You run a small agency, an IT support shop, or a web development studio. Renewal season is coming, and you pull up last year’s client agreement. The price is right there: a flat monthly fee. The word “tax” appears nowhere. Since October 1, 2025, Washington has charged retail sales tax on many of these services.
So here’s the question nobody answered for you: if the contract says nothing, who pays that tax? Often, if you don’t sort it out in writing, the answer ends up being you.
Which Seattle Service Businesses Now Charge Washington Sales Tax?
For decades, Washington’s sales tax mostly hit goods, plus a narrow list of services. A law called ESSB 5814 changed that. It took effect October 1, 2025, and moved a long list of business services into the sales tax base.
Advertising, IT, Web Development and Other Services Under ESSB 5814
According to the Washington Department of Revenue, the services now subject to retail sales tax include:
- Advertising services, which covers a lot: ad design, campaign planning, placing ads, buying online ad space, lead generation, and advice about how to advertise. Some out of home advertising, like billboards, transit ads and fixed signs, is treated differently.
- Information technology services, including help desk support, network support, IT training, IT consulting, data processing and data entry.
- Custom website development and custom software, including customizing prewritten software.
- Live presentations, such as workshops, classes and seminars delivered in real time, whether in person or online.
- Temporary staffing, and security and investigation services.
If you’re a marketing consultant, an IT managed service provider, a web designer or a freelance trainer, there’s a good chance at least part of what you sell is now taxable.
And it cuts the other way too. Your own costs probably went up. The ad platform you buy space through, the IT company that supports your office, the freelancer who builds landing pages for you may all be adding tax to your bills now. If you resell some of those services to your clients, ask your accountant whether you can buy them for resale instead of paying tax twice. Washington has a reseller permit system for exactly that situation, and the contract with your vendor should reflect it.
Services That Are Still Not Taxed, Like Legal and General Consulting
Not everything changed. Legal services, accounting, medical services, real estate services and general business consulting generally remain outside retail sales tax.
That sounds simple until you look at what many small businesses actually sell. A “growth consultant” might give general strategy advice, which isn’t taxable, and also run paid ad campaigns, which is. An IT firm might bundle general business advice with network support. When one contract mixes taxable and non taxable work at a single price, it gets messy fast. And messy contracts are where tax disputes start.
Who Pays the New Sales Tax When Your Contract Is Silent?
Tax Inclusive Versus Tax Exclusive Pricing Language
Under Washington law, sales tax is meant to be collected by the seller from the buyer. But the Department of Revenue generally looks to the seller to make sure it gets paid. If you don’t collect it, the state can still come to you for it.
Now picture your contract. It says $3,000 per month for digital marketing services. Nothing about tax. You start adding sales tax to the invoice, and the client says, “Our contract says $3,000. That’s what we agreed to.” Who’s right?
That’s exactly the kind of argument that turns a good client relationship sour. A contract that clearly says prices are “exclusive of applicable taxes, which the client will pay” heads off the whole fight. A contract that says nothing leaves you arguing, and possibly paying the tax out of your own margin.
Here’s the simple math. On a $3,000 monthly retainer, the sales tax in a Seattle area location adds up to thousands of dollars a year. If you end up absorbing that, it comes straight out of your profit.
Why Changing an Old Contract Can Trigger the Tax
When the law took effect, the Department of Revenue issued guidance for contracts signed before October 1, 2025. Some of those older agreements got temporary relief. That relief had limits, and for many services it has since run out.
Watch for automatic renewals as well. A lot of small service contracts roll over every year unless someone cancels. If yours does, there may never be a moment where you sit down and sign a new version, which means the old silent pricing language just keeps rolling forward. Don’t let a contract you set up years ago decide who pays a tax that didn’t exist when you wrote it.
Here’s the trap. The guidance said that if an existing contract is materially changed after October 1, 2025, the tax applies from the date of the change. So a renewal, a price change, or a new scope of work isn’t just a business update. It can be the moment your old tax treatment ends. If January is when you renew, January is when you need the right language in place.
Contract Clauses to Update Before Your Next Renewal
I’d rather you spend an hour fixing your template now than spend months arguing with a client later. These are the pieces I look at first.
A Clear Sales Tax Clause for Service Agreements
At minimum, your agreement should say three things. That stated prices exclude sales tax and other applicable taxes. That the client is responsible for paying those taxes on top of the stated price. And that if tax law changes during the contract, the tax will be adjusted to match the law.
It also helps to say where the service is considered delivered, because that affects which local rate applies. If you have clients outside Washington, or clients with offices in several cities, the sourcing rules can change what you charge. That’s worth sorting out with your accountant, and the contract should match whatever approach you settle on.
Think about clients who claim they shouldn’t be charged at all. Some buyers may be exempt, or may be buying your service to resell it. The contract can say that the client must give you any exemption or resale paperwork up front, and that if the state later disagrees, the client covers the tax. That one sentence moves the risk to the party making the claim.
Then make sure your invoices match your contract. If the agreement says tax is separate and your invoice shows one bundled number, you’ve undercut your own language.
Splitting Taxable and Non Taxable Work in One Contract
If you sell a mix of taxable and non taxable services, say so in the contract. Break out the price for each part, or at least describe how the fee is divided. A single bundled price makes it harder to defend which portion is taxable, and it can lead to more of the contract being taxed than needed.
This also helps your clients. Many of them are watching their own costs, and a clear breakdown makes the new tax easier to understand and accept.
Here’s a quick example. A Tukwila consultant charges one client $5,000 a month for “marketing strategy and campaign management.” The strategy piece, general advice about the business, may not be taxable. The campaign management, running and placing ads, likely is. If the contract lumps them together, the safest reading may be that the whole fee is taxable. If the contract says $2,000 is strategy and $3,000 is campaign work, now you have a clear, defensible line. The work is identical either way. Only the paperwork changed.
Finally, think about how you’ll tell existing clients. A short, plain letter before renewal works better than a surprise line item on the next invoice. Explain that Washington changed the law, that the tax goes to the state and not to you, and point them to the Department of Revenue’s page on newly taxable services. Most clients will understand. Many are already seeing the same thing on their other bills.
If you haven’t looked at your contracts in a while, my earlier post on whether you need a lawyer to review business contracts in Seattle walks through the other clauses worth a second look while you’re in there.
Your Contract Decides Whether Your Client or Your Profit Pays the Tax
New taxes are annoying, but this one is mostly a paperwork problem, and paperwork is fixable. The businesses that get hurt aren’t the ones charging tax. They’re the ones whose contracts never said who pays it, so the tax quietly comes out of their margin month after month. One clean template update fixes that for every client going forward. Your accountant handles filing the tax. Your contract decides whether your client or your profit covers it. Make sure that second part is settled before your next renewal goes out.
If you run a service business in Seattle, West Seattle, Tukwila or the surrounding area and want your client agreements updated for ESSB 5814, contact me or call 253-424-4750. I can usually review a contract template quickly and work alongside your accountant. Learn more about my business contract law and general business law work.You run a small agency, an IT support shop, or a web development studio. Renewal season is coming, and you pull up last year’s client agreement. The price is right there: a flat monthly fee. The word “tax” appears nowhere. Since October 1, 2025, Washington has charged retail sales tax on many of these services.
So here’s the question nobody answered for you: if the contract says nothing, who pays that tax? Often, if you don’t sort it out in writing, the answer ends up being you.
Which Seattle Service Businesses Now Charge Washington Sales Tax?
For decades, Washington’s sales tax mostly hit goods, plus a narrow list of services. A law called ESSB 5814 changed that. It took effect October 1, 2025, and moved a long list of business services into the sales tax base.
Advertising, IT, Web Development and Other Services Under ESSB 5814
According to the Washington Department of Revenue, the services now subject to retail sales tax include:
- Advertising services, which covers a lot: ad design, campaign planning, placing ads, buying online ad space, lead generation, and advice about how to advertise. Some out of home advertising, like billboards, transit ads and fixed signs, is treated differently.
- Information technology services, including help desk support, network support, IT training, IT consulting, data processing and data entry.
- Custom website development and custom software, including customizing prewritten software.
- Live presentations, such as workshops, classes and seminars delivered in real time, whether in person or online.
- Temporary staffing, and security and investigation services.
If you’re a marketing consultant, an IT managed service provider, a web designer or a freelance trainer, there’s a good chance at least part of what you sell is now taxable.
And it cuts the other way too. Your own costs probably went up. The ad platform you buy space through, the IT company that supports your office, the freelancer who builds landing pages for you may all be adding tax to your bills now. If you resell some of those services to your clients, ask your accountant whether you can buy them for resale instead of paying tax twice. Washington has a reseller permit system for exactly that situation, and the contract with your vendor should reflect it.
Services That Are Still Not Taxed, Like Legal and General Consulting
Not everything changed. Legal services, accounting, medical services, real estate services and general business consulting generally remain outside retail sales tax.
That sounds simple until you look at what many small businesses actually sell. A “growth consultant” might give general strategy advice, which isn’t taxable, and also run paid ad campaigns, which is. An IT firm might bundle general business advice with network support. When one contract mixes taxable and non taxable work at a single price, it gets messy fast. And messy contracts are where tax disputes start.
Who Pays the New Sales Tax When Your Contract Is Silent?
Tax Inclusive Versus Tax Exclusive Pricing Language
Under Washington law, sales tax is meant to be collected by the seller from the buyer. But the Department of Revenue generally looks to the seller to make sure it gets paid. If you don’t collect it, the state can still come to you for it.
Now picture your contract. It says $3,000 per month for digital marketing services. Nothing about tax. You start adding sales tax to the invoice, and the client says, “Our contract says $3,000. That’s what we agreed to.” Who’s right?
That’s exactly the kind of argument that turns a good client relationship sour. A contract that clearly says prices are “exclusive of applicable taxes, which the client will pay” heads off the whole fight. A contract that says nothing leaves you arguing, and possibly paying the tax out of your own margin.
Here’s the simple math. On a $3,000 monthly retainer, the sales tax in a Seattle area location adds up to thousands of dollars a year. If you end up absorbing that, it comes straight out of your profit.
Why Changing an Old Contract Can Trigger the Tax
When the law took effect, the Department of Revenue issued guidance for contracts signed before October 1, 2025. Some of those older agreements got temporary relief. That relief had limits, and for many services it has since run out.
Watch for automatic renewals as well. A lot of small service contracts roll over every year unless someone cancels. If yours does, there may never be a moment where you sit down and sign a new version, which means the old silent pricing language just keeps rolling forward. Don’t let a contract you set up years ago decide who pays a tax that didn’t exist when you wrote it.
Here’s the trap. The guidance said that if an existing contract is materially changed after October 1, 2025, the tax applies from the date of the change. So a renewal, a price change, or a new scope of work isn’t just a business update. It can be the moment your old tax treatment ends. If January is when you renew, January is when you need the right language in place.
Contract Clauses to Update Before Your Next Renewal
I’d rather you spend an hour fixing your template now than spend months arguing with a client later. These are the pieces I look at first.
A Clear Sales Tax Clause for Service Agreements
At minimum, your agreement should say three things. That stated prices exclude sales tax and other applicable taxes. That the client is responsible for paying those taxes on top of the stated price. And that if tax law changes during the contract, the tax will be adjusted to match the law.
It also helps to say where the service is considered delivered, because that affects which local rate applies. If you have clients outside Washington, or clients with offices in several cities, the sourcing rules can change what you charge. That’s worth sorting out with your accountant, and the contract should match whatever approach you settle on.
Think about clients who claim they shouldn’t be charged at all. Some buyers may be exempt, or may be buying your service to resell it. The contract can say that the client must give you any exemption or resale paperwork up front, and that if the state later disagrees, the client covers the tax. That one sentence moves the risk to the party making the claim.
Then make sure your invoices match your contract. If the agreement says tax is separate and your invoice shows one bundled number, you’ve undercut your own language.
Splitting Taxable and Non Taxable Work in One Contract
If you sell a mix of taxable and non taxable services, say so in the contract. Break out the price for each part, or at least describe how the fee is divided. A single bundled price makes it harder to defend which portion is taxable, and it can lead to more of the contract being taxed than needed.
This also helps your clients. Many of them are watching their own costs, and a clear breakdown makes the new tax easier to understand and accept.
Here’s a quick example. A Tukwila consultant charges one client $5,000 a month for “marketing strategy and campaign management.” The strategy piece, general advice about the business, may not be taxable. The campaign management, running and placing ads, likely is. If the contract lumps them together, the safest reading may be that the whole fee is taxable. If the contract says $2,000 is strategy and $3,000 is campaign work, now you have a clear, defensible line. The work is identical either way. Only the paperwork changed.
Finally, think about how you’ll tell existing clients. A short, plain letter before renewal works better than a surprise line item on the next invoice. Explain that Washington changed the law, that the tax goes to the state and not to you, and point them to the Department of Revenue’s page on newly taxable services. Most clients will understand. Many are already seeing the same thing on their other bills.
If you haven’t looked at your contracts in a while, my earlier post on whether you need a lawyer to review business contracts in Seattle walks through the other clauses worth a second look while you’re in there.
Your Contract Decides Whether Your Client or Your Profit Pays the Tax
New taxes are annoying, but this one is mostly a paperwork problem, and paperwork is fixable. The businesses that get hurt aren’t the ones charging tax. They’re the ones whose contracts never said who pays it, so the tax quietly comes out of their margin month after month. One clean template update fixes that for every client going forward. Your accountant handles filing the tax. Your contract decides whether your client or your profit covers it. Make sure that second part is settled before your next renewal goes out.
If you run a service business in Seattle, West Seattle, Tukwila or the surrounding area and want your client agreements updated for ESSB 5814, contact me or call 253-424-4750. I can usually review a contract template quickly and work alongside your accountant. Learn more about my business contract law and general business law work.
