Starting next month (October 2025), Washington businesses and residents will be paying sales tax on a slew of new services -- including custom web development, IT services, digital advertising, and even temporary workers.
Right now, Freelock charges sales tax on a tiny fraction of what we sell: hosting, Termageddon Licenses, backup hosting. Starting in October, pretty much everything we do will be considered "Retail sales" instead of "Services," and we'll need to start collecting sales tax from all our Washington customers.
Like tariffs, there's a lot of confusion about what this means -- as I interpret it, it means that Freelock will actually be paying less tax to the state of Washington -- but our customers will be paying substantially more. Right now Freelock has to pay the regressive Washington "Business and Occupation tax", aka the B&O tax. That's paid on all our services income at a far higher rate than the retail B&O tax -- and we pay that across the board for all our non-retail work, regardless of where our customers are. With all our work changing to Retail, the tax we pay goes way down, and we pay nothing at all on income from our out-of-state customers. But now we are obligated to collect and remit tax from our Washington customers.
What about existing contracts?
Most of our contracts are month-to-month, so the first invoice we send in October will have new taxable product codes. We send most of our invoices before the end of the month, so most of our clients will have one more monthly invoice without sales tax being charged.
The state issued interim guidance that says if we have existing longer term contracts that specify a certain rate, we don't have to charge sales tax until April 2026 (or whenever a new contract is established).
What if I'm not in the State of Washington?
If you don't have a business presence in Washington, this is good news for Freelock -- we don't have to collect tax from you, and we don't have to pay tax on work we do for you! We will still be updating your invoices to use a new set of taxable products, but we can deduct your payments as Foreign/Inter-state sales.
What tax rate will I pay if I am in Washington?
There's a ton of confusing guidance on this -- so we're going to make it simple. We charge the tax rate based on your billing address. Whatever tax rate is due for your business address, we will charge the rate for that location, as given to us by the State's tax API - https://webgis.dor.wa.gov/taxratelookup/salestax.aspx .
For our current taxable products, we already charge tax based on this lookup -- we maintain a Drupal module that uses the State's API to look up the location code and rate, and we have also added a module to our bookkeeping software, LedgerSMB.
What if I am exempt, or doing this for resale?
The rules for sales tax exemption are, fortunately, the same as for any other retail sales tax in Washington. If you are exempt, you must give us an exemption certificate, and then we won't collect sales tax. Then it becomes an issue between you and the State, Freelock is no longer part of the discussion.
What if I hire an out of state company instead of you?
This is the bad part of the whole deal. It doesn't matter who you hire to do custom website development or IT services -- you are supposed to pay sales tax on that work. If the vendor does not collect it from you, you are required to declare and pay it as "Use tax". And the State conducts use tax audits all the time -- Freelock has been audited for this in the past. With so many new services becoming taxable, I'm sure it won't be long before enforcement kicks in!
What if I have multiple locations? What if some of my locations are out of state?
This is where the new guidance from the state gets very complicated and confusing. You are allowed to break down the tax payments into portions billed to different locations with different - or no - tax rates.
The only way I can see for our small business to be able to manage this is by setting you up with multiple credit accounts, and then you tell us what to invoice to each one and we will charge tax accordingly.
Now is the perfect time to prepay for some hours!
If you order some Prepaid hours between now and the end of the month, you can save 10% on whatever website work you need doing! Your hours with us do not expire as long as you are on our Protection Plan.
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