Washington Sales Tax Rules for Temporary Staffing Services

Washington sales tax on temporary staffing services applies to nearly all placements as of October 1, 2025. Staffing agencies must collect the 6.5% state retail sales tax plus local sales tax on the full amount charged to the client, with combined rates typically running between 8% and 10.5% depending on where the work is performed.¹ The one meaningful exception is staffing provided to licensed hospitals.

What Changed on October 1, 2025

Before that date, whether a placement was taxable depended on the work the temporary employee actually did. Construction, cleaning, and landscaping placements triggered sales tax because those activities were already retail. Placing an administrative assistant or a data entry clerk did not. Every assignment had to be evaluated on its own facts.

ESSB 5814 collapsed that analysis. The law added “temporary staffing services” as a standalone retail sale category under RCW 82.04.050, so the nature of the work the assigned employee performs is largely irrelevant now.² If you supply workers to another business on a temporary basis to supplement its workforce, the transaction is a retail sale and you collect sales tax from the client.

The B&O side moved with it. Income from taxable staffing placements now falls under the Retailing B&O classification at 0.471% of gross receipts, which is actually lower than the old Service and Other Activities rates most agencies had been using.³ If you had contracts in place before October 1, 2025, check the Department of Revenue’s guidance on pre-existing contracts to see when the new rules take effect for each agreement.⁴

What Counts as Temporary Staffing

The statute defines temporary staffing services as providing workers to other businesses for limited periods to supplement their workforce or fill vacancies, on a contract or fee basis.² WAC 458-20-274 adds four practical markers: the staffing firm recruits and hires its own employees, finds client organizations that need them, assigns those employees temporarily under the client’s direction and supervision, and customarily reassigns them when each assignment ends.⁵

Not every arrangement where one business supplies workers to another qualifies. The Department’s interim guidance lists several situations that sit outside the definition:

A business that hires a worker directly for a short-term position is not providing staffing services, even if the job is temporary.
Engaging an independent contractor for a specific project does not make the hiring company a staffing business.
Paymaster relationships that meet the requirements of RCW 82.04.43393 are not treated as staffing.
Subcontracting a body of work to a third party that controls its own workers is outsourcing, not staffing.

Getting the classification wrong costs money in either direction. Failing to collect when you should means you absorb the liability. Collecting when you shouldn’t means overcharging clients.³

When one worker performs several kinds of activities during a placement, income is reported based on the predominant activity, meaning the one that consumes more than 50% of the worker’s time.⁵

The Hospital Exemption

Temporary staffing provided to hospitals licensed under chapters 70.41 or 71.12 RCW is the only carve-out from the new retail sales tax rule. When you place workers at a qualifying hospital, the transaction is not a retail sale and you do not collect sales tax from the hospital.³

Hospital placements are reported for B&O tax based on the classification of the underlying work the assigned employee performs, which for most placements is Service and Other Activities. That rate is tiered by the agency’s prior-year gross income: 1.5% for agencies under $1 million, 1.75% between $1 million and $5 million, and 2.1% at $5 million or above.⁶

The exemption is narrow. It covers licensed hospitals, not clinics, nursing homes, urgent care centers, or other healthcare facilities. Placements at those sites follow the standard retail rule.

Wholesale Placements and Reseller Permits

Some placements qualify as wholesale sales rather than retail. When your client resells the staffing to a third party, such as a general contractor passing through labor costs, you do not collect retail sales tax, but only if the client gives you a valid reseller permit.⁷ Verify that the permit is current and keep a copy on file. Accepting a resale claim without a valid permit shifts the uncollected sales tax back onto the agency if the Department later challenges the transaction.⁸

What You Owe Tax On

Sales tax and B&O tax apply to the full amount you charge the client. You cannot deduct the wages you pay temporary workers, payroll taxes, or other business expenses when calculating gross income.⁵ Two narrow exceptions exist: income for work performed outside Washington can come out of B&O gross income, and bad debts written off for federal tax purposes can be deducted from B&O and public utility tax calculations. Everything else stays in the taxable base.

Filing Through My DOR

Excise taxes are filed and paid electronically through the My DOR portal. Log in, open the Excise Tax Return panel, and click “File Return.” Enter gross income under the Retailing classification for taxable staffing income and report the retail sales tax you collected from clients.⁹ Hospital-exempt income goes on a separate line under the appropriate Service and Other Activities classification.

The system calculates the combined state and local tax rate based on where the service was performed. Payment can be made by ACH debit from a business bank account or by credit card, though credit cards may carry processing fees. Save the confirmation number as proof of timely filing.¹⁰

Late Penalties

Washington’s late penalties climb quickly. Miss the due date and the Department assesses 9% of the unpaid tax. Miss the end of the following month and it becomes 19%. Miss the end of the second month after the due date and it reaches the 29% statutory maximum. The minimum is $5 regardless of the amount owed.¹¹

These are cumulative totals, not additions. A return filed 45 days late owes 19%, not 9% plus 19%. Interest accrues on top of penalties. Penalty waivers are available in limited situations, but require showing that the late filing resulted from circumstances beyond the taxpayer’s control.¹²

Records to Keep

Washington requires businesses to keep complete tax records for at least five years.¹³ For a staffing agency, that means detailed job descriptions for every temporary worker, client contracts specifying the nature of each placement, copies of reseller permits received from wholesale clients, and filed tax returns with confirmation numbers. During an audit, the Department uses those records to verify whether each placement was correctly classified as taxable or exempt. Five years of back taxes plus penalties is the exposure if the documentation isn’t there.

1
Washington Department of Revenue. Staffing Industry
2
Washington State Legislature. RCW 82.04.050
3
Washington Department of Revenue. Interim Guidance Statement Regarding Changes Made by ESSB 5814 – Temporary Staffing Services
4
Washington Department of Revenue. Services Newly Subject to Retail Sales Tax
5
Washington State Legislature. WAC 458-20-274 – Staffing Services
6
Washington State Legislature. RCW 82.04.290 – Tax on Service and Other Activities
7
Legal Information Institute. Washington Code 458-20-274 – Staffing Services
8
Washington Department of Revenue. Reseller Permits
9
Washington Department of Revenue. Tax Returns
10
Washington Department of Revenue. File and Pay Taxes
11
Washington State Legislature. RCW 82.32.090
12
Washington Department of Revenue. Penalty Waivers
13
Washington Department of Revenue. Record Keeping Requirements