Article | by Geffen Mesher

In this third installment of our series on Washington State’s Engrossed Substitute Senate Bill 5814 (ESSB 5814), we examine the practical implications of the state’s expanded retail sales tax system, with a focus on five newly taxable service categories taking effect October 1, 2025. Building on our previous coverage—where we discussed the legislative intent and treatment of pre-existing contracts—this article turns to the compliance realities businesses will face in adapting to this new legislation.

The Department of Revenue (DOR) describes ESSB 5814 as a long-overdue modernization effort aimed at aligning Washington’s tax system with today’s service-based economy. The bill expands the retail sales tax to a wider array of services, repeals certain exclusions—particularly those involving digital automated services (DAS)—and updates the tax treatment of inter-affiliate transactions.

While the legislation covers a broad range of services, the DOR’s initial interim guidance has focused on five specific categories that will be newly subject to sales tax starting in October 2025: live presentations, information technology services, investigation and security services, custom website development, and certain DAS-related services previously excluded. These changes impact a wide array of industries, from education and technology to security and digital services.

1. Live Presentations: Real-Time Education Becomes Taxable

One of the most notable changes will affect providers of live education and training services. As of October 2025, any live presentation—defined as real-time lectures, courses, or workshops, whether delivered in-person or online—will be treated as a retail sale. These transactions will be subject to both retailing B&O tax and retail sales tax when sold to consumers.

This change has significant implications for professional education providers, corporate training firms, and organizations offering certification or development programs. While the tax application itself may seem straightforward, sourcing is far more complex. In-person events are taxed based on the event location, whereas virtual sessions must be sourced to each attendee’s physical address. Hybrid events require an allocation between physical and digital participants, adding administrative complexity for businesses serving customers across jurisdictions.

For many providers, especially those offering nationwide or global training sessions, this adds an administrative burden that will require updates to registration systems, invoicing procedures, and event tracking platforms.

2. IT Services: A Broad and Operationally Disruptive Shift

Perhaps the most far-reaching change involves the expansion of tax to information technology services. The DOR has defined this category broadly, encompassing services such as help desk support, network maintenance, hardware/software training, data entry, and data processing.

This expansion brings many common business arrangements—like managed IT services, cybersecurity consulting, payroll processing, and system implementations—into the taxable realm. Multi-location sourcing rules apply here as well: if services are received at more than one location, tax must be proportionally or equally allocated. For IT vendors, this will likely require updates to contracts, billing systems, and internal controls to ensure accurate tax collection and reporting.

3. Security and Investigation Services: A New Tax Frontier

Security-related services are also undergoing a major change. Services such as guard and patrol operations, event security, armored transport, alarm monitoring, and investigation services like background checks and fingerprinting will all be newly taxable under ESSB 5814.

That said, certain services remain excluded from sales tax under these new rules, including cybersecurity consulting, locksmith work, and internal investigations handled by HR or forensic accountants. Still, the inclusion of alarm monitoring services—previously excluded under DAS rules—highlights the state’s intent to apply traditional sales tax rules consistently, regardless of whether services are delivered physically or digitally.

4. Custom Website Development: Digital Providers in the Spotlight

Website development and related services are now squarely within the scope of retail sales tax. This includes everything from initial design and implementation to ongoing support and performance optimization. Even training and consulting related to a website project are now considered taxable services.

This creates new tax obligations for digital agencies and independent developers, especially those serving Washington clients remotely. Sourcing remains a critical issue: developers must determine where the service is received—often the customer’s business location. Misreporting this, particularly when done in bad faith to avoid tax, could result in penalties and assessments. Out-of-state developers earning more than $100,000 annually in Washington-sourced revenue will also be subject to economic nexus rules.

5. Common Threads: Documentation, Resale, and Nexus Monitoring

Despite the diversity of the services now subject to tax, several common compliance themes emerge. First, documentation will be critical—especially for businesses that operate in multiple jurisdictions or deliver services in hybrid formats. Contracts, invoices, and internal records should clearly define how and where services are delivered, and which party is responsible for tax collection.

Second, there may also be resale opportunities for businesses that subcontract services and resell them to end customers. If a business does not use the service themselves and is contractually responsible for the final delivery, a resale exemption may apply—provided it is well-documented.

Finally, nexus monitoring is more important than ever. ESSB 5814 adds complexity for any business operating across state lines. Remote service providers—especially in IT and digital sectors—must carefully track revenue to determine whether they’ve triggered economic nexus thresholds in Washington and elsewhere.

6. Strategic Response: How Businesses Should Prepare

Businesses affected by these changes should adopt a two-phase strategy—immediate readiness ahead of the October 1, 2025 effective date, followed by sustained compliance through 2026 and beyond.

In the near term, businesses should conduct in-house taxability audits to identify services that will become taxable and assess vendor contracts accordingly. Where applicable, they should begin planning for sales tax registration and ensure billing systems are configured to apply and collect the correct tax. Contracts may need to be updated to reflect tax responsibilities and risk allocation.

Additionally, businesses should review their purchases in the state and use tax processes, particularly when dealing with out-of-state vendors who may not have nexus with Washington.

Longer-term, companies should implement consistent documentation and sourcing controls, regularly review nexus thresholds, and assess subcontracting arrangements for resale opportunities. Above all, it’s important to stay in close contact with tax professionals who can help interpret the DOR’s evolving guidance and recommend strategic actions.

The DOR’s current statements are labeled as interim guidance, pending the adoption of permanent regulations through 2026. The department has also acknowledged the possibility of legislative clarification, particularly in areas where traditional and digital service models intersect.

7. Final Thoughts

ESSB 5814 is reshaping Washington’s tax landscape in fundamental ways. For service providers—and the businesses that buy from them—these changes bring both new risks and new opportunities.

By investing now in tax readiness, contract clarity, and cross-jurisdiction compliance, businesses can minimize disruptions and potentially gain a competitive advantage. Treating this as more than a compliance exercise—as a chance to modernize tax and billing operations—can set businesses up for long-term success both in Washington and across other jurisdictions with similar trends.

More information: WA DOR Services newly subject to retail sales tax 

Additional WA DOR Articles:

What Washington’s New Tax Laws Mean for Professional Service Businesses (WA DOR Series)

Washington Updated Sales Tax Rules: Your Contract Questions Answered (WA DOR Series)

About Geffen Mesher:
Geffen Mesher, a Portland-based accounting firm, focuses on providing ongoing financial strategy, accounting and tax advisory services for businesses and individuals. We serve numerous industries and create solutions that help our diverse clientele plan and build their financial futures wisely. Learn more at gmco.com.

Geffen Mesher’s team is available to assist you with questions related to these updated rules. Please contact professionals for more information at INFO@GMCO.COM.