Washington ESSB 5814 Penalty Relief Program at a Glance
- Due to challenges surrounding Washington’s expansion of retail sales tax under ESSB 5814, the Washington Department of Revenue’s ESSB 5814 Penalty Relief Program allows eligible businesses to voluntarily report unpaid retail sales tax and use tax liabilities without incurring certain penalties.
- Relief covers reporting periods from October 1, 2025 through December 31, 2026 — applications must be submitted by September 30, 2027.
- Businesses are still responsible for all underlying tax owed and accrued interest; only qualifying penalties may be waived.
- Relief is not available for liabilities involving tax evasion, negligence, or tax avoidance.
- Industries impacted include IT consulting, custom software development, advertising, staffing, and security services, among others.
Washington’s expansion of the retail sales tax under ESSB 5814 created significant changes for businesses that provide certain services. Effective October 1, 2025, many services that were previously subject only to Washington’s Business & Occupation (B&O) tax became subject to retail sales tax and use tax requirements. As businesses worked to understand and implement these new rules, many found compliance challenging. To address these concerns, the Washington Department of Revenue (DOR) introduced the ESSB 5814 Penalty Relief Program.
What Is the ESSB 5814 Penalty Relief Program?
The program provides eligible taxpayers with an opportunity to voluntarily come forward and report liabilities associated with the ESSB 5814 tax changes without incurring certain penalties. The relief is intended to encourage compliance while recognizing the complexity of the law’s implementation.
Under the program, the DOR may waive penalties related to:
- Uncollected retail sales tax resulting from ESSB 5814 changes
- Unpaid use tax attributable to ESSB 5814 changes
- Reporting periods from October 1, 2025, through December 31, 2026
While eligible penalties may be waived, businesses are still responsible for paying any underlying tax due as well as applicable interest.
Who May Qualify?
Businesses may qualify for relief if they:
- Owe retail sales tax or use tax due to ESSB 5814’s expansion of taxable services
- Voluntarily apply for penalty relief
- Submit their application by September 30, 2027
The program is available to businesses that failed to collect, report, or remit tax due to misunderstanding or delayed implementation of the new requirements.
Services Impacted by ESSB 5814
The legislation significantly expanded Washington’s sales tax base to include various services, including:
- Advertising services
- Information technology consulting and technical support services
- Custom software development and customization
- Custom website development services
- Investigation and security services
- Temporary staffing services
- Certain live presentations, seminars, and event-related services
- Changes to Digital Automated Services (DAS)
- Advertising, live presentations, data processing, and services provided through primarily human effort are no longer excluded
- Telehealth/telemedicine services excluded
Businesses operating in these industries should carefully review their transactions to determine whether sales tax collection requirements apply.
Important Limitations
Not all penalties qualify for relief. The program does not waive penalties related to:
- Tax evasion
- Negligence
- Tax avoidance
Additionally, the relief applies only to liabilities arising from changes under ESSB 5814 and does not eliminate the tax itself or accrued interest.
How to Apply
Applications must be submitted through the Washington Department of Revenue’s online Voluntary Disclosure Application process. Taxpayers should indicate that they are seeking relief related to ESSB 5814 when completing the application.
Once approved, the DOR will issue a Penalty Relief Agreement outlining the terms of the relief and the taxpayer’s obligations.
Why Businesses Should Act Now
The penalty relief program provides a limited window for businesses to resolve compliance issues before penalties accumulate. Companies that provide newly taxable services should review their invoicing procedures, tax collection practices, and prior reporting periods to determine whether any exposure exists.
Waiting until an audit occurs may eliminate opportunities for relief and could result in additional penalties and administrative costs.
How Thompson Tax Can Help
Determining whether your services are taxable under ESSB 5814 and calculating potential exposure can be complex. Thompson Tax can assist with:
- Evaluating whether your services are subject to Washington sales tax
- Reviewing prior reporting periods for potential exposure
- Quantifying tax liabilities and interest
- Preparing and submitting penalty relief applications
- Implementing compliance procedures to reduce future risk
If your business may be affected by ESSB 5814, now is the time to assess your position and take advantage of available relief opportunities before the September 30, 2027 application deadline.