The state of Washington has changed how it taxes temporary staffing arrangements. While at first glance this may not seem to be a concern for businesses in our region, if your company provides temporary staffing services for businesses receiving the benefit of the services in Washington state, you’ll want to be aware of how the change will impact you. This new tax treatment may also be taken up by other states, so even if you’re not affected today, it may impact your company at some point in the near future.
What is Changing?
As of October 1, 2025, temporary staffing services will be treated as retail sales, making them subject to both retail sales tax and the retailing portion of the business-and-occupation (B&O) tax.
This shift moves away from taxing based on the type of work performed and instead focuses on the nature of the relationship between the staffing firm, the worker, and the customer.
When one company supplies workers to another and the receiving company directs and supervises their day-to-day activities for a short period—such as filling a vacancy, handling seasonal demand, or completing a project—the arrangement is now considered a taxable retail sale.
How is the Tax Determined?
The location where the tax applies depends on where the work is performed or where the customer benefits from it. If the work is done on-site, the sale is tied to that location. If it’s remote, the sale is tied to the place where the customer uses the service. If multiple locations are involved, the sale should be reasonably allocated across the locations where the service is used.
Existing contracts signed and paid before October 1, 2025, will continue to be taxed under the old tax rules. Contracts signed before that date but unpaid may retain the old treatment until March 31, 2026, as long as they remain unchanged. Any contract that is amended or renewed after the effective date of October 1, 2025, will be subject to the new retail tax rules immediately.
Businesses that purchase temporary staffing services solely to resell them unchanged to another customer may still use a reseller permit to avoid paying the tax themselves. To qualify, they must hold a valid permit and maintain simple documentation showing the service was passed along without being used.
Are Any Organizations Exempt from This New Tax Treatment?
Not-for-profit organizations and government entities are not automatically exempt from this new rule. Unless a specific exemption applies, they must pay the same tax as private businesses.
Next Steps for Your Business
To prepare, businesses should review their staffing arrangements, consider who controls the workers, track where services are performed or used, update billing systems, and ensure internal teams understand the new requirements. Coordinating with clients and vendors will also help avoid confusion and unnecessary exposure for unpaid sales tax. If you would like to discuss how this new tax treatment could potentially impact your business, please contact us.