Effective January 1, 2026, Certain Service Activities Reclassified to Retail
As a result of a change in state law, Washington State cities who impose local business and occupation (B&O) taxes amended the Model Ordinance to reclassify certain service activities to retail sales. You may visit the Association of Washington Cities (AWC)s’ City B&O tax rates and business licenses web page for more details.
The City of Seattle codified the amendments to the Model Ordinance’s definition of “sale at retail” by reclassifying the following service activities to retail sales:
Specific Service Activities Reclassified As Retail Sales
- Advertising services
- Custom software and customization of prewritten software
- Custom website development
- Information technology services
- Investigation, security and armored car services (not locksmiths)
- Live presentations
- Temporary staffing (not hospitals)
Washington State cities, including Seattle, will apply city B&O tax to existing contracts consistent with Washington State Department of Revenue (DOR) guidance. Taxpayers with qualifying existing contracts that were entered into prior to October 1, 2025, may continue to report income derived from the reclassified activities under the service classification until April 1, 2026.