SHB 2257
In CommitteeHouse
Tax administration
Concerning taxes administered by the department of revenue.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
HB 2257 makes technical corrections, clarifies ambiguities, and improves administration of Washington’s tax laws without changing overall tax revenue estimates. Key changes include new taxes and surcharges on large financial institutions and advanced computing businesses, expanded tax on digital goods and services, new exemptions for business and public-use digital services, and a $5-per-tire fee. It also updates definitions for retail sales, digital products, and sourcing rules, and extends a vehicle tax exemption for clean-fuel vehicles through 2028.
- Imposes a $5 per tire fee on retail sale of new replacement vehicle tires, with sellers collecting and remitting the fee to the Department of Revenue.
- Expands the definition of 'retail sale' to include certain digital goods, digital codes, digital automated services, and services like advertising, IT support, and fitness facility access—while clarifying exemptions for business use and affiliated groups.
- Adds a 7.5% workforce education investment surcharge (effective Jan. 1, 2026) on select advanced computing businesses with over $25 billion in worldwide gross revenue, capped at $75 million annually per affiliated group.
- Increases the financial institutions tax from 1.2% to 1.5% (effective Oct. 1, 2025) on gross income of specified financial institutions with over $1 billion in net income.
- Creates exemptions for digital goods and services used solely for business purposes, for free public access, and for out-of-state use, with apportionment rules and exemption certificate requirements.
- Provides sales and use tax exemptions for clean-fuel vehicles (e.g., electric, hydrogen) up to $15,000–$25,000 depending on date of purchase/lease and whether new or used.
- Repeals the existing tax on creation and customization of custom software, and makes technical corrections and clarifications across multiple tax statutes.
- Requires apportionment of use tax for digital goods and services used both in and out of state, with special rules for advertising services based on user locations.
Who is affected
- Hospitals and staffing agencies — Businesses that provide temporary staffing services to hospitals will no longer have those services taxed as retail sales, reducing their tax liability.
- Advertising service providers — Businesses that provide advertising services may be subject to new tax rules, including apportionment requirements for out-of-state use, and may need to collect exemption certificates.
- Businesses using digital goods and services — Businesses that use digital goods or services for business purposes may claim exemptions, but must provide exemption certificates and maintain records.
- Automotive manufacturers and dealers — Manufacturers and sellers of electric vehicles, plug-in hybrids, and other clean-fuel vehicles may offer tax-exempt sales up to specified amounts for vehicles meeting price and type criteria.
- Large financial institutions and advanced computing businesses — Large financial institutions and advanced computing businesses with high revenues will pay additional surcharges or taxes based on gross income.
Pro/Con Analysis
Potential Benefits (5)
The workforce education investment surcharge funds expanded enrollment in computer science and engineering programs at state universities when demand exceeds capacity by 100 applicants. This directly benefits Washington students—particularly low-income and first-generation students—by increasing access to high-demand, high-wage degrees. The automatic funding mechanism ensures long-term stability and equity in access to STEM education, helping close opportunity gaps.
EducationPeopleRef: Sec. 3 (RCW 82.04.299)(2), (3)Excluding staffing services to hospitals from the retail sale definition prevents hospitals and staffing agencies from being taxed on services that are integral to patient care. This reduces administrative burden and compliance costs for healthcare providers and staffing firms, supporting workforce stability in a critical sector. It avoids double taxation and ensures tax neutrality for essential health services.
Business & EmploymentPeopleRef: Sec. 2 (RCW 82.04.050)(3)(j)(ii), (iii)The exemptions for digital goods used solely for business purposes, free public access, and out-of-state use reduce compliance complexity and tax liability for businesses operating across state lines. This supports economic activity, especially for mid-sized firms and tech-enabled service providers, by clarifying sourcing rules and reducing double taxation risks. It aligns Washington’s rules with the Streamlined Sales and Use Tax Agreement, improving interstate commerce.
Business & EmploymentPeopleRef: Sec. 10 (RCW 82.08.0208)(2), (3), (6)The clean-fuel vehicle tax exemption (up to $25,000 for new, $16,000 for used) directly reduces the upfront cost of electric, hydrogen, and plug-in hybrid vehicles. This accelerates adoption of zero-emission vehicles, supporting Washington’s climate goals and reducing air pollution—especially in urban areas with high asthma and respiratory illness rates. The benefit is broad: it applies to individuals and businesses, and the exemption amount is indexed to purchase date, encouraging earlier adoption.
EnvironmentPeopleRef: Sec. 11 (RCW 82.08.9999)The clarification that out-of-home advertising (e.g., billboards, street furniture, transit ads) is *not* a retail sale prevents local jurisdictions from imposing inconsistent sales taxes on these services. This reduces administrative burden on advertisers and local governments, promotes regulatory consistency across jurisdictions, and prevents double taxation—benefiting small local ad agencies and municipalities alike.
Local GovernmentLean peopleRef: Sec. 2 (RCW 82.04.050)(3)(k)(ii)(C), Sec. 18 (RCW 82.32.730)(9)(a)
Potential Concerns (5)
The $5-per-tire fee is a new user fee, but it is regressive: it applies uniformly to all tire purchases regardless of buyer income, disproportionately burdening low- and middle-income households who spend a larger share of their budget on vehicle maintenance. The fee is not tied to usage or benefit, and it adds to the cost of essential transportation for many Washingtonians who rely on personal vehicles due to limited public transit access in many regions.
FinancialLean industryRef: Sec. 1The 7.5% workforce education investment surcharge on select advanced computing businesses (with >$25B global revenue) and the increase in the financial institutions tax from 1.2% to 1.5% (for institutions with >$1B net income) are targeted at large, highly profitable corporations. These are not small businesses or everyday workers; they are global tech giants (e.g., Microsoft, Amazon, Google) and major banks (e.g., Wells Fargo, Bank of America, regional banks with national reach). The revenue will fund workforce education, but the tax burden falls squarely on concentrated corporate wealth.
FinancialIndustryRef: Sec. 3 (RCW 82.04.299), Sec. 6 (RCW 82.04.29004)The new 11.9% car rental tax (2026), 9.9% from 2027, 0.5% motor vehicle sales tax, and 0.5% recreational vessel tax increase the cost of transportation and recreation for consumers. While the revenue funds multimodal transportation, the taxes are regressive: they disproportionately affect middle- and lower-income households who rent cars for travel or rely on personal vehicles, and who spend a larger share of income on transportation. The recreational vessel tax specifically targets wealthier households who can afford boats.
FinancialIndustryRef: Sec. 9 (RCW 82.08.020)(2)(a), (3), (4)The business-use digital goods exemption requires businesses to obtain and retain exemption certificates and maintain detailed records. This creates administrative and compliance costs—especially for small and mid-sized businesses—that may exceed the tax savings, effectively benefiting larger firms with dedicated tax departments. The burden falls disproportionately on small businesses that lack resources to navigate complex digital tax sourcing and exemption rules.
FinancialIndustryRef: Sec. 10 (RCW 82.08.0208)(3), (6)The clean-fuel vehicle tax exemption (up to $25,000 for new, $16,000 for used) and the expanded estate tax deduction for qualified family-owned businesses (up to $6M, indexed to $3M + CPI) primarily benefit high-income households and large family-controlled enterprises. The vehicle exemption phases down over time and applies only to vehicles under $45K/$30K MSRP—still out of reach for many low-income buyers. The estate exemption is only meaningful for estates over $2.5M, which represent the top 1–2% of Washington estates. These are not policies for working families; they are targeted subsidies for the affluent.
FinancialIndustryRef: Sec. 11 (RCW 82.08.9999), Sec. 21 (RCW 84.34.020)
Who Is Most Affected
Low- and middle-income vehicle owners face a new $5/tire fee and higher car rental and vehicle sales taxes, increasing transportation costs. However, they benefit from the clean-fuel vehicle exemption only if they purchase new/used EVs under $45K/$30K—still a significant upfront cost barrier. The net impact is negative for this group, as the fee and taxes outweigh limited access to the EV credit.
Large tech and finance firms (e.g., Microsoft, Amazon, Google, Wells Fargo) face new surcharges ($75M cap on workforce education tax, 1.5% financial institutions tax). However, they have the resources to absorb these costs, pass them to consumers, or reduce hiring/investment. The revenue funds workforce training, but the tax burden falls on corporate profits and shareholders—not everyday workers. Net impact: negative for these entities, though manageable.
Hospitals and staffing agencies benefit from the exclusion of staffing services to hospitals from retail sale taxation, reducing compliance costs and avoiding double taxation. This supports healthcare workforce stability. However, staffing agencies serving non-hospital clients may face new tax liability if their services fall under the expanded retail definition. Net impact: positive overall.
Small and mid-sized businesses face new compliance burdens for digital goods exemptions (e.g., exemption certificates, apportionment records). While the exemptions reduce tax liability, the administrative costs may outweigh benefits for smaller firms. Larger firms with tax departments benefit more. Net impact: mixed, leaning negative for small businesses.
High-income households benefit significantly from the clean-fuel vehicle exemption (up to $25K) and the expanded estate tax deduction (up to $6M). These are not policies for working families; they are targeted subsidies for the top 1–2% of estates and affluent EV buyers. Net impact: strongly positive.