Washington’s Senate Bill 5814 Expands Sales Tax to Digital Services, Sparking Legal Concerns

Even though Senate Bill 5814 was just signed on May 20, 2025, by the Governor of Washington, legal challenges are already anticipated due to the controversial way the legislature singles out certain advertising services that are digitally or electronically delivered.

The bill expands the retail sales tax to cover several additional services, effective October 1, 2025. It also redefines “digital automated services” by removing the “human effort” exclusion from the definition. As a result, services that primarily involve human effort are now subject to sales tax if delivered digitally. The bill further defines the sourcing of taxable services, specifying that sales are taxed based on where the customer “first uses” the service, evaluated on a transaction-by-transaction basis. This expansion to digital services introduces complex sourcing challenges for businesses.

The following categories can expect to feel the impact of this expansion:
    Advertising services (digital only), including online referrals, search engine marketing, digital ad placement, campaign evaluation, graphic design, and layout. It excludes newspapers, printing, broadcasting, billboards, and live events
    Information technology services like IT training, technical support, help desks, data processing, data entry, and in-person hardware/software training
    Custom website development
    Temporary staffing services
    Security-related services, including investigations, security monitoring, and armored car services
    Custom and customized prewritten software

The bill’s narrow focus on digital advertising is particularly concerning, as it raises the risk of violating the federal Internet Tax Freedom Act. Additionally, sales between affiliated group members—as defined in RCW 82.04.299(1)(f)—are exempt from sales tax.

Finally, nicotine products will also be affected as the bill expands the tax to cover synthetic and tobacco-derived products.

Due to the likeliness of taxpayer challenges and ensuing litigation, the Sales Tax Institute will continue to monitor updates related to this bill, and House Bill 2081, which was signed the same day. (Washington State Legislature, SB 5814, May 20, 2025)

UPDATE: The Washington Department of Revenue’s recent guidance related to S.B. 5814 outlines how contracts signed before October 1, 2025, are treated based on payment status and how the contract is altered.

If the contract was fully paid before the October 1, 2025, effective date, then the sale is considered to have occurred before October 1. These transactions are consequently not subject to retail sales tax or retailing B&O tax, even if services are rendered afterward. Businesses should report the services under the pre-existing tax classification.
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