Bellevue, WA (September 2025) – Many businesses in the Evergreen State face scary new taxes come October. Bills passed by the legislature in April could mean a $4 billion tax increase for Washington state businesses. Several tax increases become effective Oct. 1, including Business & Occupation (B&O) tax increases and the Retail Sales & Use tax expansion.
“These two new laws – emanating from bills ESHB 2081 and ESSB 5814 – will have the most impact on medium and large businesses,” said Jeff Heyel, CMI, CPA, Vice President of Tax for recovery audit firm CPRS. “It’s important for businesses to not only get ready for this change, but to have an audit plan in place in 2026.”
Heyel suggested adding a Reverse Sales & Use Tax Audit or an AP Recovery Audit to corporate 2026 financial plans to help offset the new Washington tax increases. A major software developer and other companies have already hired CPRS to assist with tax impacts of the new laws.
Heyel advises businesses to be concerned about several areas, including:
- Washington B&O Tax Apportionment: Reevaluation is recommended
“Washington Business & Occupation tax apportionment is tricky. Service revenue taxable under the Service and Other Activities B&O tax classification in Washington gets apportioned, and only income attributed to in-state activities gets taxed. Calculations related to apportionment are very complex and may be impacted by the new tax laws,” Heyel said. “As such, a reevaluation of a taxpayer’s apportionment B&O tax calculations is recommended.”
- Sourcing: Location of services is crucial
“The location you use to determine if retail products or services are taxable in Washington is crucial,” Heyel said. “It will be important for taxpayers to determine the correct sourcing locations for services that become subject to retail sales tax or use tax starting October 1, 2025.”
- Private-Letter Rulings (PLR) may be required
“Even though the DOR is currently inundated with requests for clarifications, Private Letter Rulings are an important tool companies should use,” Heyel said. “The guidance PLRs provide is binding, so if a company gets audited, the DOR auditor has to follow PLR guidance.”
Heyel also warned about over-reliance on Tax Engine software. “Tax engines usually do a good job, but should be checked to confirm categories are correct, locations are accurate, and available deductions are included.”
