The law introduces significant changes to the B&O tax and extends the retail sales tax to computer-related services.
Washington Governor Bob Ferguson signed two bills, Bill HB 2021 and Bill SB 5814, into law on 20 May 2025, introducing major tax reforms which include changes to the Business and Occupation (B&O) tax and the extension of the retail sales tax to computer-related services.
The main changes are:
Uniform B&O rate adjustment
The base B&O rates for manufacturers, retailers, extractors, and wholesale sales are increased to a uniform 0.5% rate, effective 1 January 2027.
High-income B&O surcharge
A B&O surcharge of 0.5% will apply to Washington businesses with taxable income over USD 250 million, starting 1 January 2026;
Financial institutions’ B&O surcharge increase
The B&O surcharge for financial institutions will increase from 1.2% to 1.5%, effective 1 October 2025.
Advanced computing surcharge increase
The advanced computing surcharge will increase from 1.22% to 7.5%, with the annual cap rising from USD 9 million to USD 75 million, effective 1 January 2026.
Gaming operations B&O rate increase
The B&O rate for operating games of chance will increase from 1.5% to 1.8%, effective 1 January 2027.
New progressive B&O tax rates
The progressive B&O rates for the service and other business activities have been increased. The new rates will be based on the gross income of the entire affiliated group, not the taxpayer’s gross income.
The rates are:
- 1.5% for groups with gross income under USD 1 million in the prior year or those paying the advanced computing surcharge.
- 1.75% for groups with gross income between USD 1 million and USD 5 million in the prior year.
- 2.1% for groups with gross income over USD 5 million in the prior year.
The new rates take effect on 1 October 2025.
New tax changes for IT services
Bill SB 5814 extends the retail sales tax to computer-related services and removes exemptions for digital automated services, which take effect on 1 October 1, 2025. This includes IT training, technical support, advertising, custom website development, search engine marketing, and additional services.
