Tax insight

Washington provides guidance on custom software under ESSB 5814

Insight
5 minute read
October 03, 2025

What happened?

The Washington Department of Revenue (Department) issued interim guidance on September 26, 2025, clarifying what qualifies as custom software, how to source the software, and which exemptions may apply.

Why is it relevant?

Effective October 1, 2025, ESSB 5814 expands the “retail sale” definition to additional products and services, including custom software and the customization of prewritten software, which is now subject to the retailing business and occupation (retailing B&O) tax and retail sales tax as of the effective date.

For more information, see PwC’s Insight.

Actions to consider

Sellers of custom software or modifications to prewritten software should carefully review service offerings to determine whether they will be taxable beginning October 1, 2025. Companies also should examine the documentation they have on file to support the correct location where sales tax must be collected. Purchasers of custom software or customization of prewritten software services should assess whether a multiple-points-of-use (MPU) exemption may apply to the purchase.