Washington State recently enacted three significant tax bills, Senate Bill (SB) 5813, SB 5814, and House Bill (HB) 2081, as part of a broader push to fund public services like education, healthcare, and childcare. These new laws reflect a strategic shift in how the state will raise revenue, with direct implications for business operations, tax planning, and pricing models.

The changes affect capital gains, retail sales and use taxes, and the Business & Occupation (B&O) tax, with new rates, categories, and compliance obligations coming into effect as early as 2025. For many Washington businesses, these updates will require adjustments to financial plans, operational systems, and long-term strategy. The earlier businesses evaluate their exposure and build these changes into their workflows, the more prepared, and protected, they’ll be.

SB 5813: Capital Gains Tax Increase

Beginning with tax year 2025, SB 5813 will bring changes to Washington’s capital gains tax and estate tax. Businesses need to be aware that the transfer of certain long-term capital assets under this Bill will soon result in a higher tax rate than is currently in place.

Currently, Washington State’s excise tax is set at 7% for the sale or exchange of long-term capital assets that exceed $1 million. With SB 5813, capital gains sourced in Washington that exceed $1 million will see a tax increase of 2.9%, resulting in an excise tax rate of 9.9%; capital gains of $1 million or less will continue to be taxed at 7%. Whether filing as an individual or jointly, the tax applies to capital assets that are sold or exchanged but does not include real estate transactions or assets held in retirement accounts. Long-term capital assets are assets that are held for more than one year.

Businesses should identify which of their assets this tax increase may apply to and create a plan for compliance before a transaction occurs. Consulting with legal and tax advisors is advised so businesses can plan ahead and allocate the transaction costs accordingly.

SB 5814: Retail Sales and Use Tax Changes 

SB 5814 will bring significant changes to Washington’s retail sales and use tax and the retailing Business & Occupations (“B&O”) tax. As a result of this Bill, many businesses and digital services will see sales tax imposed on their operations for the first time, creating new compliance and reporting requirements, as well as financial planning implications that many businesses previously did not need to consider. Large businesses will soon be required to prepay a portion of their state sales tax, with the total amount dependent on the business’s state sales tax liability in 2026.

Effective October 1, 2025, certain digital services will now be subject to sales tax, including:

• Information technology services, such as technical support, help desk services, data entry and data processing services, and in-person training for hardware or software

• Custom website development, including web design and support provided by a website developer

• Investigation and security services, including security monitoring, background checks, and security system services

• Temporary staffing services

• Advertising services, including graphic design, search engine marketing, and lead generation optimization (printing or publishing, radio and TV broadcasting, and newspapers are excluded from this definition of “advertising”)

• Live presentations, including lectures, seminars, or courses where participants attend either in person, online, or by telecommunication equipment

In addition, large businesses with $3 million or more in taxable retail sales during 2026 will be required to make a single pre-payment towards their state sales tax. The prepayment is due June 25, 2027 and will amount to 80% of the business’s state sales tax liability for the June 2026 reporting period. The remaining 20% will be due on or before July 26, 2027. A penalty equal to 10% of the business’s tax liability will be assessed if a business fails to submit prepayments or makes an underpayment towards the tax liability.

Businesses offering digital services that fall under the sales tax may need to adjust their pricing models to prepare for the imposition of sales tax while billing systems will need updating to begin collecting the tax at the point of sale. Those that qualify as large businesses should work with tax advisors to estimate their anticipated state sales tax liability in 2026. Early preparation will allow large businesses to begin identifying funds that can be set aside in advance to prepare for the prepayment obligations and avoid penalties for noncompliance.

HB 2081: Business & Occupation Tax Rate Increase

HB 2081 will impose a number of changes to Washington’s Business & Occupation tax, most notably increasing the B&O tax rate for certain categories of business while creating a separate tax rate for higher-grossing businesses. The tax rate will impact a wide range of businesses, both industry-wise and in size of operations, and businesses should consider adjusting their financial planning strategies to account for these changes before they go into effect. 

Currently, businesses providing services and activities not classified elsewhere are assessed a 1.5% tax for businesses with income less than $1 million and 1.75% for businesses with taxable income of $1 million or more. Effective October 1, 2025, the B&O tax rate for businesses with a gross income between $1 million and $5 million will increase to 1.75%, while businesses with a gross income exceeding $5 million will increase to 2.1%. 

In January 2027, certain categories of businesses will also see an increase in the B&O rate. While many of these businesses are currently taxed between .47-.48%, the B&O tax rate will increase to 0.5%. These categories include: 

• Standard manufacturing, wholesaling, and retailing 
• Retail or wholesale sales of digital codes, codes, or automated services
• Non-profit research and development
• Childcare
• Insurance agents
• Manufacturing, wholesale, and retailing of commercial airplanes or components thereof 
• Government contractors 
• Cold storage warehousing

The last impact of HB 2081 will begin on January 1, 2026, when certain high-grossing businesses and financial institutions will be subject to a temporary surcharge in the form of an additional B&O tax. The surcharge will apply to Washington businesses with at least $250 million in Washington taxable income and will equal 0.5% of the business’s annual taxable income exceeding $250 million. This tax is in addition to any other B&O taxes imposed on the income and the surcharge will end on December 31, 2030.

Legislative Review

Following the passage of these Bills, Governor Bob Ferguson said he would review potential changes for the supplemental budget that could impact two-year budgets, particularly in light of the speed with which these Bills passed through the legislature. He also acknowledged the Bills may result in unintended consequences that will need to be addressed.

Conclusion

Changes to Washington’s tax structures, increased tax rates, and a number of newly taxable services may create challenges for businesses and individuals. 

Consulting with trusted legal and tax advisors can help you stay ahead of these changes. Creating a plan for compliance can ease financial stress and operational burdens that unsuspecting businesses are likely to encounter. Early and proactive strategizing will help businesses avoid penalties for delays or noncompliance, and allows for planning to build tax rates into pricing plans and adjusting billing systems as needed.

At Equinox, we help business leaders stay ahead of regulatory shifts like these. Our legal team monitors new legislation and translates it into clear, actionable insights for your business—before surprises hit your bottom line.

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