Washington to tax digital ads and tech services

Beginning October 1, 2025, Washington sales tax will apply to a host of digital advertising and IT services. This tax law change is likely to have a significant impact on many companies doing business in Washington state, especially in the tech industry.

• Washington SB 5814 expands the retail sales tax to many services used by businesses effective October 1, 2025.
• Advertising services, custom website development services, investigation and security services, IT services, and temporary staffing services are among the services that will be subject to Washington sales tax on and after October 1, 2025.
• Services related to newspapers, printing or publishing, and radio and television broadcasting will remain exempt from Washington sales tax.
• Washington’s retailing business and occupation (B&O) tax applies to services.

Washington’s tax code is “heavily reliant on sales taxes,” explains Senate Bill 5814. As the state and nation move toward a more service-based economy, the state’s retail sales tax is reaching a “narrowing share of economic activity.”

For this reason, the Legislature “intends to modernize the sales tax” by extending the retail sales tax to computer-related services and removing exemptions for digital automated services and other services.

The following services are subject to Washington sales tax today (before SB 5814 takes effect):

• Construction services
• Installation, cleaning, and repair services
• Landscaping and landscape maintenance services
• Miscellaneous services 
  • Alarm monitoring services
  • Car wash
  • Catering and personal chefs
  • Credit bureau services
  • Escrow services 
  • Extended warranties
  • Parking and vehicle towing
  • Restaurant services
  • Telephone services
• Personal services
  • Dating
  • Personal training at athletic and fitness facilities
  • Tanning 
  • Tattooing 
  • Turkish and steam baths, including hot tubs
• Retail recreation services
  • Fishing charters
  • Service charges on professional sporting event tickets
  • Sightseeing day trips
• Specified digital products purchased for permanent or nonpermanent use
  • Digital goods (e.g., data, facts, images, information, and/or sounds)
  • Remote access software (RAS)
  • Digital automated services (DAS)

What is DAS? A digital automated service is a service that’s transferred electronically and uses one or more software applications. Examples include car history report services, chat rooms, photo sharing services, and services that crawl the internet and gather, categorize, and store information. 

Under current law (July 2025), DAS does not include advertising services, data processing services, internet access, live interactive presentations, payment processing, telecommunications, or web hosting, storage, and backup. Services that are primarily the result of human effort performed in response to a customer request are also not considered DAS.

That will change on October 1, 2025.

Senate Bill 5814 broadens Washington’s retail sales tax considerably. Starting October 2025, Washington state and local sales and use tax will apply to retail sales of:

Advertising services 

Advertising services include the acquisition of advertising space, art direction, graphic design, layout, mechanical preparation, placement, production supervision, referrals, and rendering advice concerning the best methods of advertising products or services. 

Advertising services also include the acquisition of advertising space in internet media, online referrals, search engine marketing and lead generation optimization, web campaign planning, and the monitoring and evaluation of website traffic for purposes of determining the effectiveness of an advertising campaign.

Advertising services do not include web hosting services and domain name registration; services related to newspapers, printing or publishing, or radio and television broadcasting; or services related to out-of-home advertising like billboards, naming rights, or transit ads.

Custom software and customization of prewritten software

Custom software services include the right to access and use custom software, and customization of prewritten computer software, where possession of the software is maintained by the seller or a third party, regardless of whether the charge for the service is per use, per user, per license, subscription, or some other basis.

Customization of prewritten software includes the right to access and use custom software, and customization of prewritten computer software to perform data processing.

Custom website development services

Website development service means the design, development, and support of a website provided by a website developer to a customer.

Information technology services

IT services include assisting with network operations and support, data entry services and data processing services, help desk services, in-person training related to hardware or software, and network system support services.

Investigation, security, security monitoring, and armored car services

Taxable security services include armored car transportation of cash and valuables, background checks, personal and event security, security guard and patrol services, and security system services and monitoring. This does not include locksmith services.

Live presentations

Live presentations include lectures, seminars, workshops, or courses where participants attend either in person or virtually, and all participants can give, receive, and discuss information with each other in real time.

The Washington Department of Revenue has published an interim statement regarding live presentations for schools and institutions of higher education.

Temporary staffing services

Temporary staffing is the provision of workers to other businesses on a contract or fee basis. This does not include providing workers to qualifying hospitals.

Exclusions from retail sales tax. Advertising, data processing, and digital automated services that involve human effort remain exempt if the sale is between members of an affiliate group.

Telehealth services are also excluded from DAS (and therefore taxation) under SB 5814. 

SB 5814 also eliminates exclusions from “digital automated services” (DAS) for:

• Advertising services
• Data processing services
• Live presentations
• Services primarily involving the application of human effort by the seller

The Washington State Department of Revenue will publish additional guidance soon.

Washington currently uses the Streamlined Sales and Use Tax Agreement’s standard sales tax sourcing rules for digital products, digital codes, and RAS.  
 
This is the hierarchy for sourcing.

• The seller’s place of business (if where the purchaser receives the digital product, code, or RAS)
• The location where the purchaser receives the digital product, code, or RAS (if not the seller’s place of business)
• The purchaser’s address according to the seller’s business records (if the location where the purchaser receives the digital product, digital code, or RAS isn’t known)
• The purchaser’s address as obtained at the time of sale (if no address is in the seller’s business records)
• The address where the digital product, code, or RAS is first made available for transmission by the seller (if no address is obtained at the time of sale)

Whether Washington will need to refine its sourcing rules due to SB 5814 remains to be seen.

There’s a good chance Washington’s new tax on digital advertising and tech services will be challenged once it takes effect. 

“Legal challenges — particularly under the federal Internet Tax Freedom Act (ITFA) — are ripe and appear inevitable” according to McDermott Will & Emery’s Inside SALT blog. “Taxing digital advertising services while expressly excluding offline media places the new law on a collision course with ITFA. A legal challenge is all but guaranteed.”

The Tax Foundation calls Washington’s digital ad sales tax “a legal and economic minefield.” 

A legal challenge to Washington’s digital ad and tech tax could slow the state’s efforts to update its sales tax laws, but it might not. Maryland’s digital ad tax has been under fire since before it took effect in 2021, yet the state continues to collect it. And Maryland is also expanding its sales tax base.

Effective July 1, 2025, Maryland is taxing a long list of data and information technology services at a rate of 3%. The general sales tax rate is 6%.

The taxable services are identified by North American Industrial Classification System (NAICS) code sectors 518 and 519, and subsectors 5415 and 5132. They include computer systems design, data processing, information services, technology services, system software or application software publishing services, and web hosting.

However, the Maryland Comptroller warns that a business’s primary business activity code “is not determinative” of whether the services are taxable. “A business that has chosen a classification other than 518, 519, 5415, or 5132, but which sells a service described by those codes is required to collect and remit sales and use tax on the sale.” 

That could make tax compliance more complicated for businesses, as will Washington’s new tech tax.  

Many businesses with customers, vendors, employees, or locations in Washington and Maryland will be impacted by the tax law changes taking effect July 1, 2025, in Maryland and October 1, 2025, in Washington.

Automating sales tax compliance can help businesses comply with the services tax rule changes in Maryland and Washington. Contact Avalara to learn how our automated, cloud-based sales and use tax software can help your business keep pace with tax changes nationwide.

Senate Bill 5814 is a law that significantly broadens Washington’s retail sales tax to various services — such as advertising, custom website development, and information technology — effective October 1, 2025.

Many IT services, including data processing and help desk support, will be subject to Washington sales tax starting October 1, 2025, due to the enactment of SB 5814. 

Many professional services related to advertising, custom website development, information technology, investigation and security, live presentations, temporary staffing, and other activities are subject to Washington sales tax effective October 1, 2025. Some digital automated services are already taxable. 

Washington generally does not tax accounting, consulting, legal, or similar professional services.

Yes. Digital advertising services are subject to Washington’s Business & Occupation (B&O) tax, as it applies broadly to gross receipts from business activities. There are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business.