School districts scramble over new retail sales tax

School districts are worried the state’s new expanded sales tax could take an unexpected bite out of their already tight budgets.

The late-session law went into effect Oct. 1, and expands the retail sales tax to services like temporary staff, information technology services and live presentations. The expanded sales tax is expected to generate about $1.1 billion from 2025 to 2027, according to the bill’s fiscal note.

District leaders at K-12 schools statewide said they were surprised to learn that they, too, will have to fork over sales tax to vendors for services they routinely use, such as temporary staff and live presentations. Many were told that schools, like hospitals, would be exempt from paying those taxes.

Now those leaders want the Department of Revenue to clarify when school districts have to pay the tax. They also want legislators to amend the law to exempt districts in the next legislative session.

District officials say the Department of Revenue’s interim guidance doesn’t clear up their uncertainty about how much they should set aside to cover any tax increases. And the expense comes after districts have adopted their 2025-26 budgets, giving them little wiggle room to absorb unexpected costs.

The Department of Revenue says because the Legislature did not carve out exemptions for school districts, the department “understands that these taxes may also apply to school districts.”

There is no blanket answer for how the law would affect districts, according to the department. Some may have to pay taxes on temporary staffing services, for example; others may not, the department said.

Districts with questions should contact the Department of Revenue or request a binding ruling, which will spell out their tax obligation, the department said. It may also add additional guidance and FAQs as new questions and issues arise.

But final guidance will not come until after next year’s legislative session, which will give the Legislature time to make changes, the department said.

“It’s frustrating,” said JoLynn Berge, Northshore School District’s deputy superintendent and chief financial officer. “We were told we did not need an exemption — (this tax) wasn’t for us. I think there was a misunderstanding, but unfortunately, it does have financial impacts on school districts.”

Berge estimates the new taxes could add about $1.8 million in additional expenses to Northshore’s $464 million general fund and an additional $400,000 to the capital projects fund for taxes on engineering and architecture services.

School districts are not the only ones questioning the law — though they say they will pay the taxes as instructed. Cable giant Comcast sued the state, arguing that the tax on advertising services violates federal law.

One of the biggest questions school districts have is what the law considers temporary staff in the K-12 context.

“Getting a clean definition of what is and is not a temporary staffing service is something that I think most, if not all, school districts are struggling with,” said Kurt Buttleman, Seattle Public Schools’ assistant superintendent of finance.

While the Department of Revenue has given examples of situations where districts will have to pay the sales tax and held sessions with district staff to answer questions, “those are not fully resolved by any stretch at this point,” Buttleman said.

School systems often use outside companies to find temporary workers for hard-to-fill positions, such as behavioral health specialists, counselors and therapists. They also often pay private companies to provide day programs for students who need intense special education services if they lack the staff or expertise to do so.

The state reimburses a portion of those special education expenses, meaning that districts could be paying a sales tax to the state only to ask for the money back, Berge said.

If Northshore has to pay the retail sales tax to educate children in special education programs, the district will ask for about $1 million more in reimbursements, Berge said. The district would be able to use about $500,000 from contingency funds that it’s been building up over the last few years, she said. About $300,000 could come from the district’s technology levy for the additional engineering and architecture fees, she said.

“It would just set us back on our financial recovery plan at this point,” Berge said.

Districts in binding conditions or under state financial oversight may not even have that flexibility, Berge said.

Districts could resort to furlough days, service reductions and other cost-saving measures in the spring if they don’t have the money in their budgets, Buttleman said.

Regional education services districts also provide some special education and other temporary staff to school districts, and it’s unclear whether they will have to charge school districts, said Jeff Snell, the executive director of the Washington Association of School Administrators.

“Everybody wants to follow the law, but when it’s a new law it can be a little complex,” Snell said. He added that unintended impacts and corrections are not uncommon when new laws go into effect.

“This one is just a pretty big potential hit on the financial side,” he said.

In the absence of clear guidance, Rep. Gerry Pollet, whose district includes Northeast Seattle, has been fielding inquiries from school districts and other education service providers.

Pollet wants the legislature to exempt districts in the next session and make them whole for the money they will pay until then.

Pollet said the tax appeared to be a potential violation of the state Supreme Court’s 2012 McCleary decision that ruled the state had failed to meet its paramount duty to fully fund education.

A tax on basic education services is no different than a cut to basic education, and the McCleary Supreme Court decision makes it clear that we cannot cut basic education,” he said.

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