Key figures
Washington payables
2026, with sources
Two contractor tests
Washington decides contractor status twice. ESD applies the employment exception test in RCW 50.04.140 for unemployment insurance; L&I applies its own test for workers’ compensation, which the worker must pass in all six parts (seven in construction): freedom from control, work outside the usual course or place of business, an independently established business, a schedule of expenses filed with the IRS, a Washington business registration and, where applicable, the books of an independent business.
Example: a seed-stage company pays a Spokane designer monthly to work on its product. If the designer has no UBI number and no other clients, the company is likely to fail L&I’s test and owe workers’ compensation premiums on those hours, and ESD may assess UI on the pay as well.
Use tax on purchases
Washington taxes more of what a startup buys than almost any state: prewritten software and remote access software, digital automated services, and since October 1, 2025 IT support, custom software, website development, temporary staffing and advertising. When the vendor doesn’t collect Washington sales tax, the company owes use tax and reports it on its own excise return.
Software used by employees in several states can qualify for the multiple-points-of-use exemption; the buyer then reports use tax on the Washington share. That apportionment needs a defensible basis, usually where the users are.
The federal baseline
This page covers what Washington adds. The federal rules underneath it apply here too.
Common questions
Do we owe tax on software we buy from out-of-state vendors?
If a vendor didn’t charge Washington sales tax on something taxable, the buyer owes use tax at the rate where it is used, reported on the excise tax return. Since SaaS, digital automated services and, from October 2025, IT services and custom software are taxable in Washington, that now covers much of a startup’s software and contractor spend.
Can we pay a Washington developer as a contractor?
Washington applies its own statutory tests, separate for unemployment insurance (ESD) and workers’ compensation (L&I), and a worker can fail one while passing the other. Among L&I’s requirements: the worker has their own established business, files a schedule of business expenses with the IRS and has a Washington business account.
Payables next door
- IDIdaho payablesIdaho requires a copy of every 1099-NEC for services performed in Idaho by the end of February, and charges 6% use tax on untaxed goods but not on SaaS or downloaded software.
- OROregon payablesOregon has no sales or use tax, but every 1099 for an Oregon recipient is filed directly with DOR through iWire, and individual contractors are reported as new hires within 20 days.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Washington guide
- AccountingAccounting and state tax in WashingtonCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in WashingtonSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in WashingtonWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in WashingtonRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in WashingtonCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.