Legislation that would eventually repeal Washington’s retail sales tax treatment of temporary staffing services has passed in the state legislature and been sent to Gov. Bob Ferguson for consideration. The bill would sunset the tax treatment beginning Jan. 1, 2030.

Last year, lawmakers enacted ESSB 5814, which, among other provisions, reclassified temporary staffing services as retail sales. Effective Oct. 1, 2025, staffing firms were required to collect retail sales tax from customers. Previously, most staffing services were not subject to sales tax and were taxed only under the business and occupation tax classification for service industry businesses.

Washington’s decision to tax temporary staffing services as retail sales was part of a broader effort to raise state revenue by expanding the sales tax base to certain services. ASA and other industry representatives raised concerns that applying retail sales tax to staffing services would effectively increase the cost of labor by 6.5% plus local taxes, particularly affecting industries that rely heavily on contingent labor. Health care providers, manufacturers, logistics companies, and other employers warned that the change could make it more expensive to address workforce shortages.

The newly passed bill, SSB 6346, was one of several technical correction bills considered during the recently completed session. Among other provisions, the bill creates targeted exemptions for certain sectors—including hospital-based clinical staffing arrangements and certain services purchased by schools and educational entities—and includes a provision repealing the broader service tax expansion beginning Jan. 1, 2030.

Gov. Ferguson has up to 20 days after the legislature adjourns to sign or veto the bill. The legislature adjourned March 12.