Summary: Since October 1, 2025, Washington charges retail sales tax on services most startups sell — IT services, custom software, custom website development, advertising, training, and more (ESSB 5814). Many companies still haven't started collecting. The Department of Revenue is now offering a penalty relief program for businesses that come forward voluntarily: penalties waived, tax and interest still owed, applications due by September 30, 2027. If your startup sells services in Washington and hasn't looked at this, the exposure is growing every month — and the window to fix it cheaply is open now.
Who This Hits
ESSB 5814 (Chapter 422, Laws of 2025) expanded Washington's retail sales tax to several categories of services effective October 1, 2025. If your company sells any of the following to Washington customers, this law almost certainly applies to you:
- Information technology services, training, and technical support
- Custom software and customization of prewritten software
- Custom website development
- Advertising services
- Temporary staffing services
- Investigation, security, security monitoring, and armored car services
- Live presentations
The same bill also repealed several exclusions from the digital automated services (DAS) definition — including the exclusions for services primarily involving human effort, advertising services, and data processing — pulling more service revenue into the tax base. A telehealth exclusion was added.
The 2026 legislature then partially reversed course in ESSB 6346 — the same omnibus bill that enacted Washington's new 9.9% income tax. Effective July 1, 2026, that bill narrowed the expansion at the margins (broader hospital staffing exemptions, exclusions from the live-presentations category, and exemptions for sales to schools and libraries). And effective January 1, 2029, it repeals the sales tax on these services entirely — with one exception: advertising services remain taxable. Separately, pending litigation challenges portions of the expansion on Internet Tax Freedom Act grounds (Comcast Cable Communications Management LLC v. Washington).
None of that helps you today. The 2029 repeal is prospective, no court has enjoined the tax, and liability for covered services sold from October 1, 2025 forward stands.
Note what this is not: it is not a tax only on consumer sales. Washington's retail sales tax applies to business-to-business sales of taxable services unless an exclusion applies — purchases for resale being the main one. A SaaS company selling implementation and support services to Washington business customers is squarely in scope.
Why So Many Companies Missed It
The law took effect October 1, 2025 — before the DOR completed its normal rulemaking. The department governed the transition with interim guidance, definitions were genuinely unclear for months, and many service businesses either didn't know the law existed or couldn't tell whether their offerings were covered. Temporary relief applied to certain preexisting contracts through March 31, 2026, which added another layer of confusion about who owed what, and when.
The DOR knows this. That's why the relief program exists.
The Exposure Math
Here's what makes this urgent rather than merely annoying. Sales tax is legally the seller's obligation to collect. If you didn't collect it at the time of sale, the liability doesn't disappear — it becomes yours. A company with $2M of newly taxable Washington service revenue since October 2025 is carrying roughly $200,000 of uncollected tax (at a combined rate around 10% in the Seattle area), plus interest, plus penalties — and going back to customers for tax on invoices they already paid is somewhere between awkward and impossible. Uncollected sales tax comes out of your margin.
Every month of continued non-compliance adds to the number.
The Relief Program: What It Waives and What It Doesn't
In 2026 the DOR opened a temporary penalty relief program for ESSB 5814 liabilities. The mechanics, from the DOR's program page and June 25, 2026 announcement:
- What's covered: Uncollected retail sales tax and unpaid use tax resulting from the ESSB 5814 changes, for reporting periods from October 1, 2025 through December 31, 2026.
- What's waived: Certain late-payment penalties — for good-faith compliance errors.
- What's not waived: The tax itself and all accrued interest remain due. And the evasion, negligence, and tax-avoidance penalties are expressly excluded — this is a program for companies that missed the change, not companies that dodged it.
- How to apply: Through the DOR's online Voluntary Disclosure Application, answering "Yes" to the ESSB 5814 penalty relief question. Approved applicants receive a Penalty Relief Agreement that must be signed and returned within 30 days.
- Deadline: Applications are due by September 30, 2027, and are reviewed in the order received.
- Preexisting contracts: If a contract qualified for the temporary preexisting-contract relief, the penalty relief period starts when that relief ended (or April 1, 2026, whichever came first) and runs through December 31, 2026.
One more distinction that matters: if your company was never registered with the DOR at all, the department has indicated you should evaluate the standard Voluntary Disclosure Program first — a separate program with its own lookback and penalty terms. Which door you walk through affects what you owe. Don't pick one casually.
What To Do Now
1. Diagnose. Map your revenue lines against the taxable categories above. "We sell SaaS" is not an answer — implementation, support, training, customization, and professional services attached to a SaaS product each need their own look, and the DAS changes can catch the platform revenue itself.
2. Quantify. Pull Washington-sourced revenue for the affected lines from October 1, 2025 forward. That number, times the applicable combined rate, is your rough exposure before interest.
3. Decide the path. Registered but non-compliant points toward the penalty relief program. Never registered points toward voluntary disclosure. Already under audit or inquiry changes everything — get counsel before contacting the DOR at all.
4. Fix collection going forward. Whatever you do about the past, start collecting correctly now. The relief window covers periods only through December 31, 2026.
If you're not sure whether your revenue is caught by ESSB 5814, or which program fits your situation, book a 20-minute call and we'll scope your exposure and the right path forward.
This article is for general informational purposes only and does not constitute legal or tax advice. Nothing here creates an attorney-client relationship.
