Washington offers temporary penalty relief for back taxes tied to October 2025 tax changes

Key takeaways

• If you’ve been selling digital ads, IT services, custom software, staffing, or similar services in Washington since October 2025 without collecting sales tax, you likely owe back tax
• Washington will waive penalties if you voluntarily come forward — but the tax and interest are still due
• Applications close September 30, 2027

What changed

• Previous rule: The services affected by ESSB 5814 were not subject to retail sales tax in Washington.
• New rule: As of October 1, 2025, those services became subject to retail sales tax under ESSB 5814. Washington is now offering a temporary penalty relief program for businesses that voluntarily report and pay the tax owed.
• Effective date: Program covers reporting periods October 1, 2025 through December 31, 2026. Application deadline: September 30, 2027.

Who this affects

If any of the following apply to your business, this penalty relief program is worth a close look:

• You sell services that became taxable under ESSB 5814 — including digital advertising, IT support, custom software, website development, staffing, security, or live presentations in Washington. These categories have been subject to retail sales tax since October 1, 2025. If you weren’t charging or remitting tax from day one, you likely have exposure. See the full breakdown of newly taxable services.
• You have Washington customers and weren’t tracking the change — remote sellers with Washington buyers purchasing covered services are on the hook for use tax even if they didn’t collect it at the point of sale
• You have preexisting contracts that included temporary sales tax relief — penalty relief for those contracts begins when the relief period ends, or April 1, 2026, whichever comes first
• Your CPA or advisor flagged a potential liability — if Washington exposure has already come up in a compliance review, this program is the structured path to resolving it without penalty

Next steps for sellers

• Confirm whether any services you’ve sold in Washington since October 1, 2025 fall under the ESSB 5814 changes
• If you have exposure, file a Voluntary Disclosure Application through Washington’s My DOR portal — select “Yes” to the ESSB 5814 penalty relief question and have your UBI/Account ID ready
• Sign and return your Penalty Relief Agreement within 30 days of approval — missing this deadline voids the application
• Pay the full tax and interest balance by the due date on your final invoice; late or partial payment triggers additional penalties

If you use TaxCloud: TaxCloud’s sales tax engine automatically updates across all U.S. jurisdictions, so your Washington calculations reflect current rules without any manual adjustments on your end. If you have questions about back-tax exposure from the ESSB 5814 changes, contact your tax advisor.

Watch this space

Washington’s legislature has passed a bill (SB 6346) that would repeal the sales tax expansion under ESSB 5814 — except for advertising services — effective January 1, 2029. There is also active litigation challenging the law. Neither development changes your current obligation, but if you sell affected services, it’s worth monitoring as forward compliance planning may shift.