Is SaaS Taxable in Washington? 2025 Guide
No sales tax, but you owe B&O tax. Washington does not charge retail sales tax on SaaS. However, if you have Washington nexus, you must pay Business & Occupation (B&O) tax at 1.5% on your gross receipts from Washington customers.
Quick Reference
The Critical Difference: Sales Tax vs B&O Tax
Many SaaS companies miss this: Washington's B&O tax is a tax on your business, not a tax you collect from customers. You pay it out of your revenue, not by adding it to invoices. It's easy to overlook—and the Department of Revenue actively audits out-of-state companies with Washington customers.
How B&O Tax Works
- B&O tax applies to your gross receipts—not net profit
- SaaS falls under "Service & Other Activities" at 1.5%
- You pay it quarterly (or monthly if liability is high)
- There are no deductions for cost of goods sold or expenses
- You don't charge it to customers—it comes out of your margin
What Triggers Washington Nexus?
Economic Nexus
Washington's threshold is $100,000 in Washington sales. This is lower than many states. If you exceed this threshold, you have nexus for B&O tax purposes.
Physical Presence
- Employees: Any employee in WA creates nexus
- Contractors: May create nexus depending on activities
- Property: Inventory or servers in WA creates nexus
Common Mistakes
- Assuming "no sales tax" means no tax at all. You don't collect sales tax, but you still owe B&O tax.
- Not registering because you're out of state.Washington actively pursues out-of-state businesses with nexus.
- Trying to pass B&O tax to customers. While not illegal, it's unusual and may cause customer confusion.
What About Digital Products?
Washington DOES charge retail sales tax on certain "digital products" (games, movies, music, digital books). However, SaaS—where customers access software but don't receive a copy—is generally not considered a digital product and is exempt from sales tax.
The line can blur if your SaaS includes downloadable components. When in doubt, check with the DOR or a tax professional.
Check If You Have Washington Nexus
The $100K threshold is lower than most states. Find out if you're over it.
Start Free AnalysisHow to Register
You need a Washington Business License to report and pay B&O tax, even if you have no physical presence in the state.
- Authority: Washington Department of Revenue
- Timeline: 1-2 weeks for online registration
- Filing: B&O tax: Monthly, quarterly, or annually based on tax liability. Sales tax (if applicable): Same schedule.
Sources
- Statute: RCW 82.04 (B&O Tax), RCW 82.08 (Retail Sales Tax)
- Official Guidance: WA DOR Software Industry Guide
- WAC 458-20-15502 (Software and digital products)
- Det. No. 15-0210 (SaaS B&O classification)
- DOR Special Notice: Digital Products
- Last Verified: 2025-12-21