Washington offers temporary penalty relief, may exempt some newly taxable services

Washington state expanded its sales tax base considerably in 2025. Now, the Legislature is looking to exempt some of the services that became subject to sales tax on October 1, 2025.

Meanwhile, the Washington State Department of Revenue is temporarily waiving certain penalties for businesses that inadvertently failed to collect and remit sales tax on newly taxable services, provided the businesses voluntarily report and pay retail sales and use taxes for these services. The department is only waiving penalties: Businesses must pay the tax itself and any interest.

Key takeaways

Washington is temporarily waiving penalties for certain businesses. The Department of Revenue is offering a temporary program to waive penalties for businesses that inadvertently failed to collect and remit sales tax on services that became subject to sales tax on October 1, 2025, provided the businesses voluntarily report and pay retail sales and use taxes for these services. Tax and interest will not be waived.

Washington may exempt some newly taxable services. Washington significantly expanded its sales tax base in October 2025, taxing B2B services such as advertising, IT services, custom software, live presentations, and temporary staffing. Lawmakers are now considering multiple bills that would exempt certain newly taxable services.

Live presentations and temporary staffing services could become exempt from Washington sales tax. Live presentations and temporary staffing services are subject to Washington retail sales tax and retailing B&O tax as of October 1, 2025. Pending legislation could exempt some or all such services. Businesses providing or purchasing these services should closely monitor legislative developments to determine ongoing sales and use tax obligations.

Background

Certain services and other business activities became subject to Washington sales and use tax and retailing business and occupation (B&O) tax on October 1, 2025, thanks to the enactment of Washington Engrossed Substitute Senate Bill 5814 (Chapter 422, Laws of 2025):

Advertising services
Custom software and customization of prewritten software
Custom website development services
Information technology services
Investigation, security, security monitoring, and armored car services
Live presentations
Temporary staffing services

You can find more details in Washington to tax digital ads and tech services.

The Washington Department of Revenue has published a great deal of interim guidance and is working on final guidance. In the meantime, taxpayers face weighty uncertainty as to which of the services they buy and sell are subject to tax. Ben Beaudoin, VP of Tax at Avalara, believes resolving these issues “will likely require years of regulatory clarification, litigation, and additional legislation.”

Additional legislation is starting to emerge. At least seven bills now before the Legislature seek to exempt some of the B2B services that became taxable on October 1, 2025.

Exempting certain services

The Washington State Legislature is considering legislation to exempt the following services:

Health care continuing education classes (HB 2208, effective 90 days after final adjournment of the session)
Live presentations, including but not limited to lectures, seminars, workshops, or courses where participants attend either in person or via the internet or telecommunications equipment that allows audience members and the presenter or instructor to give, receive, and discuss information with each other in real time (SB 5980, effective October 1, 2026)
Live presentations delivered in person to in-person participants (HB 2101, effective immediately upon becoming law)
Sales of the following services to food banks: advertising services; any digital automated service (DAS) that primarily involves the application of human effort by the seller; custom software and customization of prewritten software; custom website design, support, and development services; DAS digital processing services; information technology related training services, technical support, and other services; investigation, security services, security monitoring, armored car services; live presentations; and temporary staffing (SB 6006; effective 90 days after final adjournment of the session)
Sales of the following services to schools below the college level: advertising services; custom website development; data processing services; DAS that primarily involves human effort by the seller; investigation, security, and armored car services; IT services; live presentations; and temporary staffing (SB 6012; effective 90 days after final adjournment of the session)
Temporary staffing services, defined as “providing workers to other businesses, except for hospitals licensed under chapter 10 70.41 or 71.12 RCW, for limited periods of time to supplement their workforce and fill employment vacancies on a contract or for fee basis” (HB 2424, effective 90 days after final adjournment of the session)
Temporary staffing services provided to nonprofit behavioral health entities (SB 6297 effective 90 days after final adjournment of the session)

In addition to exempting some or all the above services, the Legislature could waive penalties and interest for certain taxpayers who failed to collect and remit sales and use taxes established by ESSB 5814 (Chapter 422, Laws of 2025). While it deliberates that matter, the Department of Revenue is moving ahead with a temporary penalty relief program.

Waiving penalties

Recognizing that the sales tax changes established under ESSB 5814 “were challenging for many businesses to understand and follow before the law took effect,” the Washington Department of Revenue has created a temporary program to waive certain penalties for businesses that voluntarily report and pay retail sales and use taxes for affected services. Participating businesses will be responsible for paying the tax due along with any interest.

The temporary program covers reporting periods from October 1, 2025, through December 31, 2026. To qualify for the relief program, a business must owe retail sales tax because of ESSB 5814 changes and submit an application for penalty relief by September 30, 2027.

See the Department of Revenue notice on ESSB 5814 Penalty Relief Program for more details.

The new penalty relief program may render Senate Bill 6033 unnecessary. SB 6033 seeks to provide “a limited waiver of interest and penalties for taxpayers inadvertently failing to collect and remit sales and use taxes on select services subject to sales and use taxes under chapter 422, Laws of 2025.” The waiver wouldn’t apply to reporting periods beginning on or after January 1, 2028.

“SB 6033 is the Legislature’s way of recognizing a lack of clarity in (or the confusion caused by) ESSB 5814,” says Brian Smith, Senior Government Relations Director at Avalara.

This limited waiver of interest and penalties proposed by SB 6033 would only apply to sales and use taxes on select services that became taxable under Section 101 of ESSB 5814: advertising services; custom software and customization of prewritten software; custom website development; information technology (IT) services; investigation, security, and armored car services; live presentations; and temporary staffing services.

To qualify for the waiver, a taxpayer would need to:

File any amended or outstanding returns covering affected tax liabilities with the Washington State Department of Revenue.
Remit full payment of the balance due on all affected tax liabilities.
Have timely filed and remitted payment on all tax returns due for the 36 months immediately preceding the affected period.
Submit the designated application for a penalty and interest waiver.

Waivers would not be provided to taxpayers who’ve ever been assessed an evasion penalty or a penalty for misusing a reseller permit or resale certificate.

The savings would be significant. Penalties currently range from 9% to 29%, plus interest.

Bottom line

While it’s too early to know whether the Washington Legislature will enact any of the bills described above, or how many additional bills responding to ESSB 5814 will emerge, the Department of Revenue is providing a temporary relief program for certain affected taxpayers.

“ESBB 5814 was implemented quickly, and taxing services is tricky since taxability often depends on how the service is structured and billed,” says Amanda Denniston, Government Relations Manager at Avalara. “A longer runway could have reduced the need for fixes. Ongoing changes and confusion can make compliance harder for businesses.”

“The amendments are pretty standard,” adds Scott Peterson, VP of Government Relations at Avalara. “It may be impossible to fully understand all the ramifications of such broad legislation before it becomes law. It’s common for the sponsors of broad legislation to expect to make amendments once time has exposed the ramifications.”

In the meantime, businesses registered for Washington sales and use tax need to make sure they’re collecting and remitting it as required. Avalara helps businesses of all sizes comply with sales and use tax requirements in all states. Learn how Avalara can help you automate your compliance tasks.

FAQ

The Washington State Department of Revenue is temporarily waiving penalties for businesses that inadvertently failed to collect and remit sales or use tax on services that became subject to tax on October 1, 2025, due to the enactment of ESSB 5814. To qualify for penalty relief, the businesses must voluntarily report and pay the applicable retail sales and use taxes for these services. The department is not waiving tax or interest.

Live presentations are subject to Washington retail sales tax and business and occupation (B&O) tax as of October 1, 2025. According to the Washington State Department of Revenue, a presentation is considered a “live presentation” if the presenter or instructor and/or audience are allowed to give, receive, and discuss information with one another in real time, whether this occurs in person or electronically.

Yes. The Washington Legislature is considering two bills that would exempt some or all live presentations from sales tax:

SB 5980 would exempt all live presentations from sales tax whether they occur in person or via the internet.
HB 2101 would exempt live presentations delivered in person to in-person participants.

Yes. Temporary staffing services are subject to Washington retail sales tax and retailing B&O tax as of October 1, 2025, unless an exclusion or exemption applies when sold to a consumer. “Temporary staffing services” means “providing workers to other businesses, except for hospitals licensed under chapter 70.41 or 71.12 RCW, for limited periods of time to supplement their workforce and fill employment vacancies on a contract or for fee basis.”

Temporary staffing services provided to licensed hospitals are exempt from retail sales tax and retailing B&O) tax. Certain continuing education services are taxable as of October 1, 2025, while others are exempt. See the Washington Department of Revenue for details.

Pay attention to the Washington Legislature and track bills related to taxing services. You may also want to consult with a trusted tax advisor to determine how Washington defines and taxes the services you buy and sell.

Taxpayers who fail to collect and remit Washington sales tax as required by law are currently assessed the following penalties and interest on the unpaid tax until the entire balance is paid in full:

A 9% penalty plus interest if not paid by the due date
A 19% penalty plus interest if not paid by the last day of the month following the due date
A 29% penalty plus interest if not paid by the last day of the second month after the due date

The interest rate is calculated annually based on the federal short-term rate plus two percentage points.

Approximately 2,000 taxpayers are expected to request a waiver of penalties, according to the fiscal note for SB 6033.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.