Washington State Tax Changes: What Businesses and Individuals Need to Know for 2025
On May 20, 2025, Governor Bob Ferguson signed a sweeping package of Washington State tax legislation that introduces several important updates for businesses, investors, and individuals. These 2025 Washington State tax changes include progressive B&O tax rates, expanded retail sales tax coverage, a tiered capital gains tax, and the removal of longstanding exemptions.
Below is a breakdown of the key changes and their effective dates:
B&O Tax Rate Increases – ESHB 2081
Effective October 1, 2025, the “Service and Other Business Activities” B&O classification adopts a new progressive rate structure:
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1.5% for businesses with less than $1 million in affiliated group gross income
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1.75% for $1 million–$5 million
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2.1% for more than $5 million
Additional B&O updates include:
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Retailing, Wholesaling, and Manufacturing rates increase to 0.5% (effective January 1, 2027)
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Games of Chance B&O rate rises from 1.5% to 1.8%
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Investment income deductions limited to incidental investments (under 5% of total worldwide gross income), with exceptions for nonprofits, retirement accounts, and similar entities
Surcharge increases:
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Specified financial institutions: from 1.2% to 1.5%
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Advanced computing businesses: from 1.22% to 7.5%
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A new surcharge applies to businesses with more than $250 million in Washington taxable income (effective January 1, 2026)
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These updates reflect a major shift in the Washington State Tax Structure for business income. Businesses in sectors such as real estate and construction may be especially affected.
Sales Tax Expansion – ESSB 5814
Beginning October 1, 2025, several services will be subject to both retail sales tax and the Retailing B&O tax. Newly taxable services include:
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IT consulting, support, and training
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Custom website development
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Data processing and entry
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Security and investigation services
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Temporary staffing
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Advertising and live presentations (in-person or virtual)
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Custom and customized prewritten software
This expanded taxation of digital services will notably impact firms in the technology industry. These adjustments signal a more aggressive application of Washington State tax policy to service-based businesses.
Capital Gains Tax Changes – SB 5813
Effective January 1, 2025, Washington will implement a tiered capital gains tax structure:
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7% on capital gains up to $1 million (after an inflation-indexed deduction, currently $270,000)
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9.9% on capital gains exceeding $1 million
This marks a significant shift in the Washington State tax code, especially for high-income individuals and investors. Our individual tax advisors can help clients assess how this change might impact their investment planning or asset sales.
Estate Tax Modifications – SB 5813
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The estate tax exclusion increases to $3 million for decedents on or after January 1, 2025
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A new 35% top marginal rate applies to taxable estates over $9 million starting July 1, 2025
This may prompt individuals to revisit their estate and wealth transfer strategies. Learn more about our individual tax planning services for high-net-worth clients.
Eliminated Tax Preferences – SB 5794
As of April 1, 2026, several longstanding exemptions will be removed:
These repeals reflect the state’s ongoing effort to modernize and broaden the Washington State tax base, with potential implications for tax-exempt planning and reporting.
Transportation-Related Taxes and Fees – ESSB 5801
Effective July 1, 2025, taxpayers will see increases in:
Businesses with large fleets or logistics operations should factor these cost increases into their 2025 budgets. Our business advisory team can help you model potential impacts.
“Tesla Tax” on ZEV Credits – HB 2077
This new Washington State tax applies immediately to vehicle manufacturers that sell or bank more than 25,000 Zero Emission Vehicle (ZEV) credits in a single model year. This policy may also influence incentives for companies investing in electric vehicle infrastructure or fleets.
How to Prepare for the 2025 Washington State Tax Changes
These new laws affect everything from business operations and income sourcing to estate planning and digital services. Whether you’re reviewing nexus, evaluating revenue sourcing, or planning for an exit, proactive guidance is essential.
At Perkins & Co, our State and Local Tax (SALT) experts and industry-specific advisors help clients navigate change with clarity and foresight. For personalized assistance, reach out to SALT Shareholder Sonjia Barker or your Perkins advisor.
