WA Department of Revenue Issues Interim Guidance on ESSB 5814 - IT Services Now Under Sales Tax Review

By: Raksha Rathod

Washington State has enacted ESSB 5814, which significantly changes the sales tax treatment of certain information technology (IT) services. The Washington State Department of Revenue (DOR) recently issued interim guidance clarifying how IT, cloud, software, and data services will be taxed going forward.

What is ESSB 5814?

ESSB 5814 updates Washington’s tax laws to address evolving IT and digital service offerings The law:

• Expands which IT-related services are taxable.
• Provides clearer definitions of taxable services.
• Aligns tax guidance with modern, cloud, software, and data-driven business models.

Key Changes Effective October 1, 2025

• Sales Tax Expansion
  Cloud data storage, data processing, and other IT services may now fall under Washington State sales tax.
• Refined Service Definitions
  The DOR has clarified the scope of “information technology services”. Services once considered non-taxable may now be included.
• Compliance Deadlines
  The new rules take effect  October 1,2025. Businesses must review service offerings, contracts, billing practices, and tax systems to ensure compliance.

What Businesses Should Do

1. Review Services: Identify which offerings are taxable under the updated rules.
2. Update Contracts and Pricing: Ensure agreements and invoices reflect proper tax treatment.
3. Adapt Systems: Adjust internal tax reporting and accounting systems for compliance.
4. Maintain Documentation: Keep detailed records of determinations to support audits or DOR inquiries.

How Chugh LLP Can Help

Our experienced tax team can:

• Analyze your IT, cloud, software, or data services to assess tax exposure.
• Assist with sales tax registration and return filing
• Draft contract and pricing updates to reflect the new rules.
• Helpupdate accounting and tax systems for long-term compliance.

Read the official DOR guidance here: Interim Guidance Statement on ESSB 5814 – Washington Department of Revenue

Contact us today to schedule a tailored review of your offerings or to create a compliance roadmap for your business.