ARTICLE | May 28th, 2025

Washington lawmakers just signed into law a sweeping package of tax reforms designed to fill a $16 billion budget shortfall. These changes, many of which take effect October 1, 2025, and some retroactive to January 1, 2025, will affect businesses of all sizes, high-income individuals, and consumers. At Larson Gross, we’re helping clients understand what’s changing—and what to do next.

B&O Tax Increases: Higher Rates for Large and Growing Businesses

Businesses with over $5 million in annual gross receipts under the Service and Other Activities classification will see their B&O tax rate increase from 1.75% to 2.1% starting October 1, 2025. Additionally, investment income deductions are now limited to incidental investments—those representing less than 5% of a company’s worldwide revenue.

Sales Tax Expansion: More Services Now Taxable

Starting October 1, 2025, Washington’s retail sales tax will apply to a wide range of professional services. This includes IT support, software development, advertising, data processing, security, staffing, and live presentations. Telehealth services are excluded. Businesses in these sectors will need to adjust their billing practices and tax collection processes to stay compliant.

Capital Gains and Estate Taxes: Bigger Burden for Wealthy Individuals

The state’s capital gains tax rate applies an additional 2.9% excise tax for individuals realizing long-term capital gains over $1 million in a year. This change is retroactive to January 1, 2025. This puts Washington among the states with the highest capital gains rates. Beginning July 1, 2025, estate taxes are also changing —while the exemption rises to $3 million, the top rate increases to 35% for estates exceeding $9 million. These changes may warrant a fresh look at investment and estate strategies.

Washington Capital Gains:

Washinton Estate Tax:

Other Tax Changes: Transportation, Preferences, and Compliance Relief

Drivers and transportation-reliant industries will see increased gas taxes, registration fees, ferry charges, and new taxes on luxury vehicles and aircraft. Self-service storage and title insurance agents previously not required to file and pay B&O taxes are now required to do so. On the compliance side, the state will now offer limited penalty waivers and has clarified rules around deductions and tax classification.

What You Should Do

These changes create immediate and long-term planning considerations. Businesses need to understand how the new rules affect their B&O and sales tax obligations. High-net-worth individuals should revisit their estate and investment plans. If you’re not sure where to start, our team can help you assess the impact and plan ahead. Reach out to your Larson Gross advisor today to help you prepare.