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Washington's New Millionaire Income Tax

May 01, 2026

by Mike Nelson

At the end of the 2026 legislative session, the Washington State Legislature passed Senate Bill (SB) 6346 which is titled “establishing a tax on millionaires.” This tax broadly imposes a 9.9% on households. There is a $1 million standard deduction for each household as well as a handful of credits. These credits are primarily for income taxes paid to other jurisdictions, Business & Occupation (B&O) taxes paid, Public Utility Taxes, and Pass-Through Entity Tax (PTET) Credits. This new tax is scheduled to begin in 2028 with the first payments being due in April 2029.

The WSCPA Government Affairs Committee has identified several issues with the bill, and we directly shared those concerns with legislators. The final version of the bill failed to address these issues. However, an advisory group was created to discuss some of these issues and make recommendations to the legislature in 2027 and 2028. This advisory group will include representatives from inside government, various business and cultural groups, as well as two CPAs and two tax attorneys.

Pass-Through Entity Tax Concerns

Our top concerns with the legislation are related to the PTET. One issue is the timing of the election for an entity to participate in the program. As written, the law requires an entity to make this election in June of the taxable year. In line with most similar state laws, the WSCPA recommendation has been to adjust the timing of this election to the time of filing, which would generally be in April following the close of the taxable year. There are many benefits to this proposed approach, which would allow an entity and its owners to make the election decision knowing the full scope of their tax burden.

Another issue is how the PTET credits are refunded or carried forward if an owner does not have a tax liability. Generally speaking, when the entity makes an election to pay the PTET, it will pay 9.9% of tax on an owner’s income. If an owner files and they do not have income from other sources and the PTET credit they receive from the entity fully covers their tax liability, the owner should be entitled to a refund of the credit, or have the ability to carry it forward to another year when it could be used. Currently, there is uncertainty as to whether an individual would be eligible for a refund of payments made by another entity on their behalf. And if an owner is not eligible for a refund, they are left with a credit which is written as nonrefundable and not usable in a different taxable year.

Legislators who supported SB 6346 have stated that owners should be able to obtain a refund if money had been actually paid to the state that was not owed. The advisory group will need to work to clarify or amend this aspect during future legislative sessions.

Update to Sales Taxes

Aside from the tax itself and the various credits, this legislation also makes several changes to tax policy both soon and in the future. This tax is estimated to bring in $2-3 billion per year in revenue for the state. About 25% of that increased revenue will be offset by the repeal or reduction in other taxes. Notably, many of the sales tax changes made in 2025 will be repealed as of January 1, 2029. There is also a section that would exempt certain activities from being considered a live presentation and subject to sales tax starting July 1, 2026. Included among this is all live presentations offered by 501(c) nonprofit organizations and various schools and school programs.

Political and Legal Considerations

Beyond these administrative issues, as well as others, there are political and legal considerations for this tax. Many contend that this income tax violates both the Washington State Constitution and will of the voters, who as recently as 2025 signed an initiative to the legislature to prohibit an income tax in the state.

That initiative, passed by the legislature in 2024, would be amended by this bill. The group that gathered signatures for the initiative has already indicated it would pursue an initiative to repeal this tax. This step to repeal the tax would be necessary due to the tax including a clause declaring it “necessary for the support of the state government and its existing public institutions,” which makes it ineligible for a public referendum on the November election ballot.

Legal challenges are also expected. Based on the legal challenges with the recent capital gains tax, it would not be surprising if there are injunctions on this tax while it makes its way through the legal process. At the heart of the legal challenges will be an argument around longstanding legal precedence in Washington, which has defined income as an individual’s property. Property taxes are required by the State Constitution to be uniform and capped at 1%. If income were to remain to be considered property, this tax would be limited by those restrictions. Many proponents of the tax hope that the current State Supreme Court will overturn the past precedent that income is property, which would allow for non-uniform progressive income taxes in the future.

These political and legal challenges will take time to work out. If the tax is upheld, there would likely be a push to restructure many of the other taxes in our state to align with an income tax system. Notably, this could include transitioning from the B&O tax to a corporate income or margin tax. It could also include restructuring the capital gains excise tax as a true addition to an income tax, which is how every other state with such a tax operates.

The state’s budget issues would not be solved should this tax be upheld. With the passage of the millionaire’s tax, a surplus is projected at the end of the state fiscal biennium in June 30, 2029. However, those projections are based on the assumption that state expenses will only increase 2.2% during that biennium. For the past decade, the average growth for state spending has been about 15%, with the lowest biennial growth rate being 11.3%. If state spending were to increase at 11.3%, the budget would still be many billion dollars short when legislators adopt a new biennial budget.

With all of these changes and challenges, there will be many administrative and technical issues that the state will need to address, either with these existing taxes or new tax systems. The WSCPA Government Affairs Committee has many dedicated state and local tax (SALT) CPAs who will compile recommendations and feedback on all of these issues and more in the future.

Mike Nelson is WSCPA Manager of Government Affairs. 
Contact Mike by email.