The Washington State legislature passed a new budget on April 27, 2025. The new budget updated several notable tax policies, some of which may affect you or your organization. These changes impact nonprofits, including colleges and universities, as well as nonprofits that host conferences and live events. We’ve summarized key points below and included links to the actual bills for your reference. The Washington Society of CPAs has also provided a more in-depth look and additional resources you may wish to review.
Engrossed Substitute House Bill 2081
Engrossed Substitute House Bill 2081 made changes to the state’s business and occupancy (B&O) tax. Rates have changed for service providers earning more than $5 million annually. The new rate is 2.1%. Previously, the rate was applied to businesses in this sector earning more than $1 million.
Additionally, the bill clarifies tax treatment for investments in response to the Antio, LLC vs. Department of Revenue court case. It formally defines “incidental investments” and establishes a 5% threshold for classification; a stricter limit compared to the Department of Revenue’s previous 5% safe harbor standard. While this change provides a clearer framework, some ambiguity remains regarding the definition of a business’s main purpose and how the 5% threshold should be applied across different reporting periods. To address outstanding tax questions, the Department of Revenue will issue additional guidance to further clarify tax policies and compliance expectations.
A key point in this bill affects nonprofits. Washington State’s Engrossed Substitute House Bill 2081 introduces tax exemptions for mutual funds and most nonprofit organizations, aiming to address concerns raised by the Antio, LLC vs. Dept. of Revenue case. This change benefits foundations, private colleges, and nonprofits by preventing their endowment funds and investments from being taxed under new B&O provisions. However, the exemption won’t take effect until January 1, 2026, as the Department of Revenue (DOR) indicated it needs time to implement the necessary administrative processes. Until then, nonprofits and other affected entities remain uncertain about their tax liabilities for the current and previous years. To provide additional clarity, the DOR will issue further guidance on how these exemptions will be applied under Washington’s evolving tax rules.
Engrossed Substitute Senate Bill 5814
Engrossed Substitute Senate Bill 5814 modifies the rules around sales tax. It removes a tax exemption for services that rely primarily on human effort, meaning that accounting and other professional services will now be subject to sales tax if they involve the use of digital tools. The bill defines Digitally Automated Services (DAS) as any service transferred electronically using one or more software applications.
Because many CPAs and professional service providers use online portals to communicate with clients, their engagements will likely be taxed. The legislature declined to restore the exemption, so this change will take effect on October 1, 2025. In response, the Washington Society of CPAs (WSCPA) and other professionals have asked Governor Ferguson to veto this section of the bill, arguing that more discussion is needed to assess its broader impact.
Another change is that “live presentations,” such as conferences, will now need to charge sales tax. This includes all professional development conferences. This provision requires further study, as it may also impact schools, colleges, and universities.
Nonprofits Need to Know Tax Law Changes
Having a tax-exempt status does not mean that your organization is entirely exempt from all taxes. As in the examples above, there are certainly situations in which nonprofits could be required to charge taxes, such as sales tax. Nonprofits must keep up to date with tax law changes in their states to ensure they’re in compliance with current regulations.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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