Bill would revise tax rules for businesses, buyers, and estates

The bill would revise how Washington defines and taxes many retail services, digital products, software, and related business transactions. The provisions cover sellers, buyers, businesses, digital products, taxable services, and contracts covered by the listed tax chapters. A qualifying existing contract could use a choice of tax classifications for amounts received during the transition period. The contract must have been signed before October 1, 2025, continued afterward, covered specified services, and not been altered during the transition period. Some affiliated-company services, business purchases, public-agency services, and other listed transactions remain excluded or exempt. The bill would repeal the separate custom-software tax section. The listed tax-definition and administration sections, including the contract election, would apply prospectively and retroactively to October 1, 2025; the contract provision would expire July 1, 2031.

The bill would set or describe tax rates and collection rules for certain large technology groups, financial institutions, vehicle transactions, and recreational vessels. The provisions cover select advanced computing businesses, specified financial institutions, retail car rentals, peer-to-peer vehicle sharing, motor vehicles, recreational vessels, and noncommercial aircraft. The advanced-computing surcharge would apply only to qualifying affiliated groups with more than $25 billion in worldwide gross revenue, with listed health-care and other exclusions. The financial-institution tax would apply to qualifying groups with at least $1 billion in annual net income. A peer-to-peer car-sharing platform must collect an owner's certification for certain vehicles and keep it for at least five years. The vessel tax applies to purchases beginning July 1, 2026, while the aircraft tax applies when a noncommercial aircraft worth more than $500,000 is used in Washington. The advanced-computing surcharge rate described in the bill is 7.5 percent beginning January 1, 2026; the financial-institution rate is 1.5 percent beginning October 1, 2025; several vehicle and vessel provisions begin January 1 or July 1, 2026.

The bill would provide an estate deduction for certain family-owned businesses and require the Department of Revenue to waive some sales-tax penalties when taxpayers meet strict conditions. The estate provision covers qualifying family-owned business interests passed to qualified heirs; the penalty waiver covers certain state and local sales-tax liabilities through December 31, 2026. The estate deduction requires family ownership and business participation during at least five of the eight years before death, a qualified heir, a qualifying estate, and business interests worth no more than $6 million. A qualified heir may owe additional estate tax if required participation ends, the interest is sold in most cases, citizenship requirements are not met, or the business leaves the United States. Penalty relief requires amended or outstanding returns, full payment of the tax balance, 24 months of timely filing and payment, and no listed evasion or reseller-permit penalty. Interest would still apply to unpaid tax, and waiver applications must be filed by September 30, 2027. The estate provision would apply to estates of people dying on or after January 1, 2014; the penalty-waiver provision would expire January 1, 2029 and would not cover periods beginning on or after January 1, 2027.