By Scott Hale, Sales & Use Tax Manager, SpendMend
Beginning October 1st, significant changes are coming regarding the way sales tax is applied in Washington State. These changes—driven by ESSB 5814—will affect a broad range of services and, in turn, all Washington State taxpayers.
At SpendMend, we’ve been closely monitoring these developments and have already communicated the key points to our clients. To ensure that the broader healthcare and business community is also prepared, we are sharing the following summary of the upcoming tax changes, along with references to the Washington Department of Revenue’s interim guidance.
Services Becoming Taxable October 1st
- Custom Website Development Services
- Disability Access Service (DAS) Exclusion Modifications
- Security Services
- IT Services
- Advertising Services
- Temporary Staffing Services (Exempt for hospitals licensed under chapter 70.41 or 71.12 RCW)
The Washington Department of Revenue has issued interim guidance on their website. Below is a high-level summary with details for each service.
Custom Website Development Services
The department considers website consulting and training services to be: Supporting the functionality and operation of a website and taxable as “website development services.” Therefore, website consulting and training services are generally defined as a retail sale that are subject to the retailing B&O tax and retail sales tax when sold to a consumer.
DAS Exclusion Modifications
Washington treats the sale of DAS as a retail sale subject to retail sales tax. RCW 82.08.020(1)(b). A digital automated service is broadly defined but excludes specifically enumerated types of products or services. RCW 82.04.192(3)(a), (b).
While ESSB 5814 eliminates the general DAS exclusions for services that involve primarily human effort; live presentations; advertising; and data processing; those exclusions will still apply for sales between members of an affiliated group. See ESSB 5814 Section 101(8)(c).
ESSB 5814 also adds a new DAS exclusion for telehealth[1] and telemedicine[2] under RCW 82.04.192(3)(b).
In addition to the modification to the DAS exclusions, ESSB 5814 also provides “retail sale” exclusions for certain sales to affiliates as identified in ESSB 5814 Section 101(3). See the relevant published interim guidance statements for more information on the taxability of these services and how these exclusions apply.
Security Services
What are investigation, security, security monitoring, and armored car services?
Investigation services subject to retail sales tax are generally services that rely on interviews, surveillance, and behavioral analysis. Investigation services for purposes of this interim guidance are:
- Private detective services
- Background check services
- Fingerprint services
- Bounty hunting services
- Private investigation services
- Lie detection and polygraph services
- Missing person tracing services
- Skip tracing services
NOTE: The department will treat this as an exclusive list of investigation services as we gather more information about this topic. If the department determines later that additional services fall into investigation services, the department will include these additional services in future final guidance and enforce the changes prospectively.
Security, security monitoring, and armored car services subject to retail sales tax include, but are not limited to:
- Security guard and patrol services
- Personal and event security
- Armored car transportation of cash and valuables[3]
- Security system services and monitoring, including electronically transferred systems (e.g., alarm monitoring services)
Alarm monitoring services
Persons providing alarm monitoring services, as described in ETA 3189.2018, should continue to rely upon that ETA for tax-reporting guidance. The ETA presumes that these services are a digital automated service (DAS) unless the taxpayer establishes that their service meets the “primarily human effort” exclusion. Effective October 1, 2025, ESSB 5814 eliminates the DAS exclusion for “primarily human effort.” As such, beginning October 1, 2025, alarm monitoring services are generally defined as “retail sales” under RCW 82.04.050 even if these services do not meet the definition of a DAS under RCW 82.04.192(3)(a).[4] Please see the department’s interim guidance statement regarding changes made by ESSB 5814 to DAS exclusions and the definition of a “retail sale.”
Investigation, security, security monitoring, and armored car services do not include:
- Locksmith services
- Forensic accounting services
- Internal (not purchased from third parties) human resources investigations
- Cyber security services (please see the department’s interim guidance statement regarding changes made by ESSB 5814 for Information Technology Services)
- Process servers
IT Services
Effective October 1, 2025, providers of IT Services are generally required to report gross income from sales of IT Services under the retailing B&O tax classification. IT Services providers are also generally required to collect and remit retail sales tax.
The department considers any services that support or assist information technology infrastructure to be taxable as an IT Service. These services may include, but are not limited to: providing network assessments, planning, design, migration services, network security services, system upgrades, and other network maintenance services to a client’s information technology infrastructure.
IT Services include, but are not limited to:
- Support activities such as telephone consulting, help desk services, and remote training related to network hardware or software.
- Services that provide network diagnostic, analysis, advisory support, quality assurance testing, localization services, network information logistics, and maintenance support services on new or existing network infrastructure.
- Onboarding and offboarding services (e.g., setting up users with laptops and accounts).
- Managed IT services, including infrastructure network configuration, analysis, and implementation.
- Consulting or project management services, including planning efforts, analysis, engineering, testing, or deployment.
- Project management and technical program manager services that manage engineers and consultants who are providing IT Services.
- Migrating services and support, including the transfer, relocation of services from one environment to another, and associated project management services.
- Consulting and support services in connection with digital products, including digital automated services.
- Services that troubleshoot hardware and software issues and provide information technology solutions.
- Network security management and implementation of network security strategies.
IT Services do not include:
- Web hosting, domain name registration, and payment processing services.
- Custom website development services (separately classified as a retail sale per ESSB 5814 Sec. 101(3)(g)).[2]
- Sales of digital automated services, including software as a service (separately classified as a retail sale per RCW 82.04.050(8)).
- Sales of remote access software (separately classified as a retail sale per ESSB 5814 Sec. 101(6)(b)).
- Sales of custom software and customization of computer software (separately classified as a retail sale per ESSB 5814 Sec. 101(6)).
- Cryptocurrency mining activities (does not include network system support or operation services).
- Telecommunications services and ancillary services (classified as a retail sale under RCW 82.04.050).[3]
Advertising Services
Advertising services means all digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements, including, but not limited to:
- Layout, art direction, graphic design, mechanical preparation, production supervision, placement, referrals, acquisition of advertising space, and rendering advice concerning the best methods of advertising products or services.
- Online referrals, search engine marketing, and lead generation optimization, web campaign planning, the acquisition of advertising space in the internet media, and the monitoring and evaluation of website traffic for purposes of determining the effectiveness of an advertising campaign.
Advertising services do not include:
- Web hosting services and domain name registration.
- Services rendered in respect to the following:
- Newspapers as defined in RCW 82.04.214.
- Printing or publishing under RCW 82.04.280.
- Radio and television broadcasting within this state as defined in RCW 82.04 (section 1, chapter 9, Laws of 2025).
- Services rendered in respect to out-of-home advertising, including:
- Billboard advertising
- Street furniture advertising
- Transit advertising
- Place-based advertising, such as in-store display advertising or point-of-sale advertising
- Dynamic or static signage at live events
- Naming rights
- Fixed signage advertising
Note: This does not include direct mail.
Temporary Staffing Services
Effective October 1, 2025, ESSB 5814 reclassifies certain services as a “retail sale.”[1] Included in those services are “temporary staffing services,” which are now subject to retail sales tax and retailing business and occupation (B&O) tax unless an exclusion or exemption applies if sold to a consumer.[2] Prior to October 1, 2025, the tax treatment of temporary staffing services was based on the underlying activity performed by the worker.
Under ESSB 5814, “temporary staffing services” means “providing workers to other businesses, except for hospitals licensed under chapter 70.41 or 71.12 RCW, for limited periods of time to supplement their workforce and fill employment vacancies on a contract or for fee basis.”[3]
Temporary staffing services provided to a hospital
ESSB 5814 explicitly excludes placements of temporary staffing services to hospitals licensed under chapters 70.41 and 71.12 RCW from being taxed as a retail sale.[5] As such, these placements will continue to be reported for B&O tax purposes based on the classification of the underlying services performed by the assigned worker. If workers placed in qualifying hospitals perform services that are otherwise taxable as retail sales, then those services would still be subject to the retailing B&O tax and retail sales tax. See WAC 458-20-274 for further clarification.
To be taxable as “temporary staffing services,” the department will consider whether the taxpayer meets all the following factors:
- The taxpayer recruits and hires their own employees;
- The taxpayer finds other organizations that need the services of those employees;
- The taxpayer assigns those employees on a temporary basis to perform work at or services for the other organizations to support or supplement the other organizations’ workforces, or to provide assistance in special work situations such as, but not limited to, employee absences, skill shortages, seasonal workloads, or to perform special assignments or projects, all under the direction and supervision of the customer; and
- The taxpayer customarily attempts to reassign the employees to other organizations when they finish each assignment.[4]
Taxpayers that meet all the above factors will generally be subject to retailing B&O and retail sales tax (except for the placement of temporary workers to hospitals licensed under chapters 70.41 and 71.12 RCW) as they are considered to be providing temporary staffing services.