Washington Business Law Changes 2025 to 2026: Sales Tax on Services, 2.1% B&O Tier and the 2028 Income Tax
Washington Business Law Changes 2025 to 2026: Sales Tax on Services, 2.1% B&O Tier and the 2028 Income Tax
Washington has changed its business tax and labor rules quickly over the past year. If you are searching for washington new business laws 2026, this guide separates what is already in effect from what starts on January 1, 2027 and what depends on a ballot measure or a court case. As of October 26, 2026, some of these changes are already affecting your books, and others are still pending.
Informational content only. This guide is not legal, tax or accounting advice. Rates, thresholds and effective dates can change through litigation, ballot measures and agency rules. Confirm current requirements with the Washington State Department of Revenue (DOR) and a qualified attorney or CPA before you make decisions based on this article.
The Timeline at a Glance
| Date | Change | Status on October 26, 2026 |
|---|---|---|
| October 1, 2025 | Sales tax applies to many services (ESSB 5814). B&O 2.1% tier for service income of $5 million or more (ESHB 2081). Financial institution surcharge of 1.5%. | In effect |
| January 1, 2026 | Minimum wage of $17.13. PFML premium of 1.13%. UI taxable wage base of $78,200. Vancouver city B&O begins at 0.1% on retail. | In effect |
| January 1, 2027 | Minimum wage of $17.73. B&O rate of 0.5% on retailing, wholesaling and manufacturing. | Upcoming |
| June 30, 2027 | Ban on noncompete agreements takes effect (ESHB 1155). | Upcoming |
| January 1, 2028 | 9.9% tax on individual income above $1 million (ESSB 6346). First payments due in 2029. | Upcoming and contested |
| January 1, 2029 | Service taxes under ESSB 5814 repealed, except advertising. Small business credit rises to $125 and $375 a month. | Conditional |
Sales Tax on Services (October 1, 2025)
Washington has long taxed most retail goods, but ESSB 5814 extended the state sales tax to many services starting October 1, 2025. If your business sells taxable services to customers in Washington, you may now need to collect sales tax and file returns on it. The state rate is 6.5%, and local sales taxes are added on top of that rate depending on where the sale takes place.
The list of taxable services is broad, and the exceptions matter. Check with DOR to confirm whether your specific services are taxable before you change your invoices or pricing. Advertising services are the exception that the 2029 repeal does not reach, so plan on advertising remaining taxable after that date.
To collect sales tax, you need a sales tax permit. You apply through the Business License Application at dor.wa.gov/open-business/apply-business-license.
The 2.1% B&O Tier and the Financial Institution Surcharge
Washington does not levy a corporate income tax or a personal income tax on wages. Instead, it uses the business and occupation (B&O) tax, a gross receipts tax with more than 50 activity classifications and no deduction for labor, materials or other costs. Under ESHB 2081, service income of $5 million or more now falls into a 2.1% B&O tier, effective October 1, 2025.
Because B&O is calculated on gross receipts, a business with thin margins can owe tax even when it is not profitable. Two questions matter most here:
- How the $5 million threshold is measured. Confirm with DOR whether it is tested annually, whether it counts all income or only Washington income, and how it applies to a business that is part of a group.
- Whether the surcharge applies to you. The 1.5% financial institution surcharge is a separate item. Confirm with DOR whether your business is classified as a financial institution.
If your service income is anywhere close to $5 million, have a CPA model the 2.1% tier against your actual receipts before your next estimated filing.
Local B&O Taxes, Including Vancouver
DOR does not administer local B&O taxes, and about 54 cities add their own. Washington has 39 counties and 281 incorporated cities and towns, so the local picture depends on where you operate. Vancouver started its city B&O on January 1, 2026, at 0.1% on retail activity. Check with the City of Vancouver for the rate on any non-retail activity and for its registration rules. Check with each city where you have customers or a physical location, because a state registration does not cover local obligations.
Payroll Changes (January 1, 2026)
Three payroll figures changed on January 1, 2026:
- Minimum wage: $17.13 per hour.
- Paid family and medical leave (PFML) premium: 1.13%.
- Unemployment insurance (UI) taxable wage base: $78,200 per employee.
Update your payroll system before the first pay period of 2026 if you have not already done so. Confirm how the PFML premium is split between employer and employee and how it is reported with the Employment Security Department.
January 1, 2027: Minimum Wage and B&O Changes
The minimum wage rises to $17.73 on January 1, 2027. The same date brings a 0.5% B&O rate on retailing, wholesaling and manufacturing. Confirm with DOR how this rate applies to your activity classification, since the classification rules determine which rate you pay on each stream of receipts. If you sell at retail or wholesale, this is the change most likely to affect your pricing and cash flow next year.
June 30, 2027: Noncompete Ban (ESHB 1155)
Washington bans noncompete agreements under ESHB 1155, effective June 30, 2027. Any noncompete you rely on after that date will not be enforceable, so review employee and contractor agreements well before the deadline. Confirm with an employment attorney which of your existing agreements will be affected, whether any nonsolicitation or confidentiality terms are treated differently, and how to update your templates for new hires.
The 2028 Income Tax and What Could Stop It
ESSB 6346 creates a 9.9% tax on individual income above $1 million, starting January 1, 2028, with first payments due in 2029. Two things could change this:
- I-645: A repeal initiative is on the ballot on November 3, 2026.
- Court challenge: A lawsuit against the tax is pending.
Because the tax applies to individual income, owners of LLCs, S corporations and partnerships should ask a CPA how their pass-through income would be counted. This is a planning question, not a settled answer, and it depends on how the statute and any final rules treat business income.
2029 Changes (Conditional)
On January 1, 2029, the service taxes under ESSB 5814 are repealed, except for advertising. The small business credit also rises to $125 and $375 a month. Treat these changes as conditional, not guaranteed. ESSB 6346 is void if a court of final jurisdiction invalidates the income tax, and the 2029 changes depend on that outcome. Do not build a long-term budget around the 2029 relief until the court case and the November 2026 ballot result are known.
What to Do Now
- Measure your service income. Work out whether you are near the $5 million threshold for the 2.1% tier, and confirm the measurement rules with DOR.
- Confirm sales tax on your services. If any of your services are taxable, get your sales tax permit and set up collection before your next filing.
- Register through the Business Licensing Service. The Department of Revenue's Business Licensing Service runs one Business License Application that issues your 9-digit Unified Business Identifier (UBI) and handles state and city endorsements. The processing fee is $50 to open a business, and online applications generally take about 10 business days. Corporations and LLCs must first file with the Secretary of State at sos.wa.gov/corporations-charities. Sole proprietors and general partnerships do not file there.
- Update payroll. Reflect the 2026 minimum wage, PFML premium and UI wage base now, and plan for the 2027 minimum wage.
- Review contracts before June 30, 2027. Replace noncompete terms with lawful alternatives under advice of counsel.
- Watch the November 3, 2026 ballot. The result of I-645 will shape your 2028 planning.
Where to Confirm Current Rules
Rates and effective dates in this guide reflect the record as of October 26, 2026. Use these sources to confirm them before you file or change your pricing:
- Washington State Department of Revenue: dor.wa.gov for sales tax, B&O, the Business License Application and local tax questions.
- Washington Secretary of State, Corporations and Charities Division: sos.wa.gov/corporations-charities for entity filings and annual reports.
- Washington Small Business Development Center: wsbdc.org for free or low-cost advising on tax and compliance planning.
For complex situations, including multistate sales, pass-through income, entity selection and the noncompete transition, consult a qualified attorney or CPA. This article is informational and is not legal or tax advice.