Security services are one of the services that shifted to the retail sale definition under SB 5814. That raised questions on what the tax shift meant for law enforcement security services by contracts for security at community events and festivals. The Department of Revenue (DOR) has provided interim guidance that clarified taxation for police security services. The guidance jurisdictions received determined that those contracts would be subject to retail sales tax. There will be ongoing discussions as the state works on implementation over the course of the upcoming legislative session and expected rulemaking this summer.

The Legislature continues to review SB 5814 and may make changes in the upcoming session to address some particular challenges. AWC has continued to advocate to clarify that government-to-government services (i.e., interlocal agreements) have not historically been taxed, nor should they be taxed.

B&O tax cities develop interim guidance for local B&O tax changes effective January 1

Following passage of SB 5814, a workgroup of city finance directors and tax managers worked with AWC to update the business and occupation (B&O) tax model ordinance to incorporate a straightforward adoption of the state’s changes to the definition of sales at retail and sales at wholesale.

The B&O tax cities also are developing interim guidance, in part based on the state’s interim guidance for businesses implementing changes to sourcing revenues for former services to retail sales, but with some changes to accommodate differences in city tax administration. The guidance will also clarify that contracts for services in place as of SB 5814’s effective date on October 1, 2025, can continue to use the underlying tax treatment until March  31, 2026, unless substantially amended.

The 54 B&O tax cities should amend their ordinance to implement the changes effective January 1, 2026. Copies of the updated model and fact sheet are available on AWC’s city B&O tax webpage.

B&O tax cities should adopt updated ordinance by January 1, 2026

November 14, 2025

Following passage of SB 5814, a workgroup of city finance directors and tax managers worked with AWC to update the business & occupation tax (B&O tax) model ordinance to incorporate a straightforward adoption of the state’s changes to the definition of sales at retail and sales at wholesale.

The 54 B&O tax cities should amend their ordinance to implement the changes effective January 1, 2026. Copies of the updated model and fact sheet are available on the city B&O tax webpage.

Department of Revenue releases additional guidance for new sales tax on services for impacts to interlocal agreements

October 17, 2025

The new sales tax on services took effect on October 1, but DOR continues to release guidance on SB 5814’s new tax reporting requirements, including a new implementation guidance for interlocal agreements. DOR also presented on SB 5814 implementation to the House Finance Committee on October 14 with examples on how the new sales tax will apply to activities like live presentations.

The sales taxes impact local governments in three ways:

• new sales tax revenues ($109 million for cities in first full year)
• increased costs as consumers of these services
• new sales tax collections on services provided by local governments

Updated B&O tax model ordinance needs to be adopted by January 1, 2026

Cities with B&O taxes should also plan to amend their B&O tax ordinance with the updated model ordinance incorporating the new definition of retail sales effective January 1, 2026. A workgroup of city finance directors and tax managers met over the summer to incorporate SB 5814’s new definitions of services as retail sales.

Copies of the updated model and fact sheet will be sent to B&O tax cities soon and can also be viewed on the city B&O tax webpage.

Understand when new sales taxes on services will impact city contracts

September 11, 2025

The Department of Revenue (DOR) released guidance about when existing contracts will be impacted when SB 5814’s sales taxes on certain services, such as custom software, temporary staffing services, and security service contracts, takes effect on October 1. The guidance includes examples for service contracts executed prior to October 1 for services provided after that date that will not be subject to sales tax for the term of the contract. For example, if a city has an annual contract for event security services or information technology training services prior to October 1, the services will not be subject to sales tax until the contract term ends. However, if the contract is materially altered during its term, it will become subject to sales tax when the change takes effect.

Last month DOR also released guidance for local governments on the types of services contracted for or provided by local governments that could be subject to sales tax. In addition, new interim guidance for live presentations, security services, IT services, and custom software will help cities understand the new sales taxes on services.

The new sales taxes on services will also generate new local sales tax revenues for cities. While individual projections of impacts are not available, SB 5814 ’s fiscal note estimated that the revenues to cities would be approximately $109 million in the first full year of implementation.

Updates to B&O tax model ordinance

B&O tax cities also continue to work on updates to city B&O tax model ordinance to incorporate changes to state’s definitions. AWC will be consulting with business community stakeholders for input on the proposed changes as part of the update process for the model ordinance. AWC will also share the proposed updates to the B&O tax cities for their input on proposed language incorporating the changes to state definitions. Once the updates are finalized, the B&O tax cities will need to adopt the amended language by January 1, 2026.

Department of Revenue guidance on services sales tax

August 15, 2025

The Department of Revenue (DOR) recently provided updates on services sales tax implementation in SB 5814. DOR is seeking stakeholder input and providing guidance in excise tax advisories in advance of the legislation’s October 1 effective date. A summary of the feedback and issues identified in listening sessions last month is available in a new report.

As DOR guidance becomes available, it will be posted on its services newly subject to retail sales tax webpage. Information for government organizations is available here.

The new sales taxes will include the following services, several of which are services cities consume, in addition to the location where services are provided:

• Advertising services
• Live presentations
• Information technology services
• Custom website development services
• Investigation, security, and armored car services
• Temporary staffing services
• Sales of custom software and customization of prewritten software

The legislation also removes existing exclusions for certain digital automated services and establishes new exemptions for telehealth and telemedicine.

Why this matters

Purchasing
If your organization contracts with vendors to provide services in any of these categories, you may see increased costs due to the vendors’ obligation to collect and remit sales tax starting in October 2025. This may apply to services commonly used in procurement, operations, facilities, communications, technology, and instruction support.

Selling
If your organization sells any of the newly taxable services listed above, you may be responsible for collecting and remitting retail sales tax on those transactions beginning in October 2025.

Changes in state definitions drive process to amend to the B&O tax model ordinance

In addition, AWC has begun working with a task force of city tax managers and finance directors from B&O tax cities to amend the city B&O tax model ordinance to incorporate the changes to the definitions of retail sales to more closely align with the new state definitions of retail sales. Once the model ordinance update is finalized, the 52 cities with a local B&O tax will need to amend their B&O tax ordinance by January 1, 2026.

Department of Revenue begins outreach on services sales tax

June 14, 2025

As the Department of Revenue (DOR) plans for implementation of legislation to apply sales tax to selected services, it is seeking input and questions from taxpayers (SB 5814). More information is available on DOR’s website, in addition to an opportunity provide written comments or respond to a brief survey regarding implementation questions.

As guidance becomes available, it will also be linked there. DOR has already released interim guidance for schools and higher education on how sales tax will be applied to live presentations.

In addition, AWC will be working with a task force of city tax managers and finance directors from B&O tax cities to amend the city B&O tax model ordinance to incorporate the changes to the definitions of retail sales to more closely align with the state.  If the model ordinance is updated, the 52 cities with a local B&O tax will need to amend their B&O tax ordinance by January 1, 2026.

New revenues to cities from sales tax on selected services

June 14, 2025

One of the bills that the state passed to fill its budget gap would apply sales tax on selected services. This includes digital automated services, advertising, custom computer software, and temporary staffing services (SB 5814) which had been previously taxed under the service category for state B&O tax. Because the local sales tax piggybacks off of the state sales tax base, cities with these service activities in their jurisdiction may see additional sales tax distributions for these new sales taxes.

The Department of Revenue will be undertaking a rulemaking this summer to implement the rules for where these sales will be sourced for local sales tax collection. For the first full year of implementation, the state’s fiscal note estimated that cities would receive approximately $109 million from additional sales tax on these selected services.

In addition, cities that use services like temporary staffing and custom software may see some increased costs associated with these expenses.

The changes to the state’s definitions for retail and services will also mean that the city B&O tax model ordinance will need to be amended and adopted by the 52 cities with a local B&O tax. RCW 35.102.040 requires that the definitions for the classifications for retail and services use the state’s definition “as the baseline” for definitions in the model ordinance.

AWC will be convening a task force of city tax managers and finance directors to amend the City B&O Tax Model Ordinance this summer and fall for implementation by January 1, 2026. The model ordinance was last updated in 2019 to incorporate legislative changes to the apportionment formula for services.