The Washington State Legislature in 2025 adopted a Bill that will soon come into effect, expanding the retail sales tax base to include new types of digital products. The Legislature found it necessary to amend the current retail sales tax framework, given the expansion of the service industry within the digital economy.
Washington is one of the US states that imposes a retail sales tax on digital products. However, the current sales tax framework excludes various significant types of digital products from retail sales tax. Sales and use tax applies to most of the digital products, regardless of how they are accessed.
The current sales and use tax framework classifies digital products into two categories:
- Digital Goods(music, movies, books)
- Digital Automated Services(DAS)
Effective Date of Change
As of October 1, 2025, Engrossed Substitute Senate Bill (ESSB) 5814 will take effect. From that date, retail sales and use tax shall be imposed on a broad scope of new types of digital products.
Scope of the Change
Local and out-of-state vendors that supply digital products under the amended sales tax framework will be obligated to register for sales tax and file the Excise Tax Return accordingly. Providers of advertising services will most likely be the ones that contribute the most to the state’s coffers in terms of sales tax collection and remittance by sector or subsector.
The following types of digital products(digital goods or digital automated services) shall become taxable as part of the ESSB 5814:
- Sales of custom software and customization of prewritten software
- Advertising services(digital and nondigital services)
- Live presentations(in person or streaming)
- IT services
- Custom website development services
- Data processing services
The above-listed digital goods or digital automated services are not exhaustive; other supplies also fall within the scope of the new Bill. To ascertain with clarity whether the Bill also applies to out-of-state providers of digital goods or DAS, an in-depth analysis of the offering is necessary.
Businesses that provide these services should be aware that starting from October 1, 2025, they are obligated to charge, collect, and remit retail sales tax. They are compelled to submit the Excise Tax Return in accordance with the prescribed conditions and deadlines.
The gross income from these supplies is used to determine the Business & Occupation Tax that should be remitted to the Washington Revenue Office.
The retail sales tax rate is based on the exact location of the recipient of the service. Digital service providers should utilize effective tax validation and lookup tools to identify the customer’s location accurately.
How to Stay Compliant
- Evaluate the applicability of new provisions to the type of digital product that your business offers
- Review the turnover of your sales to customers in Washington
- Determine what type of transactions your business will handle
- Register when the threshold is reached
- Register on the Washington Revenue Portal
- Submit Excise Tax returns and make retail sales tax payments on time
- Follow the Invoicing and Recording requirements.
Don’t hesitate to get in touch with us if you have any questions regarding the retail sales tax registration process in Washington, or if you have questions about the retail sales tax requirements that affect your business operations. Our tax team would be happy to assist you.
Takeaway
Author: Aleksandar Delic
Out-of-state vendors of digital goods or digital services should consider that, as of October 1, 2025, the amended retail sales tax framework will take effect. With the expanded definition of digital products, many types of digital products that were previously excluded from sales tax will now be taxable.
The providers of advertising services, the vendors of custom-made software, and other types of digitally automated services will be impacted by the new rules. Familiarize yourself with the latest requirements in advance to avoid potential fines or reputational damage.
Indirect Tax Manager – E-commerce
Starting October 1, 2025, Washington will impose sales tax on digital products, including custom software, advertising services, live presentations, IT services, and custom website development.
The new sales tax law, as outlined in Engrossed Substitute Senate Bill (ESSB) 5814, takes effect on October 1, 2025.
Out-of-state vendors supplying digital products will be required to register for sales tax, charge, collect, and remit the tax, as per Washington’s updated framework.
Services like advertising, custom software development, IT services, data processing, and live presentations will be taxed under the new law.
Businesses providing taxable digital products must charge sales tax, file the Excise Tax Return, and adhere to deadlines for remitting tax, starting October 1, 2025.
The sales tax rate for digital products is based on the recipient’s location, so providers must use tax validation tools to ensure accurate tax rates.