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WASHINGTON'S 2025 TAX CHANGES: WHAT BUSINESS OWNERS MUST KNOW
Keep Up with WA Changes!
In addition to all the excitement of growing a business, we must always prepare ourselves for anything that is to come. Business owners that stay on top of changes that may impact their businesses, will be more equipped and ready to handle anything that comes there way. The Washington Center for Women in Business is here to help!
Washington businesses are about to feel the biggest tax changes in decades. From sales tax expanding into services, to higher B&O rates and progressive capital gains taxes, 2025 is a year of TRANSITION. If you own or operate a business here, this guide breaks down what’s changing, when it hits, and how to prepare.
BIG ONE: Sales Tax Expansion Hits Services
Starting October 1, 2025, services like advertising, IT, software development, staffing, and even live presentations will be subject to retail sales tax. For many service providers, this is the first time they’ll have to collect sales tax at all. These services include Advertising Services, Live Presentations, Information Technology (IT), Custom Website Development, Investigation & Security Services, Temp Staffing and Custom Software Services.
Action Tip: Audit your current contracts. If they were signed and fully paid before Oct. 1, you may qualify for transitional relief. But beware — if you modify those contracts after that date, tax applies immediately.
NOTE: Temp staffing agencies provided to hospitals are licensed under RCW chapters 70.41 or 71.12 and are excluded from this retail tax classification. Other exclusions include Digital Automated Services (DAS), Telehealth, and Out-of-home Advertising (billboards, signage, in-store display advertising, and transit advertising).
B&O Tax Rate Hikes & New Surcharges
Washington’s Business & Occupation (B&O) tax is also getting a makeover. Service companies will face higher rates if their annual gross receipts cross $1M or $5M thresholds. Financial institutions, advanced computing companies, and large corporations will also see surcharges.
Action Tip: Run revenue projections now. If you expect to cross $1M in service receipts, budget for a higher B&O tax bill starting October 1, 2025. Larger firms face even steeper rates starting in 2026 and 2027.
Capital Gains Tax Gets Progressive
If you sell a business, property, or other high-value assets, listen up: Washington’s capital gains excise tax is now progressive. Gains under $1M remain at 7%, but anything above that jumps to 9.9%. This change is retroactive to Jan. 1, 2025, so even gains earlier this year are affected.
Action Tip: Business owners planning a sale should factor in the new top rate. Consider timing transactions and consulting a tax advisor to minimize exposure.
King County Adds a Local Sales Tax
On top of state-level changes, King County has approved a new 0.1% sales and use tax dedicated to public safety. Businesses making taxable sales in King County will need to collect this starting October 1, 2025, with collections beginning January 2026.
Coming in 2026: Payment-Card Processing Rules
While not effective until January 1, 2026, companies that process payment cards will face new B&O classifications and deductions. If your business is in this industry, start planning early.
Takeaways for Business Owners!
These changes will affect margins, pricing, and compliance. The best move now is to:
- Update your accounting and invoicing systems.
- Communicate upcoming changes to clients and customers.
- Model different revenue scenarios to understand your B&O exposure.
- Use the Department of Revenue’s interim guidance to avoid missteps.
While these tax changes may feel overwhelming, it’s not all bad news. Washington continues to offer a strong business environment with no state personal income tax, robust consumer demand, and a growing economy fueled by tech, trade, and innovation. By planning ahead — updating systems, consulting with a tax professional, and exploring state programs that support small businesses — owners can stay resilient and even uncover new opportunities. Remember: with every challenge comes a chance to sharpen strategy and stay competitive in one of the nation’s most dynamic markets.
Written by: WCWB Staff
Sources:
1) Department of Revenue Washington state - https://dor.wa.gov/taxes-rates/retail-sales-tax/services-newly-subject-retail-sales-tax
2) DOR, ESSB 5814 - https://dor.wa.gov/laws-rules/interim_guidance_statements/interim-guidance-statement-regarding-changes-made-essb-5814-advertising-services
3) Washington DOR Clarifies Sales Tax Treatment of Pre-October 1, 2025, Contracts - https://www.mossadams.com/articles/2025/09/washington-dor-clarifies-sales-tax-treatment
4) 2081 HBR FIN 25 - https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bill%20Reports/House/2081%20HBR%20FIN%2025.pdf
5) Sales Tax Institute - https://www.salestaxinstitute.com/resources/business-and-occupation-rates-set-to-increase-with-washington-house-bill-2081
6) Equinox Strategic Legal Counsel for All - https://equinoxbusinesslaw.com/blog/legal-update-washington-enacts-new-tax-laws-affecting-capital-gains-sales-and-bo-rates/
7) Coldstream - https://www.coldstream.com/insights/washington-state-tax-changes-what-affluent-families-and-business-owners-need-to-know/
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