Tomorrow, new legislation will unleash a slew of new sales taxes on services, courtesy of Senate Bill 5814 (SB 5814), designed to plug a self-inflicted budget black hole at the expense of hardworking entrepreneurs.
From freelance IT consultants to mom-and-pop temp agencies, the ripple effects of this 6.5% (plus local add-ons up to 10.5%) tax increase on previously untaxed services like advertising, security, and software development is already proving catastrophic. Over 90,000 businesses must now scramble to comply, but it's the little guys, those with razor-thin margins and no army of accountants, who will bear the brunt.
The new tax blankets services from temporary staffing ($833 million projected revenue over four years) to live events ($360 million) and Website development ($189 million) to name a few, with only a small number of exemptions. Only hospital temp staffing gets a pass. Small firms, lacking the scale of giants like Comcast (which is already suing to block the ad tax as unconstitutional), face compliance costs estimated at $5,000–$10,000 per year in software and consulting fees alone, per a 2025 NFIB analysis.
The math doesn't lie. Washington's small businesses, 99% of all firms, employing nearly 1.5 million workers, generate $800 billion in annual output. Yet this tax expansion, projected to rake in over $1 billion over two years for Olympia's coffers, ignores the downstream carnage.
Rural businesses, like Walla Walla event planners or Yakima security firms, are hit hardest. Online service delivery once bypassed physical nexus, but now every gig is taxable. Prices will rise on everything from website builds to holiday party bookings, fueling inflation in a state already grappling with 4.2% cost-of-living spikes.
Proponents tout "fairness," claiming it levels the field against goods sales tax. This is government gluttony, prioritizing pet programs over prosperity. A compliance nightmare that's already spurred an uptick in service business filings for dissolution.
If Washington is to remain a place where innovation and entrepreneurship thrive, policymakers must prioritize tax and regulatory reform that supports small businesses rather than burdens them. This means rethinking the B&O tax structure, resisting the urge to target specific industries for punitive taxation and ensuring that new regulations are carefully crafted to avoid stifling competition and investment.
Senate Bill 5814 should be repealed.
The 2025 session and SB 5814 should serve as a wake-up call. Without course correction, Washington risks losing its reputation as a hub for small business and innovation. The Washington Policy Center will continue to advocate for policies that create a fair, competitive, and predictable environment for all businesses, large and small.
