New sales tax rules began Oct. 1; many everyday services are still exempt

OLYMPIA — Starting Oct. 1, Washington’s sales tax began to reach into a few corners of the economy it hadn’t touched before. The Legislature passed a bill this year that broadens what counts as a “retail service,” meaning some jobs that used to be tax-free will now come with that familiar little percentage at the bottom of the receipt.

So if you find yourself in the enviable position of having time to take an online Photoshop class, you’ll pay a bit more for the privilege. And if your business hires an IT pro to untangle the office Wi-Fi, or a marketing firm to make your next ad campaign sparkle, you’ll see sales tax added to that bill, too. But your hairdresser won’t have to charge you tax on a haircut, so the next rate hike at the local salon will probably be over the cost of shampoo — not the Department of Revenue.

What’s changing

Under the new rules, taxes apply to things like advertising and marketing work, live classes or workshops (in person or online), information-technology services, private security, and temporary staffing. That means a cooking class at the community center, a web designer in Wenatchee building a site for a Chelan winery, or a business hiring a short-term bookkeeper through a staffing agency will all now include sales tax.

Lawmakers say the goal is to modernize the tax code and generate revenue from parts of the economy that have grown in recent years but weren’t yet contributing their share. Until now, many of these service industries operated outside the retail sales tax structure altogether.

What’s not

Consumers don’t need to panic. Most professional and personal services remain exempt. Your doctor, lawyer, accountant, or therapist still won’t charge sales tax. Groceries and prescription drugs remain untaxed, and even most beauty and personal-care services — from haircuts to massages — are still outside the retail sales tax system.

What it means locally

For small businesses, the change mostly means double-checking where their customers are located. In Washington, the tax rate depends on where the service is received, not where it’s sold. So if a Chelan-based designer builds a website for a client in Spokane, the Spokane sales tax rate applies.

For most residents, the impact will show up only in small ways: a few more receipts with sales tax lines where there weren’t any before, and a broader sense that the tax base is catching up to how people actually work today.

It’s one of those “you didn’t know it wasn’t taxed” kind of changes — but don’t worry. The state’s still leaving your haircut, your groceries, and your morning latte right where they’ve always been: Tax-as-usual.

If you have questions about what is and is not covered, or you have a small business or service you believe may be affected by the passage of the new legislation this year, you can consult the list on the Washington State Department of Revenue website at https://dor.wa.gov/taxes-rates/retail-sales-tax/services-newly-subject-retail-sales-tax or simply speak with your tax professional.

Andrew Simpson: 509-433-7626 or andrew@ward.media