The National Federation of Independent Business (NFIB) Washington has issued a notice to its members and small business owners regarding major tax changes resulting from the 2025 session of the State Legislature. The phased implementation will begin on October 1, 2025, marking what NFIB describes as the largest tax increase in state history.
According to NFIB Washington, most of these tax hikes will first affect businesses. As a result, consumers are expected to see price increases at retail outlets as businesses adjust to higher operating costs. The organization notes there is widespread confusion about which taxes and surcharges apply under the new law.
“The state Department of Revenue is racing to provide guidance before October 1 to help businesses properly comply and avoid being hit with penalties if mistakes are made in collecting, reporting, and paying these new taxes,” the statement reads.
For the first time starting October 1, sales tax will be applied to several services used by both businesses and consumers. This includes advertising, IT tech support and training services, security-related services such as monitoring or armored cars, website development and custom software creation, as well as temporary staffing services. In some areas of Washington state, this could mean an average cost increase of up to 10% for affected services—even those already under contract.
NFIB explains that small businesses using outside vendors for security monitoring or IT support or hiring temporary workers during busy periods will see increased costs for each service. If these additional expenses cannot be absorbed by small firms, they may have no choice but to pass them on through higher prices for their own customers.
On October 1, service businesses with $5 million or more in annual sales will face a Business & Occupations (B&O) tax rate increase from 1.75% to 2.1%, representing a 20% rise. The B&O tax must be paid regardless of whether a business is profitable or operating at a loss.
“Many small businesses routinely purchase services from other small business as part of their day-to-day operations,” NFIB notes. “As higher B&O taxes on these service providers are passed on to customers, small businesses (customers themselves) using these services may have to also pass these expenses on to their customers, and so on. Ultimately, these tax increases result in higher prices for consumers.”
Examples provided include using accounting firms for payroll processing or legal firms for contract review—costs that may ultimately reach end consumers through multiple layers of business transactions.
A second wave of B&O increases begins January 1, 2026. Large companies with at least $250 million in annual revenue will face an additional surcharge of half a percent (0.5%) on earnings above that threshold. While this measure does not directly target small businesses specifically, those who buy goods or services from large corporations such as Amazon, Costco, Microsoft, Starbucks or T-Mobile may experience indirect cost increases if those companies raise prices in response.
By January 1, 2027 all sizes of business across industries will see further B&O base rate hikes—either by three percent or six percent depending on industry—with the new base rate set at half a percent (0.5%). Businesses must continue paying B&O taxes even if they operate without profit.
NFIB states it plans ongoing discussions with legislators about adjusting the Small Business Tax Credit program in hopes of offsetting some impact for smaller enterprises.
