// 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- Revenue if repealed — local ($M)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- Revenue if repealed — state ($M)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
the loaning or transferring of money. Similarly, the Taxpayer asserts that the [Phone System] service is also excluded from the definition of DAS. The Audit Division conversely asserts that the services at issue were properly classified as DAS and include services and features beyond those involved in the asserted exemptions. Det. No. 19-0284R, 41 WTD 118 (April 12, 2022) 121 ANALYSIS Washington imposes a retail sales tax on all retail sales in the state of Washington. Chapter 82.08 RCW. Washington also imposes retailing B&O tax on persons engaged in the business of making retail sales in Washington. RCW 82.04.250(1). Included within the definition of “retail sale” are sales of the “right to access and use prewritten computer software.” RCW 82.04.050(6)(c). Also included within the definition of “retail sale” are sales of digital automated services or “DAS.” RCW 82.04.050(8)(a).4 The term “digital automated service” is defined in RCW 82.04.192(3)(a) as “any service transferred electronically that uses one or more software applications.” WAC 458- 20-15503 (Rule 15503) is the Department’s administrative regulation addressing digital products and it also addresses DAS. Rule 15503(203
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