Washington’s digital sales tax applies the state’s 6.5% retail sales tax, plus local add-ons that bring the combined rate as high as 10.4%, to downloaded music and video, streaming subscriptions, e-books, SaaS and other cloud software, online gaming, and digital codes.1Washington Department of Revenue. Local Sales and Use Tax Rate Table Sellers collect that tax from the buyer and separately owe Business and Occupation (B&O) tax on their gross receipts. As of October 1, 2025, the tax base expanded again to cover custom software work, IT consulting, website development, and several digital services that had been exempt.
What Digital Products and Services Are Taxable
RCW 82.04.192 groups taxable digital commerce into four buckets.2Washington State Legislature. RCW 82.04.192 – Digital Products Definitions
- Digital goods are electronically transferred products: music files, movies, e-books, photographs, and newspaper or magazine subscriptions. A download or a stream is treated the same as buying the physical version.
- Digital automated services (DAS) are services delivered electronically that run on one or more software applications. Online gaming platforms, photo-sharing services, and cloud productivity tools qualify. Most SaaS products land here because the customer accesses software over the internet instead of installing it.
- Digital codes are codes that unlock a digital product, such as a gift card for a music store or a redemption key for downloadable software. The code is taxed the same as the product it unlocks.
- Remote access software is prewritten software hosted on the vendor’s server that the customer uses remotely. Delivered on its own, it’s taxed as remote access software; bundled into a broader service, the whole package is taxed as DAS.3Washington State Legislature. WAC 458-20-15503 – Digital Products
Whether you sell permanent access or a monthly subscription doesn’t matter. Both are retail sales under RCW 82.04.050.4Washington State Legislature. RCW 82.04.050 – Sale at Retail, Retail Sale
Several things are carved out of DAS and aren’t subject to sales tax under these provisions: internet access, telecommunications, payment processing, online educational programs from accredited schools, web hosting, data storage, travel-booking platforms, and telehealth.2Washington State Legislature. RCW 82.04.192 – Digital Products Definitions
What Changed October 1, 2025
ESSB 5814 widened the tax base significantly. Selling custom software, customizing prewritten software, providing IT consulting, or building websites is now a retail sale, meaning you must collect sales tax from the buyer and pay retailing B&O tax on the receipts.5Washington Department of Revenue. Services Newly Subject to Retail Sales Tax
The law also removed older DAS exclusions. Digital advertising services, live online presentations, data processing, and services delivered primarily through human effort are no longer excluded, so more cloud and technology businesses now owe Washington tax. Web hosting, domain registration, and payment processing remain carved out of the newly taxable IT services category, and the law added a new exclusion for telehealth and telemedicine.5Washington Department of Revenue. Services Newly Subject to Retail Sales Tax
The Two Taxes a Seller Owes
Digital sellers deal with two separate state taxes.
Retail sales tax is collected from the buyer. The state portion is 6.5%, and local jurisdictions add anywhere from 0% to roughly 3.9%, for a combined rate as high as 10.4%.1Washington Department of Revenue. Local Sales and Use Tax Rate Table The local piece depends on where the buyer is, not where the seller operates.
B&O tax comes out of the seller’s own gross receipts. Digital products in the retailing category are taxed at 0.471% of gross receipts.6Washington Department of Revenue. Business and Occupation (B&O) Tax Digital services that fall under “service and other activities” face higher rates that scale with income: 1.5% for businesses under $1 million, 1.75% from $1 million to $5 million, and 2.1% at $5 million or more.7Washington Department of Revenue. Service and Other Activities Rate Changes One side effect of ESSB 5814: businesses reclassified from “service and other activities” into “retailing” now pay the lower 0.471% B&O rate, even though they also have to start collecting sales tax from customers.
Exemptions for Business Buyers
Two targeted exemptions keep tax from stacking through the supply chain. Under RCW 82.08.0208, a business buying digital products solely for resale doesn’t owe sales tax on the purchase, provided it gives the seller an exemption certificate at the time of sale.8Washington State Legislature. RCW 82.08.0208 – Exemptions – Digital Products and Digital Automated Services A separate provision in the same statute covers businesses that incorporate a digital product as a component of a new digital product or service they then sell. Both aim to put the tax on the final consumer.
Companies that deploy software across multiple states can also avoid paying Washington’s full rate on the whole purchase. Under the multiple-points-of-use approach, the buyer gives the seller an exemption certificate, takes an upfront sales tax exemption, and then self-reports apportioned use tax based on the share of users located in Washington. A platform used by employees scattered across a dozen states doesn’t get taxed at the full Washington rate on all of its seats.
When Out-of-State Sellers Must Collect
A remote seller with no physical presence in Washington has to register and collect once it crosses the economic nexus threshold: $100,000 or more in combined gross receipts from Washington customers in the current or prior calendar year. That total counts all retail sales to Washington buyers, taxable or exempt, direct or through a third-party platform.9Washington Department of Revenue. Marketplace Facilitators
If you cross the threshold mid-year, collection starts on the first day of the month beginning at least 30 days after you crossed it. The obligation then runs through the rest of that calendar year and all of the next.
Marketplace facilitators handle collection for their third-party sellers. A platform qualifies as a facilitator when it contracts with sellers, communicates offers between buyers and sellers (beyond just advertising), and handles at least one additional activity like payment processing, order fulfillment, or customer service. Facilitators that meet those criteria and exceed the $100,000 threshold collect and remit sales tax on the sellers’ behalf.9Washington Department of Revenue. Marketplace Facilitators If you sell through an app store or a digital storefront that qualifies, the platform typically owes the collection, not you, though your sales still count toward your own nexus calculation.
How to Source Each Sale
Digital products don’t ship to a loading dock, so Washington uses a hierarchy under RCW 82.32.730 to tie each sale to a local tax jurisdiction. Sellers apply the first rule that fits:10Washington State Legislature. RCW 82.32.730 – Sourcing of Retail Sales
- If the buyer receives or first uses the product at the seller’s physical location, that location sets the rate.
- Otherwise, use the address where the buyer receives or first uses the product, if the seller knows it. For most digital sales, this is the address the customer enters at checkout.
- If no receiving address is known, fall back to any address for the buyer in the seller’s ordinary business records.
- If none of the above works, use the billing address tied to the payment method.
Getting sourcing right matters because local rates vary across hundreds of Washington jurisdictions. A sale sourced to Seattle carries a different combined rate than one sourced to Spokane. A seller who can’t confidently identify the buyer’s location risks undercollecting (and owing the difference) or overcollecting (and fielding refund requests).
Use Tax When the Seller Doesn’t Collect
If you buy a digital product from an out-of-state seller that doesn’t charge Washington sales tax, you owe use tax at the same combined rate. This applies across the board: downloads, streaming subscriptions, cloud services, and remote-access software.11Washington Department of Revenue. Digital Products Including Digital Goods Individuals report and pay it on a consumer use tax return; businesses report it on their regular combined excise tax return. The use tax closes the gap that would otherwise let buyers avoid tax by purchasing from sellers outside the state.
Registering, Filing, and Penalties
Before collecting tax, you need a tax registration from the Department of Revenue. The Business License Application is available through the state’s online portal, and once approved the state issues a Unified Business Identifier (UBI) number that serves as your account for all state tax activity.12Washington Department of Revenue. Business Licensing and Renewals FAQs You’ll need your SSN or EIN, an estimate of annual gross income, and the NAICS code that best fits your activity. For digital sellers, the DAS versus remote-access-software distinction can change which B&O rate applies, so classify carefully.
The Department assigns a filing frequency based on estimated annual liability: annual if you owe $1,050 or less, quarterly from $1,051 to $4,800, and monthly above $4,800.13Washington Department of Revenue. Filing Frequencies and Due Dates Returns are filed electronically through My DOR; state law requires electronic filing for most businesses, with narrow waivers for good cause or for taxpayers assigned a less-than-quarterly frequency.14Washington State Legislature. RCW 82.32.080 – Returns, Remittances, and Penalties A return filed without payment, or filed on paper when e-filing was required, can be rejected and treated as missed.
Late-payment penalties escalate fast. The penalty starts at 9% of the unpaid tax, jumps to 19% after the end of the following month, and reaches 29% after two months, with a $5 minimum. If the Department finds an underpayment during an audit, a separate schedule applies: 5%, then 15%, then 25% as time passes after the notice.15Washington State Legislature. RCW 82.32.090 – Penalties Interest accrues on top, recalculated each year at the federal short-term rate plus two percentage points.16Washington State Legislature. RCW 82.32.050 – Interest The Department will waive penalties in limited circumstances; it never waives interest. File on time even when you can’t pay in full, and the penalty clock won’t start while you work out payment.