Exclusion
Custom computer software
Retail Sales & Use Tax exclusion · RCW 82.04.050(6)(a)(i)-(ii) · enacted 1998
Before ESSB 5814
Custom computer software and customization of prewritten software were excluded from the definition of "retail sale" and taxed under the service & other activities B&O classification only, not retail sales tax (RCW 82.04.050; 2024 DOR Tax Exemption Study baseline).
Source: 2024 DOR Tax Exemption Study · RCW 82.04.050(6)(a)(i)-(ii)
After
Effective October 1, 2025, ESSB 5814 amended RCW 82.04.050 to make custom software and customization of prewritten software a retail sale subject to retail sales/use tax and retailing B&O. The exclusion is retained only for sales between members of an affiliated group. Confirm against ESSB 5814 and DOR's custom-software interim guidance.
Source: ESSB 5814 (2025)
Details
- Citation
- RCW 82.04.050(6)(a)(i)-(ii)
- Study reference
- E1548-1
- Tax type
- Retail Sales & Use Tax
- Preference type
- Exclusion
- Category
- Other
- Year enacted
- 1998
- End date
- None scheduled
Fiscal impact (2024 study estimates)
- Revenue if repealed — local ($M)
- FY 2024: 0 · FY 2025: 57.9 · FY 2026: 66 · FY 2027: 69.1
- Revenue if repealed — state ($M)
- FY 2024: 0 · FY 2025: 89.91 · FY 2026: 146.44 · FY 2027: 153.35
- Taxpayer savings — local ($M)
- FY 2024: 60.8 · FY 2025: 63.1 · FY 2026: 66 · FY 2027: 69.1
- Taxpayer savings — state ($M)
- FY 2024: 135.02 · FY 2025: 140.23 · FY 2026: 146.44 · FY 2027: 153.35
CTI = confidential taxpayer information · D = unable to disclose
From the 2024 DOR Tax Exemption Study
82.04.050(6)(a)(i)-(ii) - Custom computer software Description The definition of a retail sale excludes charges for customized computer software and customizing prewritten computer software. Instead, software customization services are subject to B&O tax under the service & other activities classification. Purpose To reflect the production of customized software is considered a professional service. Taxpayer ($ in millions): savings FY 2024 FY 2025 FY 2026 FY 2027 State Taxes $135.020 $140.230 $146.440 $153.350 Local Taxes $60.800 $63.100 $66.000 $69.100 Repeal of Repealing this exemption would increase revenues. exemption Potential ($ in millions): revenue gains FY 2024 FY 2025 FY 2026 FY 2027 from full repeal State Taxes $0.000 $89.910 $146.440 $153.350 Local Taxes $0.000 $57.900 $66.000 $69.100 Assumptions - This repeal takes effect July 1, 2024, and impacts 11 months of collections in fiscal year 2025. - Growth rate mirrors the total taxable B&O activity growth rate reflected in the Economic and Revenue Forecast Council's March 2023 forecast. - Local revenue estimates use the statewide average local sales and use tax rate of 2.92%. Data Sources - Department of Revenue, Excise t
Does this apply to you?
This is reference data from the 2024 study — not advice, and 2025–26 legislation may have changed it. Three ways to go deeper: