On May 20, 2025, Governor Bob Ferguson signed into law a comprehensive package of tax legislation that significantly increases the Business and Occupation (B&O) tax, expands the application of the sales tax, and introduces additional measures that will impact businesses, investors, and individuals with presence in Washington State.
Below is a breakdown of the key changes and their effective dates:
B&O Tax Rate Increases – ESHB 2081
Starting October 1, 2025, the state’s “Service and Other Business Activities” B&O classification adopts a new progressive rate structure:
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1.5% for businesses with less than $1 million in affiliated group gross income
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1.75% for $1 million–$5 million
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2.1% for more than $5 million
Additional B&O updates include:
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Retailing, Wholesaling, and Manufacturing rates increase to 0.5% effective January 1, 2027
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Games of Chance rate rises from 1.5% to 1.8%
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Investment income deductions limited to incidental investments (less than 5% of total worldwide income), with exceptions for nonprofits, retirement funds, and similar entities
Surcharge Increases:
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Specified financial institutions: from 1.2% to 1.5%
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Advanced computing businesses: from 1.22% to 7.5%
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A new surcharge applies to businesses with more than $250 million in Washington taxable income (effective January 1, 2026).
Sales Tax Expansion – ESSB 5814
Beginning October 1, 2025, several services will become taxable under both retail sales tax and the Retailing B&O tax. These include:
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IT consulting, support, and training
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Custom website development
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Data processing and entry
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Advertising and live presentations (in-person or virtual)
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Temporary staffing
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Software customization and digital services
Additionally, the scope of digital automated services is expanded by removing certain exclusions related to human labor. These adjustments signal a more aggressive application of Washington state tax policy to service-based industries.
Capital Gains Tax Changes – SB 5813
Effective January 1, 2025, Washington will implement a two-tier capital gains tax:
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7% on capital gains up to $1 million (after a standard deduction indexed for inflation, currently $270,000)
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9.9% on gains exceeding $1 million
This marks a notable evolution in the Washington State tax code, particularly for high-income individuals and investors.
Estate Tax Modifications – SB 5813
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The estate tax exclusion increases to $3 million for decedents on or after January 1, 2025
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A new 35% top marginal rate applies to taxable estates over $9 million starting July 1, 2025
Eliminated Tax Preferences – SB 5794
As of April 1, 2026, several longstanding exemptions will be removed:
These repeals reflect the state’s ongoing effort to modernize and broaden the Washington State tax base.
Transportation-Related Taxes and Fees – ESSB 5801
Effective July 1, 2025, taxpayers will see increases in:
Businesses with large fleets or logistics operations should factor these cost increases into their 2025 budgets. Our business advisory team can help you model potential impacts.
“Tesla Tax” on ZEV Credits – HB 2077
This new Washington State tax applies immediately to vehicle manufacturers that sell or bank more than 25,000 Zero Emission Vehicle (ZEV) credits in a single model year.
How to Prepare for the 2025 Washington State Tax Changes
Stay tuned—in the coming weeks, we’ll take a closer look at each of these bills and what they could mean for your business.
At Perkins, we are committed to staying abreast of the evolving tax landscape to assist you in making informed decisions for your business, whether it be accurately sourcing your income or determining the primary location of your operations. Our State and Local Tax (SALT) team closely monitors legislative changes and helps clients navigate complex compliance requirements.
For further information or assistance in managing these transitions, please contact SALT Shareholder Sonjia Barker or your Perkins advisor.
