Washington compliance for software companies

I performed targeted searches of Washington State official guidance and recent authoritative commentary (2020–2026) to compile up-to-date, practical compliance guidance for software companies operating or serving customers in Washington State.

Summary of findings and practical checklist are below. Key takeaways (concise): - Business formation & registration: Form your LLC (Certificate of Formation) with WA Secretary of State and maintain a registered agent and annual report.

Obtain a Washington Business License/UBI via the Department of Revenue Business Licensing Service (BLS). Many employer and tax accounts (Workers’ Compensation, Unemployment Insurance, PFML) are triggered by the Business License Application. - State & local business licensing: File the Business License Application (BLA) / Master Business License; processing fees apply (e.g., open/reopen $90).

Cities/counties may require local endorsements or city business licenses. - Taxes: Washington has no personal income tax but does impose Business & Occupation (B&O) taxes (on gross receipts) and retail sales/use tax.

Digital products, prewritten software, and remote access software have long-established DOR guidance. Effective Oct 1, 2025, Washington significantly expanded retail sales tax to cover many IT and digital services (including custom software development, website development, IT training, some digital automated services) — firms must review contracts and update billing, tax collection and resale documentation. - SaaS/digital products: DOR treats many digital products and remote access software as taxable in specific ways (sourcing rules, retailing B&O, remote access exemptions in limited scenarios).

Taxability depends on whether software is prewritten (canned), custom, delivered electronically, licensed, or provided as a service — and on sourcing rules. - Nexus & sourcing: Server location alone doesn’t automatically establish nexus; sourcing rules for digital products follow SSUTA hierarchies; economic/physical nexus rules require review if you have Washington customers or employees. - Payroll & employment obligations: Register for Workers’ Compensation (L&I), Unemployment Insurance (ESD), and Paid Family & Medical Leave (PFML).

Washington mandates paid sick leave and has higher state (and many local) minimum wages (2025 state minimum cited at $16.66/hr; check local rates). Employers must report new hires and file quarterly reports even if no payroll. - Data privacy & security: Washington enacted sector-specific and data-protection measures; the “My Health, My Data Act” (consumer health data) became effective for regulated entities March 31, 2024 (small businesses had additional compliance deadlines).

WA also has an Office of Privacy and Data Protection and state breach-notification and AG enforcement mechanisms — software companies handling personal or health data must implement privacy notices, data minimization, DPA/vendor oversight, and breach response procedures. - Enforcement & penalties: Noncompliance can result in tax assessments, penalties, interest, administrative dissolution for filings not maintained, and civil/private enforcement under recent privacy statutes — update contracts and insurance (cyber liability) accordingly.

Practical compliance checklist for Washington software companies (recommended first actions):

I performed targeted searches of Washington State official guidance and recent authoritative commentary (2020–2026) to compile up-to-date, practical compliance guidance for software companies operating or serving customers in Washington State.

Summary of findings and practical checklist are below. Key takeaways (concise):

- State & local business licensing: File the Business License Application (BLA) / Master Business License; processing fees apply (e.g., open/reopen $90). Cities/counties may require local endorsements or city business licenses. - Taxes: Washington has no personal income tax but does impose Business & Occupation (B&O) taxes (on gross receipts) and retail sales/use tax.

Digital products, prewritten software, and remote access software have long-established DOR guidance. Effective Oct 1, 2025, Washington significantly expanded retail sales tax to cover many IT and digital services (including custom software development, website development, IT training, some digital automated services) — firms must review contracts and update billing, tax collection and resale documentation.

- Payroll & employment obligations: Register for Workers’ Compensation (L&I), Unemployment Insurance (ESD), and Paid Family & Medical Leave (PFML). Washington mandates paid sick leave and has higher state (and many local) minimum wages (2025 state minimum cited at $16.66/hr; check local rates).

Employers must report new hires and file quarterly reports even if no payroll. - Data privacy & security: Washington enacted sector-specific and data-protection measures; the “My Health, My Data Act” (consumer health data) became effective for regulated entities March 31, 2024 (small businesses had additional compliance deadlines).

WA also has an Office of Privacy and Data Protection and state breach-notification and AG enforcement mechanisms — software companies handling personal or health data must implement privacy notices, data minimization, DPA/vendor oversight, and breach response procedures.

• Business formation & registration: Form your LLC (Certificate of Formation) with WA Secretary of State and maintain a registered agent and annual report. Obtain a Washington Business License/UBI via the Department of Revenue Business Licensing Service (BLS). Many employer and tax accounts (Workers’ Compensation, Unemployment Insurance, PFML) are triggered by the Business License Application.
• SaaS/digital products: DOR treats many digital products and remote access software as taxable in specific ways (sourcing rules, retailing B&O, remote access exemptions in limited scenarios). Taxability depends on whether software is prewritten (canned), custom, delivered electronically, licensed, or provided as a service — and on sourcing rules.
• Nexus & sourcing: Server location alone doesn’t automatically establish nexus; sourcing rules for digital products follow SSUTA hierarchies; economic/physical nexus rules require review if you have Washington customers or employees.
• Enforcement & penalties: Noncompliance can result in tax assessments, penalties, interest, administrative dissolution for filings not maintained, and civil/private enforcement under recent privacy statutes — update contracts and insurance (cyber liability) accordingly. Practical compliance checklist for Washington software companies (recommended first actions):

Entity & licensing - File Certificate of Formation with WA Secretary of State; appoint registered agent; track anniversary for annual report (SOS). - File Washington Business License Application (BLS) to obtain UBI and trigger employer accounts. - Check city/county local business license requirements (e.g., Seattle).

Taxes & accounting - Register with WA DOR (myDOR) and determine B&O classifications applicable to your receipts (retailing, services, royalties, etc.). - Review DOR guidance on digital products, remote access software, and services newly subject to sales tax (effective Oct 1, 2025). Update billing lines, nexus monitoring, and reseller/exemption processes. - Establish sales/use tax collection and filing processes where applicable; obtain reseller permits when reselling.

Payroll & employment - If you hire in WA, register for Workers’ Comp (L&I), Unemployment Insurance (ESD), and PFML; set up payroll withholding and reporting cadence (quarterly). - Implement paid sick leave and comply with state and local minimum wage rules.

Privacy & security - Map data flows for Washington residents, identify consumer health data subject to the My Health My Data Act. - Implement privacy notice, data subject request process, DPIAs for high-risk processing, vendor DPAs, and incident response procedures that meet WA breach-notification timelines.

Contracts & pricing - Update customer and vendor contracts to reflect tax allocation (who bears sales tax) and privacy/security obligations.

Insurance & risk management - Review cyber liability coverage and limit contractual indemnities as needed.

Ongoing compliance - Maintain SOS annual report filings, renew business license endorsements, file required tax returns (B&O, sales/use), and retain records per WA guidance.