During the recent legislative session, Washington’s state legislature passed multiple bills, which the governor signed into law on May 20, 2025. The various legislation aims to help address an estimated $16 billion dollar deficit for the state over the next four years. Specifically, Senate Bill 5814 and House Bill 2081 could significantly impact taxpayers in terms of sales tax, Business Occupation (B&O) Tax and other surcharges.
Effective October 1, 2025, Washington will expand its sales tax base by targeting digital services and products sold within the state. Taxable services in the state now include:
* Note: The sale of specific services, those marked with an asterisk above, between members of an affiliated group are not subject to sales tax. Generally, an affiliate group refers to a group of two or more entities related through ownership and control.
SB 5814 defines advertising services as “all digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements.” Therefore, taxable advertising services include:
Advertising services do not include:
While some of the non-digital advertising services that are now taxable help expand Washington’s sales tax base, the digital advertising services that stand to be taxed raise some questions. Mainly, can a digital advertising service withstand scrutiny in Washington’s court system? Over the past several years, Maryland also passed a law taxing digital advertising, which ended up going all the way to Maryland’s Supreme Court. Arguments against Maryland’s digital advertising tax, which could also apply to the new Washington digital advertising tax, were based on violations of the Internet Tax Freedom Act, Dormant Commerce Clause and the First Amendment. However, the tax on digital advertising still remains in that state. Time will tell how the digital advertising tax plays out in Washington state.
Effective January 1, 2027, Washington’s B&O tax rates will increase for multiple classifications:
| Classification | Current B&O Tax Rate | New B&O Tax Rate |
|---|---|---|
| Extracting increase | 0.484% | 0.5% |
| Manufacturing | 0.484% | 0.5% |
| Wholesaling | 0.484% | 0.5% |
| Retailing | 0.471% | 0.5% |
Effective January 1, 2026, there is a surcharge of 0.5% on any Washington taxable income over $250 million. Income from certain sources is exempt:
Effective October 1, 2025, there is an increased surcharge on specified financials institutions, increasing from 1.2% to a 1.5% tax rate, on gross income. Specified financial institutions are defined as those who:
Effective January 1, 2026, there is an increased surcharge, making a significant jump from 1.22% to 7.5%, on advanced computing. There is a cap of $75 million paid annually by an affiliated group. Advanced computing is defined as designing or developing computer software or hardware. It also includes cloud computing services.
The increases and expanded base of taxable services and products discussed above represent a considerable number of changes businesses need to properly address prior to making any sales or purchases in Washington state. If your company sells digital services or products in this state, it will be important to ensure these changes are incorporated into your state and local tax planning.
Contact Nick Longo, Scott Zielaskiewicz, Cody Parkman or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.