Washington Issues New Sales Tax Guidance for Temporary Staffing Services

Effective October 1, 2025, ESSB 5814 reclassifies certain services as “retail sales,” [CC1] including “temporary staffing services.” These services will now be subject to retail sales tax and retailing B&O (Business and Occupation) tax, unless an exemption or exclusion applies when sold to a consumer. Previously, the tax treatment of temporary staffing services depended on the specific work performed by the worker.

Definition of temporary staffing services

Under ESSB 5814, “temporary staffing services” is defined as providing workers to other businesses, excluding licensed hospitals under chapters 70.41 or 71.12 RCW, for limited periods to supplement their workforce and fill vacancies, on a contract or fee basis.

Criteria for temporary staffing services

To be considered taxable temporary staffing services, a business generally must:

• Recruit and hire its own employees;
• Find other organizations needing those employees’ services;
• Assign employees temporarily to support or supplement the other organizations’ workforce or assist with special situations (e.g., absences, skill shortages, seasonal workloads, special projects), with the customer directing and supervising the work;
• Typically reassign employees to other organizations once assignments end.

Businesses meeting all these factors are subject to retail sales and B&O taxes, except when placing temporary workers in licensed hospitals (chapters 70.41 and 71.12 RCW).

Tax treatment for temporary staffing services

Starting October 1, 2025, businesses providing temporary staffing must report their gross income from these services under the retailing B&O tax category (unless the services are for resale or involve hospital placements). They must also collect and remit retail sales tax.

Services not considered temporary staffing services

Employers who hire workers directly are not engaging in temporary staffing services because they do not recruit, assign, or reassign employees to other organizations. Instead, these workers remain under the employer’s direct supervision, even if hired for short-term or temporary positions. Such hiring does not qualify as a retail sale or taxable temporary staffing service.

Taxpayers must maintain records proving the correct B&O tax classification. For direct hires, acceptable documents include employment contracts, federal tax forms (I-9, W-2, W-4), benefits records, and similar proof. For independent contractors, documentation like contractor agreements and 1099 forms should be kept.

Sourcing Temporary Staffing Services

Sales of temporary staffing services are retail sales and must be sourced according to RCW 82.32.730, which determines the tax jurisdiction where the sale occurs. Sourcing is based on where the service is received, using the following hierarchy:

1. Seller’s place of business, if the service is received there.
2. Location where purchaser receives the service, if known.
3. Purchaser’s address from seller’s records.
4. Purchaser’s address at time of sale (e.g., from payment method).
5. Location where the seller provided the service.

Additional guidance on sourcing

• In-person workers: Tax sourced to the purchaser’s physical location.
• Remote workers: Service received where purchaser’s staff is supplemented.
• Multiple locations: Allocate tax to known locations proportionally, based on hours billed or other reasonable methods. Equal allocation is acceptable if no other method is feasible.
• Unknown location: Use client’s business or billing address unless done in bad faith.
• Documentation: Contracts, invoices, or agreements should clearly state sourcing locations.

Multiple Points of Use (MPU) exemption

RCW 82.08.0208(4) provides an MPU retail sales tax exemption for certain eligible products, including digital automated services (DAS), used simultaneously inside and outside Washington. This exemption allows buyers to avoid paying retail sales tax at purchase and instead report use tax apportioned based on in-state use under RCW 82.12.0208(7).

If a temporary staffing service qualifies as a DAS (defined as a service transferred electronically using software applications), it may be eligible for this exemption. However, this depends on whether the service meets DAS criteria and is used concurrently inside and outside Washington, a determination sellers and buyers must make.

Note: If the DAS is sold as part of a bundled transaction (multiple products sold for one price without itemization), the MPU exemption does not apply. The department will consider sales non-bundled if:

• The DAS price is separately itemized on invoices or sales documents; or
• Pricing is negotiable based on the purchaser’s selection of products.

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