Senate Bill 5814 expands sales tax to services and nicotine products

Senate Bill 5814, recently discussed in the Washington Legislature's Senate Ways & Means meeting, proposes significant changes to the state's tax structure, aiming to generate an estimated $4.7 billion in revenue over the next four years. The bill extends sales tax to a broader range of services and expands the tobacco tax to include various nicotine products, marking a pivotal shift in the state's fiscal policy.

Under the new legislation, several previously untaxed services will now be subject to retail sales tax. This includes computer-related services like custom software and web design, as well as temporary staffing and security services. Additionally, the bill broadens the scope of digital automated services that will incur sales tax, encompassing services that involve human effort, live presentations, and digital advertising.

The tobacco tax will also see an expansion, applying to all products containing nicotine, whether derived from tobacco or synthetically produced. This change reflects a growing recognition of the diverse range of nicotine products available in the market today.

A notable feature of the bill is the requirement for certain businesses to make a one-time prepayment of sales tax collections in June 2027. This applies to businesses with over $3 million in taxable retail sales from the previous year, mandating them to remit 80% of their June 2026 sales tax collections by June 25, 2027. Failure to comply could result in a penalty of up to 10%, although this may be waived for businesses that experience a decline in sales.

The fiscal implications of Senate Bill 5814 are substantial, with projected increases in state revenue of approximately $2.9 billion for the 2025-2027 biennium and $1.8 billion for the 2027-2029 biennium. However, the bill also anticipates a reduction in workforce education investment account revenues by about $207 million over the same period, alongside administrative costs for the Department of Revenue estimated at $5.4 million for the 2025-2027 biennium.

As the bill moves forward, its potential impact on businesses and state funding for essential services will be closely monitored, highlighting the ongoing evolution of Washington's tax landscape.