What’s New in Sales Tax?

(Sales Tax Updates and State Legislative Changes)

There’s always something changing in the world of tax, especially sales tax. Here’s a review of some of the recent changes and updates. 

Washington State Expands Service and Digital Taxation

Washington taxes services – and more. They’ve been busy in Olympia. 

Effective Oct. 1, 2025, the Washington business and occupation (B&O) tax rate for services and other activities for businesses with gross income over $5 million is increased from 1.75% to 2.1%. 

Industries and Services Affected by Washington H.B. 2081

H.B. 2081 increases the B&O tax to 0.5% for: 

• Information technology training services, technical support, and other services, including, but not limited to, assisting with network operations and support, help desk services, in-person training related to hardware or software, network system support services, data entry services, and data processing services;  

• Custom website development services;  

• Investigation, security services, security monitoring services, and armored car services including, but not limited to, background checks, security guard and patrol services, personal and event security, armored car transportation, and security system services and monitoring;  

• Temporary staffing services;  

• Certain types of advertising services;  

• Live presentations including, but not limited to, in-person or remote interactive lectures, seminars, workshops or courses; and 

• The sale of or right to use custom software, and customization of prewritten computer software.  

• Standard manufacturing, extracting, and wholesaling;  

• Standard retailing;  

• Radioactive waste cleanup;  

• Retail or wholesale sales of digital goods, digital codes, or digital automated services;  

• Research and development by non-profit entities;  

• Insurance agents;  

• Treatment of chemical dependency;  

• Salmon canners;  

• Printing materials, other than newspapers;  

• Highway and government contractors;  

• Cold storage warehousing;  

• Temporary staffing services; and 

• Radio and television broadcasting.  

Currently, B&O tax rates for these activities are either 0.471% or 0.484%. 

Changes to Washington’s Digital Automated Services Definition (S.B. 5814)

Washington’s S.B. 5814 broadens the definition of digital automated services that are already subject to retail sales and use tax and the retailing B&O tax, in part to take into account other services that will be taxable under the expanded definition of “sale at retail” or “retail sale.” As a result, exclusions from the term “digital automated services” will no longer be available for: (i) any service that primarily involves the application of human effort by the seller, and the human effort originated after the customer requested the service; (ii) live presentations; (iii) advertising services; or (iv) data processing services. These exclusions remain available in the case where such services occur between members of an affiliated group.   

Washington Sales Tax Treatment of Precious Metals and Bullion

As of Jan. 1, Washington will also consider sales of precious metal and monetized bullion to be tangible personal property for both sales tax and business and occupation (B&O) tax. If the bullion is sold at retail, gross income from the sale is subject to B&O tax at the retailing rate, and the seller must collect and remit sales tax. For wholesale sales, buyers will need to provide a valid reseller permit to purchase without sales tax, and the gross income from the sale will be subject to the wholesale rate for B&O tax. If the bullion is being sold for other purposes, such as jewelry making or as part of a commission, sellers will charge the appropriate rate (wholesale or retail) based on the nature of the sale. 

Illinois Sales Tax Amnesty Program

Now’s the time. Illinois is having a tax amnesty period through Nov. 17. 

Taxpayers to pay outstanding eligible tax liabilities and to have eligible penalties and interest forgiven on taxes paid in full. Sales tax is among the taxes covered.  

Eligible liabilities are taxes due from periods ending after June 30, 2018, and prior to July 1, 2024. Penalties and interest are not included. 

Items not covered by the amnesty waiver include various penalties and fees not based on tax liability, such as frivolous return fees. 

To file a new or amended return, taxpayers must complete the appropriate return and attach supporting documentation.  

Legal Developments Affecting Sales Tax Revenue in Missouri

Missouri Counties Sue Over Sales Tax Revenue. 

Two southeast Missouri counties are asking courts to decide if state legislators are violating the constitution by eliminating the Missouri sales tax on groceries and thereby take a source of local revenue.  

Cole County, Ste. Genevieve and Iron counties accuse lawmakers of violating the Missouri Constitution by taking away revenue required for bond payments, reducing the funds available for state-mandated functions and adding excessive new tax burdens on without a statewide vote. The states claim they lost a fifth of their sales tax because of an exemption enacted in 2021. In a bill designed to capture sales tax from online purchases, the legislature expanded an exemption for mines and factories, first enacted in 2007, for utilities and equipment purchases. 

Indiana Clarifies Taxability of Packaging Materials

The Indiana Department of State Revenue has issued a Revenue Ruling that a logistics company’s purchases of non-returnable wrapping materials, as well as machinery and equipment used in providing assembly and packaging services, are subject to sales and use tax. 

The taxpayer receives customer-owned products, stores them and prepares them for shipment using non-returnable packaging materials such as bags, boxes, bubble wrap, labels, stretch wrap, tape, pallets, and crates. The taxpayer requested guidance on whether its non-returnable packaging materials were exempt as sales of wrapping materials and containers for use in shipping or delivery of tangible personal property, and whether its purchases of packaging equipment used to package and repackage products for customers were exempt as manufacturing machinery, tools or equipment for direct use in production. 

The Department explained that the exemption for non-returnable packaging materials applies only if the materials are used for shipping or delivering tangible personal property that the acquirer processes or services for the owner and that will be sold by the owner as part of their manufacturing or production business. 

Illinois Grocery Tax Changes Coming in 2025

Illinois will eliminate its 1% sales and use tax on grocery sales. This change also authorizes municipalities and counties to impose a local grocery tax rate of exactly 1%. 

As of January, qualifying food is described as “groceries” under the new local taxing authority statutes. Items such as alcoholic beverages, food infused with adult use cannabis, soft drinks, candy, and food that has been prepared for immediate consumption are not “groceries” and will continue to be taxed at general merchandise rates. 

Need Help Navigating These Sales Tax Changes?

If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more!