Washington state will expand the breadth of its sales tax laws, effective October 1, 2025, which could catch professional service firms off guard. While traditional legal and accounting services are exempt from sales tax, the ripple effects of this change could still substantially impact professional services firms, albeit in subtle but significant ways.
What’s Changing?
The new legislation, ESSB 5814, broadens the scope of its retail sales tax to include service categories that were not previously taxed. These include, but are not limited to:
- IT support
- Software customization
- Advertising and marketing services
- Live presentations (e.g., paid webinars and workshops)
- Temporary staffing and security services
Washington state will now tax these services under Washington’s Retailing B&O excise and retail sales tax.
Are Legal and Accounting Services Taxable Now in Washington?
In short: No, not directly. Most core legal and accounting services, such as litigation, estate planning, tax compliance, loan staffing and contract review, remain exempt and fall under the Service and Other Activities Business and Occupation (B&O) tax category.
However, professional services firms offering non-traditional services should take a closer look. For example:
- Paid legal webinars or CLEs may be taxable if considered "live presentations."
- Client-facing tech platforms or DIY tools may qualify as Digital Automated Services (DAS) and be subject to sales tax.
- Bundled services that include taxable components (e.g., marketing or tech support) may require itemized billing to avoid unintended tax exposure.
What Should Professional Services Firms Do?
Compliance is key even if your firm’s bread-and-butter services are unaffected. The following is a checklist of steps you can take to be compliant.
- Perform an internal audit of service offerings for any that may now be taxable.
- Update your billing systems to ensure sales tax applies where required.
- Amend your client contracts to clarify tax responsibilities.
- Train your staff on the new rules and sourcing requirements.
- Monitor the Department of Revenue for new guidance.
Warning to Out-of-State Firms
If your firm is based outside of Washington but earns $100,000 or more annually from Washington clients, you may now have economic nexus, which will require you to collect and remit sales tax. Even if your firm has no physical location in Washington, you may still be subject to Washington’s sales tax laws if you meet certain revenue thresholds.
Final Thoughts
The changes in Washington state’s sales tax rules are not surprising, given that most states are expanding their sales tax laws to tax a myriad of digital services. Professional services firms that embrace technology to provide their diverse service offerings must navigate a more complex tax landscape and adapt to changing times.
Note: This is an evolving situation. We will update this article as new information and guidance is released.
Author: Bonnie Susmano, JD, MBA | [email protected]
Contact Us
For more information on this topic, please contact a member of Withum’s State and Local Tax Services Team.
