Tax insight

Washington provides guidance on existing service contracts and DAS exclusions under ESSB 5814

Insight
5 minute read
September 24, 2025

What happened?

The Washington Department of Revenue (Department) issued interim guidance on August 29, 2025, to explain the tax collection and reporting requirements for taxpayers with existing service contracts entered into prior to the ESSB 5814 effective date of October 1, 2025. The Department also issued interim guidance on September 12, 2025, to further explain the repeal of certain exclusions from the definition of digital automated services (DAS).

Why is it relevant?

Effective October 1, 2025, ESSB 5814 expands the “retail sale” definition to include various services, such as information technology services, custom website development, investigation and security, armored car services, temporary staffing, live presentations, advertising, sales of custom software, and customization of prewritten software. These services are subject to the retailing business and occupation (retailing B&O) tax and retail sales tax.

The legislation repeals several DAS exclusions and excludes certain affiliate transactions from the retail sale definition. For more information, see PwC’s Insight.

Actions to consider

Companies should review existing contracts executed prior to October 1, 2025, to determine whether the contracted services will be taxable effective October 1, 2025. For these contracts, companies have the option to start reporting the applicable services under the retailing tax classifications as of October 1, 2025, or delay the change in tax treatment to April 1, 2026.