Most professional services in Washington state fall outside retail sales tax. Untaxed services include legal work, accounting, medical care, and general business consulting. In October 2025, Washington expanded its retail sales tax, which made certain other services taxable: custom software development, digital advertising placement, temporary staffing, and security services.

Below, we’ll explore what shifted under the 2025 law, how to check your own services against the statutory categories that trigger sales tax, and what compliance looks like if you’re now collecting tax you weren’t before.

Key takeaways

• Legal, accounting, medical, real estate, insurance, and general consulting services remain outside Washington’s retail sales tax base.

• Custom software development, digital advertising placement, temporary staffing, and security services carry retail sales tax under ESSB 5814.

• A business can sell both taxable and exempt services to the same client. Invoices need to separate the two rather than apply one tax treatment across the board.

How has Washington’s approach to taxing services changed?

Washington shifted from taxing almost no services to taxing a specific, growing list of them. Washington historically taxed retail sales of tangible goods plus a narrow set of services, including construction and certain digital automated services. Everything else, from bookkeeping to marketing consulting, stayed outside retail sales tax.

That changed with ESSB 5814, which took effect October 1, 2025. Specific services that previously didn’t count as “retail sales” are now subject to retail sales tax under state law. Washington still runs on an exception-based system so you’re taxed only if your service shows up on the list. But the list grew in 2025 and the legislature has already shown it’s willing to add to it again.

How do you determine if a service is taxable in Washington state?

To determine whether your service is taxable in Washington, you’ll need to match it against specific statutory categories.

Ask yourself the following questions:

• Does the service involve creating or modifying software?
  Custom software development, software customization, and information technology (IT) technical support tied to software all became taxable under the 2025 changes.

• Is the service digital and automated?
  Digital automated services (services delivered electronically through one or more software applications) are partially taxable, with exceptions for services such as payment processing and web hosting.

• Does the service involve staffing, security, or investigation work?
  Temporary staffing services, private investigation services, and security services all moved into the taxable column under the 2025 law.

• Is it advertising delivered through digital channels?
  Digital advertising services, including ad space sold on websites and apps, fall inside the taxable base.

If your service falls outside all of the above categories, it’s probably still exempt from retail sales tax. Your business income remains subject to business and occupation (B&O) tax under whichever classification applies.

What services are not taxable in Washington state?

Most professional and personal services in Washington stay outside the retail sales tax base.

Here are the main categories of services that aren’t taxable:

• Legal services: Litigation, contract drafting, and general counsel work performed by attorneys

• Accounting and tax preparation services: Bookkeeping, audits, and individual or business tax filing

• Medical and healthcare services: Care provided by physicians, dentists, and licensed therapists

• Real estate services: Brokerage commissions and property management fees

• Insurance services: Underwriting and claims processing

• General business consulting: Strategy, operations, and management advice that doesn’t touch custom software or IT support

What connects these categories is what they don’t do: none of them involve building software, placing digital ads, staffing workers, or providing security.

What compliance steps should Washington service businesses follow?

Businesses that now collect Washington sales tax should follow these general steps for compliance:

• Register the correct tax classification: If you provide a newly taxable service, you need to report under retailing B&O and collect retail sales tax, in addition to whatever classifications already applied to your business.

• Update your invoicing or point-of-sale system: Apply sales tax only to the line items that changed. If you sell both taxable services (e.g., custom software work) and exempt ones (e.g., general consulting) to the same client, separate them on the invoice rather than tax the whole thing at one rate.

• Apply the correct local rate: Washington’s state sales tax rate is 6.5%, but cities and counties can add their own rates on top. Services generally use destination-based sourcing, in which you apply the rate tied to where the customer receives the benefit of the service. So the combined rate depends on where the service is delivered.

• Document your classification decisions: Keep a record of why you treated each service as taxable or exempt, especially for work that sits close to the line (e.g., software customization that blends custom development with ready-made configuration).

• Review contracts written before October 2025: If a client agreement locked in pricing before the law took effect, check whether the contract allows you to pass along the new tax or whether you’re absorbing it out of the original quote.

Which industries are most affected by Washington’s service tax changes?

Companies that build custom applications, provide managed IT support, or handle software customization now collect sales tax on work that went untaxed a year earlier. These companies can include independent developers and small IT shops.

Marketing and advertising agencies that sell digital ad placement, including programmatic buying and ad space management, have to determine which parts of their business touch digital advertising specifically. Traditional advertising strategy and creative consulting can stay exempt, but the placement of digital ads doesn’t.

Staffing agencies that place temporary workers must collect sales tax on placement fees. This hits industries with heavy seasonal hiring the hardest (e.g., warehousing, hospitality, agriculture), where temporary staffing volume runs high for months at a time.

Security and investigation firms, including private investigators and companies that provide armed or unarmed guard services, moved onto the taxable list too. That changes how they price contracts with commercial clients, who received these services tax-free until October 2025.

Stripe Tax calculates what’s owed on a transaction based on where your customer is located and the tax code you assign to what you’re selling. A business that sorts through Washington’s newly taxable services can assign one tax code to custom software development and a different one to exempt consulting work. Then, it can let Stripe Tax apply the right treatment to each line item rather than tax an entire invoice at a single rate.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.

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