Washington compliance after tax changes

Summary of key findings and practical compliance guidance (Washington-specific): - Major statutory changes (2025 session; effective dates vary: Jan 1, 2025; July 27, 2025; Oct 1, 2025; Jan 1, 2026; and other dates in 2026): - B&O tax: Multiple bills reorganize and increase B&O rates, restructure the Service & Other Activities classification into a three-tiered system with a top rate of 2.1%, increase certain surcharges (financial institution and advanced computing), and add a temporary 0.5% surcharge on very large firms (Washington taxable income > $250M). (Effective dates vary; three-tiered service rate takes effect Oct 1, 2025.) - Capital gains tax: ESSB 5813 creates an additional 2.9% surtax on Washington long-term capital gains above $1 million (in addition to the existing 7% capital gains excise tax).

The 2.9% additional tax takes effect January 1, 2025 (tax year 2025). The legislation also clarifies calculations, required documentation, and reporting (including amendments when federal returns change WA liability) and requires broker/form 1099-B reporting in certain situations. - Retail sales/use tax expansion: ESSB 5814 expands retail sales tax to specified services (information technology training & technical support, custom website development, custom software and customizations, investigation/security/armored car services, temporary staffing, advertising services, live presentations, and modifications to digital automated services' exclusions).

Effective October 1, 2025—DOR is notifying affected businesses. - New B&O rate for credit card/payment card processing: SHB 2020 (Chapter 401) creates a 3.1% B&O tax rate for payment card processing activities, with new deductions for interchange and network fees; effective Jan 1, 2026. - Repeals and preference changes: Some B&O tax preferences and credits (including parts of the Employee Ownership Program) are repealed or sunseted effective 2025–2026.

Rental of self-storage units becomes subject to B&O tax (effective Apr 1, 2026). Estate tax thresholds and rates are also adjusted. - Transportation & local taxes: New local public safety local-option sales tax (up to .1%) authorized; motor vehicle sales/use tax and some transportation fees adjusted with effective dates in 2026. - Technical and administrative clarifications requested/implemented to aid administration and taxpayer compliance (SSB 5431 and other bills). - Practical compliance actions for Washington business owners and LLC founders: 1) Reclassify revenue streams and review product/service definitions: Review whether services your business provides (IT support, custom software, advertising, staffing, security, live presentations, etc.) will be newly taxable as retail sales effective Oct 1,

Summary of key findings and practical compliance guidance (Washington-specific): - Major statutory changes (2025 session; effective dates vary: Jan 1, 2025; July 27, 2025; Oct 1, 2025; Jan 1, 2026; and other dates in 2026):

2.1%, increase certain surcharges (financial institution and advanced computing), and add a temporary 0.5% surcharge on very large firms (Washington taxable income > $250M). (Effective dates vary; three-tiered service rate takes effect Oct 1, 2025.) - Capital gains tax: ESSB 5813 creates an additional 2.9% surtax on Washington long-term capital gains above $1 million (in addition to the existing 7% capital gains excise tax).

The 2.9% additional tax takes effect January 1, 2025 (tax year 2025). The legislation also clarifies calculations, required documentation, and reporting (including amendments when federal returns change WA liability) and requires broker/form 1099-B reporting in certain situations. - Retail sales/use tax expansion: ESSB 5814 expands retail sales tax to specified services (information technology training & technical support, custom website development, custom software and customizations, investigation/security/armored car services, temporary staffing, advertising services, live presentations, and modifications to digital automated services' exclusions).

Effective October 1, 2025—DOR is notifying affected businesses. - New B&O rate for credit card/payment card processing: SHB 2020 (Chapter 401) creates a 3.1% B&O tax rate for payment card processing activities, with new deductions for interchange and network fees; effective Jan 1, 2026. - Repeals and preference changes: Some B&O tax preferences and credits (including parts of the Employee Ownership Program) are repealed or sunseted effective 2025–2026.

Rental of self-storage units becomes subject to B&O tax (effective Apr 1, 2026). Estate tax thresholds and rates are also adjusted. - Transportation & local taxes: New local public safety local-option sales tax (up to .1%) authorized; motor vehicle sales/use tax and some transportation fees adjusted with effective dates in 2026. - Technical and administrative clarifications requested/implemented to aid administration and taxpayer compliance (SSB 5431 and other bills).

1) Reclassify revenue streams and review product/service definitions: Review whether services your business provides (IT support, custom software, advertising, staffing, security, live presentations, etc.) will be newly taxable as retail sales effective Oct 1,

• B&O tax: Multiple bills reorganize and increase B&O rates, restructure the Service & Other Activities classification into a three-tiered system with a top rate of
• Practical compliance actions for Washington business owners and LLC founders:

Update accounting codes and point-of-sale or billing systems.

Register or update accounts with WA DOR

Ensure you have the correct excise taxpayer account(s) for B&O, sales/use, and any new tax classes (payment card processor B&O rate). Update business registration details, NAICS/industry selections, and nexus presence with DOR.

Estimate and remit new/changed taxes timely

For businesses facing new capital gains exposure, determine whether estimated payments will be due for 2025 tax year (capital gains surtax effective Jan 1, 2025). For newly taxable services, collect and remit sales tax beginning Oct 1,

Watch for any underpayment penalty rules and amended return requirements tied to federal return changes.

Update pricing and contracts

Consider the pass-through of B&O and sales tax changes to customers, and update contracts and service agreements to reflect tax treatment and billing changes.

Documentation and reporting

For capital gains subject to WA tax, preserve documentation cited by DOR; brokers may be required to provide 1099-B to DOR. Be ready to amend WA returns if federal return changes affect WA tax.

Review eligibility for credits and monitor repeal/sunset

If you relied on B&O credits (employee ownership program, other preferences), review sunset/repeal timelines and use any earned credits before expiration.

Consult professionals and monitor DOR notices

Because many changes have staggered effective dates and technical rules, work with a CPA or state-tax specialist and subscribe to DOR special notices/industry alerts.

Local tax monitoring

Check for city/local tax changes (public safety local-option sales tax) and county-specific rules that could affect total tax rates and compliance. - Key dates to track (examples from legislation): - Jan 1, 2025: Additional 2.9% capital gains surtax on long-term gains over $1M (tax year 2025). Parts of capital gains implementation and other provisions have Jan 1, 2025 effect. - July 27, 2025: Multiple enactments and effective dates (many DOR special notices announced around this date). - Oct 1, 2025: Service-and-other-activities three-tiered B&O reclassification begins; retail-sales-tax expansion to many services becomes effective. - Jan 1, 2026: Some changes (payment card processing B&O rate, estate tax adjustments, motor vehicle sales/use tax increases in some cases) take effect. - Apr 1, 2026 / July 1, 2026: Additional staggered effective dates for items like self-storage inclusion and repeal of some credits.