Washington creates new sales tax exemptions in 2026 and 2029

Some provisions take effect July 1, 2026. But the bigger relief — including the consumer product exemptions — doesn’t arrive until January 1, 2029, and only if Washington’s new high-earner income tax survives legal challenge.

Here’s the full breakdown.

What changed

• Enacted: Washington SB 6346, signed by Governor Bob Ferguson on March 30, 2026 ^[1]
• Immediate effective date: July 1, 2026 — narrower exemptions for specific buyers and service types
• Future effective date: January 1, 2029 — broader relief including consumer product exemptions and repeal of most new service taxes
• The contingency: The 2029 provisions are void if Washington’s new 9.9% income tax on individuals earning over $1 million is struck down in court. Legal challenges have already been filed.

About Washington’s new income tax

SB 6346 creates Washington’s first broad-based income tax ^[2] — a 9.9% tax on household income exceeding $1 million per year. Washington has historically had no individual income tax, making this a significant structural shift. The tax is designed to reduce the state’s reliance on sales tax revenue, which is why the sales tax relief in this bill is funded by it. If the income tax is struck down in court — which opponents are already pursuing — the sales tax changes fall with it. The two are explicitly linked in the legislation.

What takes effect July 1, 2026

These provisions are not contingent on the income tax litigation and take effect regardless:

• Public libraries, K-12 schools, school districts, and educational service districts are exempt from sales tax on purchases of custom software, live presentations, IT services, investigation and security services, and temporary staffing services ^[3]
• Hospital-based clinical providers are exempt from sales tax on temporary staffing services
• Certain live presentations are carved out of the tax entirely — including before and after-school care at elementary schools, music lessons, one-on-one tutoring and instructional consulting, and presentations given by nonprofit organizations

What takes effect January 1, 2029 — if the income tax survives

• Consumer product exemptions: Diapers (adult and children), over-the-counter drugs, and grooming and hygiene products including soaps, shampoo, toothpaste, mouthwash, antiperspirants, and sunscreen
• Service tax repeal: Sales tax on custom software, IT consulting and support, custom website development, data processing, security services, temporary staffing, and live presentations — all of which became taxable in October 2025 — will be repealed. Advertising services are the exception and remain taxable.

Who this affects

• Sellers of diapers, OTC drugs, and personal hygiene products with Washington nexus. No system changes needed yet, but flag January 1, 2029 as a conditional action date.
• Public libraries, K-12 schools, and qualifying institutions purchasing covered services. The July 1, 2026 exemptions apply to you now; confirm with your vendor that the correct treatment is being applied from July 1.
• Businesses selling custom software, IT services, staffing, or live presentations. The full repeal of service taxes isn’t until 2029 and is contingent; your current Washington obligations are unchanged.
• CPAs advising clients in any of these categories. Flag the legislation, note the contingency, and hold on permanent system changes until the litigation resolves

What sellers should do right now

• If you sell to public libraries or K-12 schools in Washington, update your tax treatment for covered service categories effective July 1, 2026 — these exemptions are not contingent on the income tax
• For consumer product exemptions and the service tax repeal, do not update system settings yet — the 2029 provisions are contingent on litigation outcome
• Monitor the income tax court challenge — that ruling is the trigger for whether the broader relief takes effect
• Note January 1, 2029 as a conditional action date and revisit when the legal picture is clearer

If you use TaxCloud: TaxCloud monitors enacted legislation across all U.S. jurisdictions — the July 1, 2026 exemptions for qualifying institutional buyers will be reflected automatically, and the 2029 provisions will be applied if and when they take effect.