The Washington Legislature enacted a broad tax reform package in May 2025. The following provisions are relevant to service providers and businesses:
Sales Tax Expansion:
Retail sales and use tax now applies to a broader range of services, including IT, digital, and staffing services. Businesses offering these services must begin collecting and remitting sales tax at the combined state and local rates
Investment Income Deduction Clarification:
The legislation defines “incidental” investment income as income that is minor and not part of a business’s primary operations. This codifies the Department of Revenue’s existing interpretation and limits the scope of deductible investment income.
Repeal of Tax Preferences:
Several tax preferences have been repealed, including:
- Exemptions for certain manufacturing inputs
- Credits for international service activities
- Preferences related to gold and bullion transactions
- Deductions for low-income energy assistance programs
- Other sector-specific exemptions deemed outdated or inconsistent with current policy goals.
Capital Gains Tax Modifications:
Technical corrections were made to the capital gains tax law. These include replacing the B&O tax credit with a capital gains tax credit and clarifying administrative provisions. The 7% tax rate remains unchanged.
