Washington's New Sales Tax on Services: A Seattle Billing Guide

On this page 8 sections

1. ESSB 5814 Washington: What Changed and When
2. Which Services Washington Sales Tax on Services Now Covers
3. Finding the Seattle Sales Tax Rate on Services
4. Retainers, Prepayments and Contracts That Spanned October 1, 2025
5. How to Charge Sales Tax on Invoices in Washington
6. Mixed Bills: Separating Taxable and Nontaxable Work
7. Reporting and Remitting Through My DOR
8. Next Steps for Seattle Agencies and Consultants

Key takeaways

• Since October 1, 2025, ESSB 5814 has made IT services, custom website development, custom software and advertising services retail sales in Washington, so retail sales tax applies to them.
• A 2026 law (ESSB 6346) is set to repeal most of the new service taxes on January 1, 2029, but not the tax on advertising. The repeal also depends on courts upholding the state's new income tax.
• Rates depend on where the client receives the service. Look up each client's address in DOR's Tax Rate Lookup instead of using one Seattle rate for everyone.
• Show tax as its own line on invoices, payment links and recurring card charges, and keep the money you collect apart from operating cash until you send it to DOR.

Since October 1, 2025, Washington sales tax on services has covered work that many Seattle agencies and consultants never taxed before. That includes IT support, custom website development, custom software and digital advertising. This guide covers what ESSB 5814 changed, which services it reaches, how to find the right rate for each client, and how to set up invoices, payment links and recurring card billing so you collect and report the tax correctly. It reflects legislation and Washington Department of Revenue (DOR) guidance available as of October 2026.

This article is general information, not tax or legal advice. DOR's guidance on these services is still partly interim and the law has already been amended once, so check your situation with a CPA or tax attorney who knows Washington excise tax.

ESSB 5814 Washington: What Changed and When

Gov. Bob Ferguson signed ESSB 5814 on May 20, 2025, as part of a larger budget package (The Center Square). The law (Laws of 2025, Chapter 422) took effect October 1, 2025. It made a list of services "retail sales," so they're now subject to retailing business and occupation (B&O) tax and retail sales tax when sold to a consumer (DOR contracts guidance). It also repealed several exclusions for digital automated services and excluded certain sales between affiliated companies.

The 2026 legislative session then changed the timeline:

ESSB 6346 is set to repeal the tax on custom software, IT services, custom website development, data processing, security, temporary staffing and live presentations on January 1, 2029. Advertising services stay taxable (EY). The repeal is tied to the state's new income tax on household income over $1 million and becomes void if a court strikes that tax down (Lewis Group CPAs). Until then, you still have to collect and send in the tax.

Which Services Washington Sales Tax on Services Now Covers

IT Services and Custom Software

Washington sales tax on IT services covers a wide range of work. Technology advisors list IT training, technical support, network operations and support, help desk, and data entry and data processing (McDonald Jacobs). Sales of custom software and customization of prewritten software are also now retail sales (Plante Moran). For managed service providers billing per seat, this changes every monthly invoice. Our guide to automating per-seat MSP billing covers the payment side.

Custom Website Development

Washington sales tax on website development is its own category. In one example in DOR's IT services interim guidance, a consulting firm's work is classified as both IT services and custom website development. The firm reports the gross amount under retailing B&O and collects retail sales tax where Washington tax applies. For how other states handle this work, see sales tax on agency services by state.

Advertising Services, Including Digital Ads

Washington sales tax on digital advertising covers more than ad placement. The law defines advertising services broadly. It includes art direction, graphic design, search engine marketing, lead generation optimization, web campaign planning, online placements and analytics. It excludes services for newspapers, printing and publishing, radio and TV broadcasting, and out-of-home signage such as billboards (MediaPost). Sales between members of an affiliated group are excluded. If you're a full-service agency, assume much of your creative and media work may fall under this category, and confirm each service line with your advisor.

Other Newly Taxable Categories

• Live presentations: lectures, courses and workshops, in person or online. This matters for consultants who sell training.
• Investigation, security and armored car services.
• Temporary staffing services.

What's Still Unsettled

• Litigation: Comcast sued in Thurston County Superior Court on September 9, 2025. It argues the advertising tax violates the federal Internet Tax Freedom Act. A security company filed a separate challenge, and the state asked the court to dismiss Comcast's suit (Washington State Standard). We couldn't confirm a final ruling as of publication. Keep collecting unless DOR says otherwise.
• Interim guidance: DOR's statements are its current position until permanent rules are adopted.
• SB 6113: This 2026 bill updated which services are newly taxable (MRSC). Check DOR's current guidance for your service lines.

Finding the Seattle Sales Tax Rate on Services

The state rate is 6.5%, and local rates are added on top. Don't hard-code a single Seattle sales tax rate on services. Rates vary by location and can change during the year. Use DOR's Tax Rate Lookup tool with the client's actual address, and check your rate tables again whenever DOR announces local changes.

The harder question is which address. In general, Washington sources these services to where the client receives them. According to DOR's interim guidance, if you don't know where that will be at the time of sale, you may use the buyer's address in your books and records. If the service is received in several places, buyer and seller may allocate the sale with a reasonable, consistent method (Washington Research Council). For ads served to locations inside and outside Washington through servers, DOR presumes concurrent use, which matters for the multiple-points-of-use (MPU) exemption.

Out-of-state sellers can also owe Washington tax. DOR's remote sellers guidance says a remote seller must register, report B&O tax and collect any sales tax that applies if it has more than $100,000 in combined gross receipts sourced or attributed to Washington in the current or prior calendar year. After a seller passes that threshold, the duty to collect and report lasts for the rest of that year and all of the next calendar year. If you're based outside Washington and serve Seattle clients, confirm with DOR or your advisor how the threshold applies to your receipts. For more on location-based rules, see our guide to Seattle destination sourcing rules.

Retainers, Prepayments and Contracts That Spanned October 1, 2025

DOR issued transition guidance on August 29, 2025. SB 6311 later put the "qualifying existing contract" concept into law, with a transition period from October 1, 2025, to March 31, 2026 (EY). In summary:

• Fully paid before October 1, 2025: treated as completed and not subject to the new tax (UHY).
• Recurring billing under unchanged contracts: payments through March 31, 2026, could be left untaxed. Sellers could also start reporting under retailing on October 1, 2025 (PwC).
• Material changes: changing the parties, scope, duration or pay ended the relief right away. Clerical edits such as contact details didn't (Sales Tax Institute).

The transition period is over, so taxable work billed now should carry tax no matter when the contract was signed. These rules still matter if you're reviewing past returns. If you fell behind, DOR offers penalty relief to businesses that apply by September 30, 2027 (The Sales Tax People). Interest is not waived.

For retainers and prepayments today, ask your CPA whether tax is due when a deposit is paid or when the work is done. Whatever the answer, put the method in your engagement letter. If you run evergreen retainers with a card on file, make sure the top-up amount covers the tax.

How to Charge Sales Tax on Invoices in Washington

Here's a practical setup for invoices, payment links and recurring billing:

1. Map your service catalog. Mark each item as taxable, nontaxable or needing review, and note which category applies (IT, website development, advertising, live presentation).
2. Record where each client receives the service. Add a service-location field to client records, separate from the billing address.
3. Set location-based rates in your invoicing software. If you use QuickBooks for invoicing and accounting, set up tax rates by location rather than one default rate.
4. Show tax as its own line. List taxable subtotal, tax rate and tax amount separately so clients and auditors can follow the math.
5. Create payment links from the finished invoice. A link with a typed-in amount can easily leave out tax.
6. Update recurring charges before the next cycle. Change the plan amount, tell clients in writing before the new total is charged, and keep that notice. Unexpected increases are a common reason customers dispute charges. See how the chargeback lifecycle works.
7. Match keyed payments to the invoice. When you take a card by phone through a virtual terminal for keyed payments, enter the invoice total including tax. Use the gateway's tax field if it has one.
8. Check card fee programs with your advisor. If you surcharge or use dual pricing, ask how it affects the taxable amount and keep it on a separate line. Our guide on passing card fees to clients on large invoices explains the payment rules.

If your billing tool can't handle location rates or tax on subscriptions, compare options in choosing recurring billing software.

Mixed Bills: Separating Taxable and Nontaxable Work

Agency invoices often mix several kinds of work. Washington has specific rules for bundled transactions, where different items are sold for one price that isn't broken out. A single lump-sum price makes it hard to show that any part was nontaxable. List each part at a reasonable price instead.

Illustrative invoice (example numbers only):

Two exemptions are worth checking. If you do white-label work for another agency that resells it, DOR's guidance addresses resale, and you should keep the buyer's resale documentation. If a client uses the service both inside and outside Washington, ask whether the MPU exemption applies.

Reporting and Remitting Through My DOR

The tax you collect belongs to the state. Report gross receipts from these services under retailing B&O, and report and pay the retail sales tax on your excise tax return through My DOR, DOR's online portal. DOR assigns each business a filing frequency. Check your assigned frequency and due dates in your account, and look again if your sales volume changes a lot.

A few habits help:

• Keep collected tax in a separate account after each deposit. Card deposits include the tax, and processing fees usually apply to the full amount charged.
• Keep sourcing records for every taxable sale, because local tax is reported by location.
• Reconcile monthly. Compare tax shown on invoices, tax actually collected through card, ACH and payment links, and tax reported.

Next Steps for Seattle Agencies and Consultants

1. Review your service list against DOR's current interim guidance.
2. Add service-location fields and location-based rates to your billing system.
3. Rebuild invoice, payment link and subscription templates with a separate tax line.
4. If you missed collecting tax in past periods, ask your CPA about the penalty relief deadline of September 30, 2027.
5. Keep an eye on the Comcast case and the conditional 2029 repeal.

Your payment setup should make correct tax collection easy. MannyPay supports web design agencies and professional services firms with gateways, virtual terminals and integrations such as QuickBooks. Request a free quote, and a MannyPay specialist will get back to you within one business day.

Sources

1. Interim Guidance Statement Regarding Changes Made by ESSB 5814 for Information Technology Services (Washington DOR)
2. Interim Guidance Statement Regarding Contracts Existing Prior to October 1, 2025 (Washington DOR)
3. Remote Sellers (Washington DOR)
4. Washington Enacts Sales and Use Tax and B&O Tax Changes, Including Future Tax Relief (EY Tax News)
5. Washington State 2026 Session: Legislature Repeals and Rolls Back Certain Recently Enacted Taxes (Ballard Spahr)
6. Washington Sales Tax on Services (2026): Penalty Relief Now, Repeal in 2029 (Lewis Group CPAs)
7. Washington Is Forgiving Penalties on Its Digital Ads Tax (The Sales Tax People)
8. Sales and Use Taxes (MRSC)
9. Washington Expands Sales Tax to Include Additional Services (Plante Moran)
10. Washington State Sales Tax – Technology Companies (McDonald Jacobs)
11. Comcast Sues Over Washington State Tax on Digital Ads (MediaPost)
12. Another Lawsuit Filed Over WA's New Taxes on Services (Washington State Standard)
13. Comcast Sues WA Over New Tax on Digital Advertising (The Center Square)
14. The Perils of Rushing Tax Policy: A Legal Challenge to ESSB 5814 (Washington Research Council)
15. Washington Releases Interim Guidance on Taxable Services Under ESSB 5814 (UHY)
16. Washington Provides Guidance on Existing Service Contracts and DAS Exclusions (PwC)
17. Washington's Senate Bill 5814 Expands Sales Tax to Digital Services (Sales Tax Institute)
18. Hastily Passed Sales Tax Expansion Hits Washington Businesses (Association of Washington Business)

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About the author

MannyPay Editorial Team

Beyond the Swipe's editorial desk researches the publication's guides and news and cites its sources in every article. Articles reviewed by a named MannyPay editor carry that editor's byline.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.