Leyton is an international consulting firm that helps businesses leverage financial incentives to accelerate their growth and achieve long-lasting performance.
Big changes are coming for Washington service providers. Starting October 1, 2025, Washington State may extend its sales tax to include many professional services that have been historically exempt.
This change is part of a broader effort to address the state’s projected $16 billion budget shortfall and represents a significant shift in the tax obligations of service providers. Understanding the new Washington sales tax on professional services is crucial for business compliance.
From B&O-Only to B&O Plus Sales Tax
Traditionally, most professional services in Washington have been subject only to the Business & Occupation (B&O) tax, a gross receipts tax applied at rated generally between 1.5% and 1.75% under the “service and other activities” classification.
Under the new legislation, these same services will continue to be taxed under the B&O structure and may be subject to the state’s 6.5% sales tax, plus applicable local sales tax. In some jurisdictions, the combined state and local rate may exceed 10%.
Businesses Affected by Washington Sales Tax on Professional Services
The new sales tax applies to professional services provided to Washington clients, whether the service provider is located in-state or out-of-state. Washington enforces economic nexus standards, meaning businesses without a physical presence in the state may still have a collection obligation if they generate $100,000 or more in annual receipts from Washington-based clients.
Affected industries include, but not limited to:
Legal Services
Accounting and Bookkeeping
Marketing and Advertising
IT consulting and Software Development
Architectural and Engineering Services
Design and Creative Services
Out-of-State Services and Sourcing Rules
Services provided to clients located outside of Washington remain outside the scope of the state’s sales tax. However, the determination of where a service is “received” is critical, as sourcing rules will dictate taxability. Proper tracing and documentation will be essential to ensure compliance.
Preparing for Compliance
Businesses should take the following steps now to be ready for the October 2025 implementation:
Access Washington Revenue: Review sales data to determine whether you exceed the $100,000 economic nexus threshold.
Update Billing Systems: Ensure invoicing software can calculate the correct state and local sales tax rates.
Revise client Agreements: Clarify in contracts whether the business or the client will bear the sales tax cost.
Educate Internal Teams: Train staff on new tax requirements, sourcing rules, and compliance procedures.
Why immediate Action Matters
Delaying preparation can result in noncompliance, unexpected financial exposure, and strained client relationships. Addressing these changes proactively will allow for smooth implementation and avoid last-minute disruptions.
Wasington’s proposal to extend sales tax to professional services represents a major change for many businesses.
Whether you operate withing the state or simply serve Washington based clients, now is the time to review your operations, update your systems, and prepare for compliance well ahead of the October 2025 deadline.
Washington Sales Tax Expansion FAQ
1. What’s changing in Sales Tax?
Starting October 1, 2025, Washington State may begin charging sales tax on many professional services that were previously exempt. This is in addition to the state’s existing Business & Occupation (B&O) tax.
2. Who is affected by the Sales Tax changes?
Any business providing professional services to clients located in Washington may be affected, whether you are based in Washington or another state.
3. What types of services are included?
Examples include: Legal services, Accounting and bookkeeping, Marketing and advertising, IT consulting and software development, Architecture, engineering, and design services
4. What is the tax rate?
The state sales tax rate is 6.5%, but with local taxes included, the total rate can exceed 10% in some areas.
5. Does this apply to out-of-state businesses?
Yes. If your business earns $100,000 or more annually from Washington-based clients, you meet the state’s economic nexus threshold and must collect and remit Washington sales tax.
6. Are all my services taxable?
Not necessarily. Services delivered to clients outside of Washington are not subject to Washington sales tax. However, correct sourcing and documentation are essential.
7. How will this affect my invoices?
Invoices will now include applicable Washington sales tax for taxable services. Your engagement letter or service agreement will specify whether sales tax is added to your fee or included in your pricing.
8. What should clients expect?
Sales tax may be applied starting October 1, 2025 and the amount will depend on your local rate in Washington. Your invoice will clearly show any applicable sales tax
Have questions on your own?
We are here to help you understand these changes and how they apply to your specific situation.
Contact our Leyton SALT Team to discuss your service agreements, tax obligations, and the best way to prepare before the October 2025 deadline.
