Article
Washington DOR clarifies sales tax treatment of pre-Oct. 1, 2025, contracts
Sept. 11, 2025 · Authored by Matt Graham
On Aug. 29, 2025, Washington’s Department of Revenue (DOR) issued an interim guidance statement explaining how to report tax on existing contracts that span the Oct. 1, 2025, effective date of Engrossed Substitute Senate Bill 5814 (ESSB 5814). The guidance provides limited transitional relief for certain contracts and clarifies when post-effective-date changes will trigger retailing business and occupation (B&O) tax and retail sales tax. Taxpayers can rely on this guidance until permanent guidance is issued.
Background
ESSB 5814 modernizes Washington’s retail sales tax base by: (1) extending sales tax to several services, (2) repealing certain exclusions applicable to digital automated services (DAS), and (3) excluding specified affiliate transactions from the definition of a retail sale. The statute is effective Oct. 1, 2025. Newly taxable services include information technology services, custom website development, investigation/security/armored car services, temporary staffing, live presentations, advertising services, and sales of custom software as well as customization of prewritten software.
For ongoing updates on newly taxable services, DOR has published a dedicated landing page and FAQs .
What counts as an existing contract?
For purposes of the interim guidance, a contract is existing only if all of the following are true:
- It was signed and executed before Oct. 1, 2025;
- The covered services are performed on or after Oct. 1, 2025 (or continue past that date); and
- The services become retail sales as of Oct. 1, 2025, under ESSB 5814.
How are existing contracts taxed?
The interim statement addresses three common situations.
Paid in full before Oct. 1, 2025
If the contract price is invoiced and paid before Oct. 1, 2025, but services occur or continue after that date, DOR deems the sale to have occurred before the effective date — so no retail sales tax is due, and the receipts may be reported under the Service & Other B&O classification. The method of accounting doesn’t change the outcome.
Take advantage of benefits of temporary Washington voluntary disclosure program
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.