business backgrounder | taxation a sweeping new tax on services
The Legislature passed the tax in 2025 as part of a $ 9.4 billion tax package. Senate Bill 5814 imposes the sales tax on an array of professional services including advertising, website services, IT support, live presentations, security and temporary staffing. It was introduced and passed in less than 10 days.
It is expected to generate $ 2.7 billion in tax revenue over the next four years. In AWB’ s latest employer survey, conducted in January, three-quarters of respondents said they are paying the new sales tax or higher B & O rates also passed in 2025. Of those, 53 % said they are passing costs on to customers.
Businesses are now paying more for routine services such as IT help desk support, security, custom web development, and professional conferences and workshops under the new tax.
Businesses will get some relief— but not for three more years. During the 2026 legislative session that ended March 12, lawmakers voted to roll back most of the new sales tax on services( except for advertising— their new tax will remain) on Jan. 1, 2029 and exempt public schools from paying the tax starting in July. The changes were included as a tax relief provision in the new state income tax on household income over $ 1 million. The tax will also impact many small- and medium-sized business with pass-through income.
While these tax relief measures are helpful, AWB remained opposed to the overall income tax bill.
Ahead of the rollout last fall, AWB President Kris Johnson wrote in his monthly newspaper column that the new sales tax puts
John Rubino, partner at GreenRubino, talks with Amelia Cook of Goodwinds Composites during a tax and fiscal policy meeting with lawmakers during the 2026 AWB Legislative Day & Hill Climb in January.
“ Our smaller clients are experiencing the biggest impact. They had small budgets to begin with. They’ ve got big goals, small budgets, and now their budgets are even less.”
— John Rubino, partner at GreenRubino, a Seattle-based advertising and public relations agency
Washington at a continued disadvantage while increasing prices for everyday Washingtonians.“ It will squeeze the budget of small businesses, who often rely on outside firms for technical services instead of hiring someone in-house.”
The tax applies to many digital services, including SEO, web design and online ads, while exempting newspaper, print publishing and billboards.“ A small business paying $ 2,000 a month to a marketing firm could see $ 200 in added costs or $ 2,400 a year to stay visible,” industry publication AdAge noted.“ Instead of encouraging innovation, the law sends a clear message: If your business is digital, you pay more.”
Last fall, Comcast filed a lawsuit over the portion of the law that targets digital advertising, alleging it violates the federal Internet Tax Freedom Act by not taxing all advertising equally. Temporary staffing is another area taxed under the new law. Hospitals are exempt. Olympia-based Express Employment Professionals provides temporary staffing and recruiting services to employers in Thurston County. The tax has made it more expensive for clients to hire both temp and temp-to-hire employees, said Ashley Stone, managing partner at Express Employment Professionals. She worries the tax will push businesses to stop using their services altogether.
“ The tax on this service is not just affecting our business, it’ s also affecting employees getting to work, and it’ s affecting small businesses trying to staff for their company,” she said. winter 2026 43