Sales Tax and Business & Occupation Tax Changes – HB 2081 & SB 5814

HB 2081

• New Tier for Service Providers: Service businesses with over $5 million in annual gross receipts will now pay a B&O tax rate of 2.1%, up from the previous 1.75% rate applied to those earning over $1 million. Washington Society of CPAs

• Clarification on Investment Income: In response to the Antio, LLC v. Dept. of Revenue case, the law now specifies that only “investments incidental to the main purpose of the person’s business” are subject to B&O tax. Washington Society of CPAs

• 5% Threshold Defined: A strict 5% limit is established to determine what qualifies as “incidental” investment income. Washington Society of CPAs

• Exemptions Introduced: Mutual funds, most nonprofits, retirement accounts, and family investment vehicles are exempted. However, these exemptions take effect on January 1, 2026, leaving current and past liabilities uncertain. Washington Society of CPAs

• Further Guidance Expected: The Department of Revenue (DOR) is tasked with issuing rules to clarify remaining ambiguities, including apportionment nuances and definitions related to business engagement. Washington Society of CPAs

SB 5814

• Digitally Automated Services (DAS): The exclusion for services involving “predominantly human effort” is removed. Consequently, professional services, including accounting services delivered via online portals, may now be subject to sales tax. Washington Society of CPAs

• Live Presentations Taxed: Sales tax will apply to live presentations, encompassing Continuing Professional Education (CPE) courses and conferences. This change could also affect live offerings from educational institutions and other organizations. Washington Society of CPAs

• Effective Date: Both DAS and live presentation tax provisions take effect on October 1, 2025.

Source:

https://www.wscpa.org/blog/134d3d06-5d71-447b-a224-021bc4be2560:major-tax-changes-coming-to-washington-state