Washington State’s New Sales Tax Rules for 2025–26: What Businesses Should Know

Joe Wallin

22 Oct 2025 — 1 min read

Washington’s Department of Revenue (DOR) is tightening its approach to sales tax collection beginning in 2025. The changes reflect two themes that have been evolving for several years: expanding the scope of taxable “digital goods and services,” and strengthening compliance for out-of-state sellers and marketplace facilitators.

1. The Expanding Definition of “Digital Goods”

The DOR has clarified that SaaS (software as a service), PaaS (platform as a service), and even API access are subject to retail sales tax when used in Washington. Businesses that assumed these were exempt under “data processing” or “consulting” categories should reassess.

A typical example: if your startup provides cloud-based dashboards or AI model access, you now have a clearer obligation to collect and remit sales tax on those subscriptions if customers use the service in Washington.

2. Sourcing Rules Are More Aggressive

Sales tax sourcing continues to follow destination-based rules, meaning the tax applies where the customer uses the service — not where your servers sit or where your company is headquartered. Expect more DOR enforcement around IP address tracing and customer-location verification.

3. Marketplace Facilitator Liability

Marketplace facilitators (like app stores or SaaS reseller platforms) remain fully responsible for collecting and remitting tax on behalf of third-party sellers. However, 2025 rules now require more detailed reporting — including customer location data and seller identifiers — to enable DOR audits.

4. B&O Tax Interaction

These updates intertwine with Washington’s Business & Occupation (B&O) tax, which still applies separately based on gross receipts. A SaaS company could owe both B&O (for revenue) and sales tax (on the transaction). The DOR has indicated it may expand audit scrutiny for double-compliance failures.

5. Action Steps for 2025

Review your nexus — economic and physical — for Washington.
Update invoices and checkout flows to clearly display sales tax.
Verify that your accounting system distinguishes between taxable and nontaxable digital services.
If you sell through marketplaces, confirm facilitator collection duties are documented.

Takeaway:
Washington’s approach to taxing digital services has matured into a comprehensive regime. 2025‑26 will be the years of enforcement and compliance refinement. For startups and software firms, the cost of ignoring this evolution could mean both back-tax liability and penalties.

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