On March 30, 2026, Washington Gov. Bob Ferguson approved tax legislation that makes substantial changes to the state’s business and occupation (B&O) taxes, including an increased exemption from B&O tax for taxpayers earning less than $250,000 in taxable gross receipts and modifications to tax rates for certain industries.1
Additionally, the legislation contains several sales and use tax relief provisions in exchange for the enactment of a brand-new tax on millionaires,2 partially repealing the imposition of sales tax on specified services enacted as part of the state’s 2025 tax legislation. Separately enacted legislation also repeals the sales and use tax exemption for data center replacement equipment.3
B&O tax provisions
Significant legislation enacted in 2025 (S.B. 5814) imposed a 0.5% B&O tax surcharge on businesses with Washington taxable income exceeding $250 million beginning in 2026.4 Effective July 1, 2026, several types of income are exempt from the surcharge, including the following:
- Amounts received by a hospital;5
- Amounts attributable to the warehousing or reselling of drugs for human use pursuant to a prescription;6
- Amounts attributable to the provision of health care services by a licensed health care provider;7 and
- Amounts attributable to wholesale sales of food and food ingredients.8
Additionally, the small-business B&O tax credit will increase to $125 per month for nonservice businesses and to $375 per month for service businesses.9 The annual taxable income threshold for the B&O tax return increases from $125,000 to $250,000.10
Under an accompanying technical corrections bill, S.B. 6113, various services are added to the definition of a wholesale sale if the services are not sold at retail:
- Information technology training and technical support;
- Custom website development;
- Investigation and security services;
- Temporary staffing services; and
- Advertising services.11
Separately, H.B. 2487 modifies the B&O tax exemption for insurance business activities.12 Previously, the exemption applied to any insurance business subject to the insurance gross premiums tax. Under the new law, the exemption applies only to “the person who paid the insurance premium tax,” in addition to payments received by insurers for the sale of annuities.13 The change applies retroactively to Oct. 2, 2019.14 For taxpayers owing retroactive taxes related to the B&O premium tax exemption, the bill provides for the waiver of penalties and interest through Dec. 31, 2026, and authorizes up to three years to pay the balance.15
Finally, H.B. 2487 clarifies that all insurance companies are exempt from the advanced computing surcharge (ACS) retroactive to Jan. 1, 2022.16 For an affiliated group of businesses in which more than half of the worldwide revenue originates from insurance premiums, the ACS is capped at $25 million for the entire group.17
Sales and use tax provisions
The 2025 tax legislation expanded the retail sales tax and retailing B&O tax to include a variety of service-based activities.18 Effective Jan. 1, 2029, S.B. 6346 repeals the sales tax on the following services:
- Custom software and customization of prewritten computer software;
- Information technology consulting, training and support;
- Custom website development;
- Data processing and data entry;
- Security and investigation services;
- Temporary staffing services, except for qualifying hospitals;
- Live presentations both in-person and via electronic means.19
While the above changes do not take effect until 2029, the bill provides that the changes will be null and void if a court of final jurisdiction invalidates the Washington income tax.20
A separate bill, S.B. 6113, includes technical corrections and changes based on guidance issued by the Department in response to S.B. 5814.21 Effective retroactively to Oct. 1, 2025, the bill clarifies the types of activities that qualify as investigation services for retail sales tax purposes.22 Examples of investigation services now include providing investigation, detective, and personal background check services.23 The bill also amends the definition of taxable “temporary staffing services” to exclude direct hires, paymaster services and independent contractors.24
The bill further narrows the definition of taxable “live presentations” to exclude accredited preschool through higher education classes, musical and similar performances, one-on-one instructional activities including, tutoring, consulting and music lessons, certain religious presentations, and certain youth camps.25
S.B. 6113 further provides that advertising services are eligible for the multiple points of use (MPU) exemption for sales tax purposes.26 Businesses that purchase disseminated advertising services for use both within and outside the state may claim the sales tax exemption by providing the seller with an exemption certificate but must report use tax on the portion used in Washington. The sourcing of advertising services is based on the locations where the related advertisements are viewed by a user or otherwise interacted with by a user.
Finally, S.B. 6231 provides that the sales tax exemption for data centers that qualify through refurbishment expires effective July 1, 2026.27 The legislation also removes replacement server equipment from the definition of equipment eligible for exemption.28
Commentary
In exchange for the enactment of the state’s brand-new millionaire tax, S.B. 6346 contains important relief provisions impacting the state B&O and sales and use taxes. The 2025 tax legislation broadly expanded the list of services subject to the retail sales and use tax and retailing B&O tax, which significantly impacted businesses providing technologically advanced service offerings, including information technology services, security services, temporary staffing services and advertising services.
S.B. 6346 provides for the repeal of many of these services beginning in 2029, but the repeal is contingent on the survival of the millionaire tax from legal challenge. Therefore, the repeal of these services from tax remains in question until the legality of the new income tax is resolved.
The enactment of another round of sweeping tax legislation in Washington requires careful evaluation and planning from businesses operating in the state. Analysis of the B&O and sales and use tax changes and differing effective dates is important for businesses that are subject to these taxes for compliance and planning purposes.
1 Ch. 238 (S.B. 6346), Laws 2026.
2 For further discussion of this legislation, see GT SALT Alert: Washington Enacts Legislation Imposing Income Tax on Millionaires, Elective Pass-through Entity Tax.
3 Ch. 266 (S.B. 6231), Laws 2026.
4 Ch. 422 (S.B. 5814), Laws 2025. For further discussion of these legislative changes, see GT SALT Alert: Washington increases B&O Tax, expanding taxation of services.
5 S.B. 6346, § 911, adding WASH. REV. CODE § 82.04.288(3)(b)(vi).
6 S.B. 6346, § 911, adding WASH. REV. CODE § 82.04.288(3)(b)(vii).
7 S.B. 6346, § 911, adding WASH. REV. CODE § 82.04.288(3)(b)(viii).
8 S.B. 6346, § 1104, adding WASH. REV. CODE § 82.04.288(3)(b)(v).
9 S.B. 6346, § 909, amending WASH. REV. CODE § 82.04.4451(1).
10 S.B. 6346, § 910, amending WASH. REV. CODE § 82.302.045(5)(a).
11 Ch. 250 (S.B. 6113), Laws 2026, § 3, amending WASH. REV. CODE § 82.04.060.
12 Ch. 263 (H.B. 2487), Laws 2026.
13 H.B. 2487, § 2, amending WASH. REV. CODE § 82.04.320.
14 H.B. 2487, § 6.
15 H.B. 2487, § 4.
16 H.B. 2487, § 5, amending WASH. REV. CODE § 82.04.299(2)(a).
17 H.B. 2487, § 5, amending WASH. REV. CODE § 82.04.299(1)(b).
18 S.B. 5814, Laws 2025. For further discussion, see GT SALT Alert: Washington increases B&O tax, expanding taxation of services.
19 S.B. 6346, § 1001, amending WASH. REV. CODE § 82.04.050. S.B. 6113 clarifies that use tax applies to the following services effective Oct. 1, 2025: information technology training and technical support; custom website development; investigation and security services; temporary staffing services; and advertising, except when sold between affiliated entities.
20 S.B. 6346, § 1202.
21 Ch. 250 (S.B. 6113), Laws 2026, § 2, amending WASH. REV. CODE § 82.04.050.
22 S.B. 6113, § 2, amending WASH. REV. CODE § 82.04.050.
23 Id.
24 Id.
25 Id.
26 S.B. 6113, § 10, amending WASH. REV. CODE § 82.08.0208(6).
27 Ch. 266 (S.B. 6231), Laws 2026, § 2, amending WASH. REV. CODE § 82.08.986.
28 Id.
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