Governor Ferguson has recently signed several tax bills passed by the legislature this session. For this post, we’ll be covering some of the major changes outside the Millionaire's income tax bill, which will be covered in a separate article.
Sales and Use Taxes
Most years, the Department of Revenue drafts technical corrections legislation which corrects, clarifies and codifies their policies into existing statute. As these are based on current DOR tax policies, they are not intended to raise or lower state revenues, but are informative on DOR interpretations of existing statutes. SB 6113 offered some changes to the expanded list of taxable services passed last session; the changes below are effective retroactively to October 1, 2025.
- Added a definition for taxable “investigation services” to include providing investigation, detective, and personal background check services including private detective services, background check services, fingerprint services, bounty hunting services, private investigation services, lie detection and polygraph services, missing person tracing services and skip tracing services.
- Added a definition of taxable “temporary staffing services” which generally excludes most independent contractors and recruiting agencies which are not the employers of the temporary staff.
- Excludes from the definition of taxable live presentations: classes provided by preschools and accredited K-12 and higher education schools, music, theater, and comedy performances, one-on-one instructional lessons, youth camps, and presentations at qualified religious institutions and cemeteries.
- Advertising services: Clarifies that the sourcing for sales tax purposes is based on where the digital ads are viewed or interacted with by users. Authorizes the DOR to develop an alternative method to source advertising services for sales/use tax rates when viewership information is unavailable. Clarifies that the Multiple Points of Use exemption can apply to digital ads viewed concurrently in multiple locations.
- Authorizes the DOR to develop factors to differentiate a taxable Digital Automated Service (DAS) from a professional service merely utilizing a DAS.
- Codifies that use tax applies to services which became subject to sales tax October 1, 2025. Also codifies the Department’s treatment of qualified “existing contracts” between October 1, 2025 – March 31, 2026.
Finally, with the Governor’s recent signature on the Millionaire’s tax bill, most services which became subject to sales tax on October 1, 2025, will be repealed January 1, 2029, if the income tax goes into effect. Advertising services will remain subject to sales tax.
Also pending the income tax becoming effective, certain grooming and hygiene products, diapers and over the counter drugs will no longer be subject to sales tax effective January 1, 2029.
Note if the income tax is ruled unconstitutional or repealed at the ballot box, the sales tax changes in that bill are nullified. However, three clarifications in this bill would survive and are effective July 1, 2026:
-
- Taxable temporary staffing excludes certain hospital-based clinical providers.
- Taxable live presentations exclude before and after school care by elementary schools, presentations by most nonprofits, and music lessons regardless of the number of participants.
- Libraries are exempt from most of the recently expanded sales taxes on services.
- Taxable temporary staffing excludes certain hospital-based clinical providers.
B&O Taxes
Effective 7/1/26, revenues from most wholesale sales of food and food ingredients are not subject to the additional 0.5% B&O surcharge on revenues over $250 million.
Also, note that any of the changes to sales taxability stated above may also change the corresponding B&O classification of these revenues (e.g. from Retailing to Service B&O).
WA Estate Taxes
Last session, the legislature increased the Washington estate tax rates to the highest in the country, topping out at 35% on taxable value above $9 million. SB 6347 reduces these tax rates to what they were prior to last session’s law.
Effective July 1, 2026, the Washington estate tax rates are tiered between 10%-20% with the top rate applying to taxable value above $9 million. Also effective on this date, the standard exclusion amount per estate is set at $3 million which is functionally not indexed to inflation.
WA Capital Gains Taxes
Under HB 1376, taxpayers are allowed to make pre-payments for Washington capital gains taxes up to six months before the due date, which allows better matching of the tax payment to the year the corresponding assets were sold. Tax payments for 2026 can be made as early as October 15th, 2026.
What Didn't Pass
Also notable were the tax bills which failed to pass this year. There were a few proposals to impose payroll related taxes on employers, one which drew inspiration from Seattle’s payroll expense tax. A bill which would have imposed taxes on data brokers based on brokering personal data also failed to advance.
Another stalled bill would have decoupled Washington’s capital gains tax from the federal Qualified Small Business Stock gain treatment. This is a federal incentive used by small business start-ups and their investors to exempt all or a portion of the gain when the business is sold.
So, will we see these proposals again in the future? Who knows, but if the recently passed Millionaire's income tax is overturned, there will be budget issues bringing tax proposals back to the table in Olympia.
The Sweeney Conrad Tax Services Team provides proactive tax compliance and strategic planning guidance to individuals, closely held businesses, and family enterprises throughout the Pacific Northwest.