Engrossed Substitute Senate Bill (ESSB) 5814 added new business activities to the definition of retail sales that includes temporary staffing services. This means businesses must begin collecting sales tax on temporary staffing services on Oct. 1, 2025.
Additionally, income derived from these activities is subject to the Business and Occupation (B&O) tax under the Retailing classification.
Washington State requires retail sales tax on temporary staffing services
Beginning October 1, 2025, Washington State will require businesses to collect retail sales tax on temporary staffing services. This change means that the taxability of temporary staffing services will no longer depend on the specific activities performed by the temporary staff. Temporary staffing services involve providing workers to other businesses for limited periods to supplement their workforce and fill employment vacancies on a contract or fee basis.
However, there is an exception: temporary staffing services provided to hospitals licensed under chapter 70.41 or 71.12 of the Revised Code of Washington (RCW) are not considered a retail sale. Income received from providing temporary staffing services to a hospital will continue to be taxable based on the activity engaged in by the assigned worker(s).
New rule will apply to remote workers of companies from Washington
At first glance, companies outside of Washington State may see this change and ignore it, thinking that it would not impact them, but this ruling will affect firms with temporary workers working for any companies based in Washington. Given the large footprint in the region, this will be significant for temporary staffing in the IT industry, but it will also impact staffing firms that staff accounting, various healthcare roles, and even marketing support.