOR issued interim guidance regarding upcoming sales tax changes effective October 1, 2025, particularly impacting temporary staffing services, live presentations, and digitally automated services (DAS). The guidance clarifies that independent contractors and outsourced work involving them are not subject to sales tax as temporary staffing services. Existing contracts signed and paid before October 1 are exempt from the new tax rules, while contracts paid after may be treated differently. Live presentations, including CPE for CPAs, are subject to sales tax, with sourcing based on the audience’s location rather than billing addresses. Although professional services, such as those offered by CPAs, are currently excluded from DAS-related sales tax, DOR notes that legislative action is needed to solidify this treatment in 2026.

If you have any questions about state sales tax on services, please reach out to a member of the Withum SALT Team.

September 3, 2025

Washington Investment Income Voluntary Disclosure Program

Authored by: Brian Meier, MSA and Penny Sweeting, CPA

Washington State’s Department of Revenue recently rolled out major updates to its Voluntary Disclosure Agreement (“VDA”) Program to encourage proactive tax compliance for taxpayers with unreported investment income. Beginning in July 2025, a temporary initiative will target businesses with unreported investment income that is subject to Business and Occupation (B&O) tax. This two-phased program will offer penalty and interest waivers for eligible participants. Certain financial sectors and those under enforcement as of July 1, 2025, are excluded. Additionally, a temporary VDA for foreign remote sellers (excludes marketplace facilitators)—defined as non-U.S. businesses with no physical presence in Washington but selling to its residents—will launch in early 2026 as a four-month pilot.

As part of the initiative, additional changes will enhance the VDA framework. For example, previously registered businesses will now be allowed to apply for VDA’s, and have the 5% tax assessment penalty waived. Additionally, changes to the rules regarding affiliates and prior contact with the Department have been made to provide affiliates with easier access to the VDA program. All of the reforms aim to make voluntary compliance more accessible and equitable for a wider range of taxpayers.

If you believe that your company may qualify for entry into the Washington VDA program, or have questions about other state VDA programs, please reach out to a member of the Withum SALT Team.

August 11, 2025

Washington Rules Contractor Activity Creates Nexus for Out-of-State Businesses

Authored by: Bonnie Susmano, JD, MBA and Kiana McGowan, CPA, MBA

On May 19, 2025, the Washington Department of Revenue issued Determination No. 20-0171, concluding that an out-of-state company established substantial nexus in Washington due to the activities of its local independent contractors. The company coordinated water mitigation services through Washington-based providers, billed insurance companies directly, and oversaw service obligations. Despite not having a physical office in the state, the Department found that these in-state activities were significantly associated with the company’s ability to maintain a market in Washington.

This ruling means that businesses using local contractors to fulfill core services in Washington may be considered to have nexus, even without direct physical presence. The Department emphasized that oversight, referrals, and warranty obligations can establish a taxable presence. Businesses should consider whether their in-state contractor relationships could create tax obligations in Washington or other states with similar rules.

For more details, please refer to the full ruling of this case here.

If you have questions about nexus, please reach out to a member of the Withum SALT Team.

August 6, 2025

Washington State Releases New Guidance on Whether CPA Services Are Subject to Retail Sales Tax

Authored by: Bonnie Susmano, JD, MBA and Eric Wagener

In response to Engrossed Substitute Senate Bill 5814 (ESSB 5814), Washington State has issued guidance regarding the taxability of specialized services, trades, and businesses, such as accounting services.

In a draft of ESSB 5814, the bill stated that accounting and other professional services would be subject to state sales tax. This section was later reversed in an updated version, although the bill then modified exclusions for “digitally automated services” or DAS, which is defined as “any service transferred electronically that uses one or more software applications”. This implied that any CPA firm with an engagement utilizing an online portal, such as Washington SAW, will be subject to sales tax.

On July 22, 2025, the Washington State Department of Revenue posted an FAQ providing general guidance regarding ESB 5814, which stated that accountants and lawyers who provide professional services are subject to the business and occupation excise tax because they “are considered the consumers of any software or digital products they use in performing or facilitating their services.” Other examples of professional service providers include engineers, architects, appraisers, and lobbyists, to name a few.

The following select services are classified as retail services and subject to retail sales and use tax and retailing business and occupation tax:

information technology training services and technical support;
custom website development services;
custom software and customization of prewritten computer software;
investigation, security services, security monitoring services, and armored car services;
temporary staffing services; and
advertising services.

The following Digital Good and Digital Automated Services are classified as retail services and subject to retail sales and use tax and retailing B&O tax:

any service that primarily involves the application of human effort by the seller;
live presentations;
advertising services; and
digital processing services.

The following services are excluded from retail sales and use tax and retailing B&O tax: temporary staffing services used by hospitals, and telehealth and telemedicine services.

If you have questions about the taxation of services, please reach out to a member of the Withum SALT Team.

July 17, 2025

Washington Repeals Exemption for Precious Metal and Monetized Bullion

Authored by: Courtney Easterday, MSA and Joe Petrucci

Washington enacted Engrossed Substitute Senate Bill 5794 (ESSB 5794), which repeals the sales tax exemption for retail sales of precious metal bullion and monetized bullion, effective October 1, 2025. The repeal is part of a broader tax reform package responding to the 2024 tax preference review, which targeted exemptions deemed obsolete or lacking clear policy justification. Industry groups, including the National Coin & Bullion Association (NCBA), strongly opposed the change, warning it will harm Washington’s coin and precious metals market and drive buyers to neighboring states. The repeal is one of 20 exemptions eliminated in an effort to address the state’s budget shortfall.

If you have questions about exemptions for precious metal, please reach out to a member of the Withum SALT Team.

June 13, 2025

New Washington Budget Brings Sweeping Tax Changes for 2026 – 2027

Authored by: Courtney Easterday, MSA, and Emilia Jarrin

On May 20, 2025, Washington Governor Bob Ferguson signed the state’s 2026–2027 budget, including significant changes to business and individual tax rules. Key tax changes include increases in Business & Occupation (B&O) tax rates across several classifications, surcharges on advanced computing and financial institutions, and a new 0.5% surcharge on businesses earning over $250 million in the state. The law also removes certain tax preferences, adds new B&O taxes on state-chartered credit unions and self-storage rentals, and imposes retail taxes on more services. A luxury tax on high-end vehicles, watercraft, and aircraft was additionally introduced, and the signed tax legislation modified both capital gains and estate taxes. These changes primarily target high-income individuals and large corporations, expanding the state’s tax base and altering various exclusions and preferential treatments. Businesses and high-net-worth individuals affected should review their tax strategies, as some provisions may be revised based on future feedback.

If you have questions about how Washington State’s budget bill affects you or your business, please reach out to a member of the Withum SALT Team.

April 21, 2025

Washington Provides Additional Guidance on Multiple Points of Use Exemption

Authored by: Penny Sweeting, CPA and Ryan Schupp

The Washington Department of Revenue recently posted Excise Tax Advisory No. 3242.2025 (3/27/2025) to provide additional guidance on their Multiple Points of Use exemption (MPU) to sales of software maintenance agreements with mixed elements. Generally, a software maintenance agreement will provide a consumer with technical support and updates for their existing software. The Department points out that software maintenance agreements with mixed elements that qualify as a bundled transaction are eligible for the MPU exemption if the transaction meets the following criteria:

The agreement includes one or more eligible products (prewritten computer software or upgrades);
The non-retail taxable products relate to the MPU-eligible product (customer support for prewritten software); and,
The agreement does not contain any retail-taxable products that are not MPU-eligible.

If you have questions about the MPU exemption, please reach out to a member of the Withum SALT Team.

April 8, 2025

The WA DOR Issues Guidance on Multiple Points of Use and Software Maintenance Agreements

Authored by: Bonnie Susmano, JD, MBA and Emilia Jarrin

On April 1, 2025, the Washington Department of Revenue issued Excise Tax Advisory 3242.2025 regarding the multiple points of use sales tax exemption on sales and use of software maintenance agreements that specifically involve sales of distinct and identifiable products for bundled transactions. A mixed-element software maintenance agreement (MESMA) must include MPU-eligible products available for concurrent use both within and outside Washington. Any non-retail-taxable services provided under the agreement must directly support or maintain the MPU-eligible products. The advisory further emphasizes that if the MESMA includes any retail-taxable products that do not meet MPU eligibility, the entire transaction becomes subject to retail sales tax. Lastly, taxpayers are advised to maintain comprehensive documentation, including agreements, invoices, and user location records, to substantiate their exemption claims and support any potential refund requests.

If you have questions about multiple points of use issues, please reach out to a member of the  Withum SALT Team.

March 27, 2025

Washington Debit Card Fees Ruled Not Subject To B&O

Authored by: Brian Meier, MSA and Penny Sweeting, CPA

The Washington Board of Tax Appeals (BTA) determined a taxpayer was not liable for retail sales tax and retailing B&O tax on debit card processing fees from its point-of-banking (POB) terminals. The Department of Revenue originally contended that these surcharges were for purchasing merchandise and should be included in the purchase price. The business rebutted that the fees are not equivalent to those paid by a merchant to a credit card company for processing. Rather, the fees in question for a debit transaction are convenience fees that the customer pays to the bank to access funds and settle a retail transaction. Ultimately, the BTA found that the customer pays the fees directly to US Debit Services for transaction processing, not to the merchant. Consequently, the BTA determined these surcharges (unlike credit card processing fees) should not be considered part of taxable gross receipts.

For more information please visit: Dkt. No. 99532, 11/13/2024.

If you have previously included POB (debit card processing) fees in gross receipts, you may be entitled to a refund. Please reach out to a member of the  Withum SALT Team to review your transaction fees.

March 27, 2025

Washington BTA Confirms Content Delivery Network Services Are Digital Automated Services

Authored by: Brian Meier, MSA and Penny Sweeting, CPA

The Washington Board of Tax Appeals ruled that the taxpayer’s content delivery network (CDN) services are classified as “digital automated services,” making them subject to retail sales tax and retailing Business and Occupation’s (B&O) Tax. In the appeals case, the taxpayer contested an assessment for unpaid excise taxes on its services from 2011 through 2015. They argued that their CDN services should be excluded under internet access or web hosting categories since they provide the backbone for their customers to transmit their content to end users. However, the Board found that CDN services do not qualify as “internet access” since they do not connect customers directly to the internet. While core CDN services involving storage and web hosting are excluded from the tax, any additional services are taxable. The Department correctly sourced the CDN services to the state using the taxpayer’s traffic reports, which provided a reliable method for determining the place of “first use.”

For more information please visit: Dkt. No. 20-129, 01/08/2025.

If you have questions about state tax and sourcing, please reach out to a member of the Withum SALT Team. 

February 7, 2025

Washington DOR Addresses State Taxation of Surcharges

Authored by: Emilia Jarrin and Katie Nguyen, CPA

The Washington Department of Revenue issued guidance on the tax treatment of “surcharges” added to customer invoices to cover expenses like tariffs, fuel costs, and credit card processing fees. These surcharges are generally subject to both the business and occupation (B&O) tax and retail sales tax in Washington. The Department specified that surcharges, including tariffs, are part of the selling price and cannot be deducted, even if listed separately on the invoice. Additionally, surcharges are taxable under the same tax classification as the goods or services purchased. For more information, please visit the Department’s website.

If you have questions about Washington State taxes, please reach out to a member of the Withum SALT Team.

January 30, 2025

Washington Issues Business and Occupation Tax Guidance on Investments

Authored by: Jessie Racioppi and Penny Sweeting, CPA

The Washington Supreme Court decided in the case of Antio, LLC v. Department of Revenue where the court concluded that the investment income deduction in calculating B&O tax is not allowed when investment income is the main business activity. (See the update below, Washington Supreme Court Denies Investment Income Deduction). In response to the court’s decision, the Department of Revenue issued guidance to clarify the investment income deduction. The guidance states that the deduction is allowed for investment income that is incidental to the taxpayer’s business. The term “incidental” applies when the investment activity contributes to less than 5% of the taxpayer’s annual gross receipts. The guidance further clarifies that financial institutions are not eligible for the B&O deduction.

If you have questions about the Washington B&O Tax, please reach out to a member of the Withum SALT Team.

November 25, 2024

Washington Supreme Court Denies Investment Income Deduction

Authored by: Bonnie Susmano, JD, MBA and Kiana McGowan, CPA, MBA

In the Washington Supreme Court case No. 102223-9, Antio, LLC v. Department of Revenue, filed on October 4, 2024, several financial investment entities were denied an investment income deduction from the state’s B&O excise tax. The court disallowed the 16 LLCs of Antio, LLC, a tax deduction for “amounts derived from investments.” Although the LLCs argued that their income from debt instruments should qualify as “investment income,” the court maintained a narrow stance from the 1986 O’Leary case and ruled that investment income must be incidental to a company’s main business purpose to qualify for the deduction, investment income must be less than 5% of annual gross receipts.

If you have questions about how investment income may be treated differently than business income, please reach out to a member of the Withum SALT Team.

November 7, 2024

Washington – New Services Subject to B&O Retailing Classification

Authored by: Katerine Velasquez and Penny Sweeting, CPA

The Washington Supreme Court reaffirmed the decision from Thurston Superior Court in Antio, LLC v. Dept of Revenue that will redefine the long-standing interpretation of the “investment income” deduction allowed when calculating the Washington Business & Occupation (B&O) Tax. The taxpayers are a group of related LLCs that invest in distressed companies, and all their revenue is earned by these investments. The Department of Revenue disallowed a deduction for investment income, claiming that the investment income is business income and outside the definition of what is allowed under the deduction. The Supreme Court relied on a 2002 case (O’Leary v. Wash. Dept of Rev.) that defined investments as “incidental investments of surplus funds.” For the Antio group, the court essentially determined that their business income was the investment income and set forth a new standard to define “incidental” as the investment income must be less than 5% of the overall income of the entity.

Taxpayers claiming the investment income deduction on their B&O returns may wind up paying significantly more tax as a result of the Washington Supreme Court’s Antio decision.

If you have questions about how the Washington B&O Tax affects your business, please reach out to a member of the Withum SALT Team.

October 11, 2024

Washington – New Services Subject to B&O Retailing Classification

Authored by: Katerine Velasquez and Penny Sweeting, CPA

On September 9, 2024, the Washington Department of Revenue’s Administrative Review and Hearing Division ruled that specific telephone support, training, and seminars provided exclusively in connection with taxable digital automated services should be classified as retailing activities for purposes of the Washington Business and Occupation Tax (“B&O Tax”). Specifically, the Division determined the telephone support and training or seminars were billed in addition to plan charges with the purpose of helping customers to access digital services that were classified as retailing. The customer could not access the training, support, or seminars without purchasing the product.

If you have questions about B&O Tax classifications, please reach out to a member of the Withum SALT Team.

Disclaimer: Please note that this information is readily available at this time and is subject to change, so please consult your Withum tax advisor.