It's Official...Washington State Has An Income Tax, For Now

Following weeks of speculation about what he might do when it reached his desk, Gov. Bob Ferguson has now signed the so-called millionaires tax into law.

"It's been a long journey to get here, but because of the hard work of so many folks, it's a historic day for Washingtonians," Ferguson said at a special signing event in Olympia on Monday.

Ferguson's signature on SSB-6346 creates the first income tax of any kind in Washington State's 135-year history, although it is designed to only apply to the state's wealthiest earners.

WHO WILL OWE THE TAX & WHAT WILL IT DO FOR THE STATE?

The new tax will only be charged to Washington earners who make over $1 million annually, including through dual-income means, at a rate of 9.9%.

According to a press release from the governor's office, the tax will not apply to:

Income under $1 million,
the first $1 million of income on individuals who will owe the tax,
or assets, such as homes or property.

Ferguson says 41.3% of the tax will go directly back to Washington families and small business owners in its first year of implementation, with an increase to 47.3% in its second year.

“Adoption of the historic Millionaires’ Tax makes our tax system more fair and means free meals for K-12 students, the largest tax break in state history for small businesses, eliminating the sales tax for baby diapers, and sending a check to nearly 500,000 working families to make life more affordable," said Ferguson in the release.

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According to Ferguson's office, the new tax will be dedicated to numerous items that will have an immediate impact on the well-being of lower- and middle-income families and business owners in the state, including:

Funding for free breakfast and lunch for every K-12 student. This has been a priority for Governor Ferguson since before taking office, and was the subject of his first governor-request legislation. This funding puts money back into families’ pockets and helps ensure kids are ready to learn.
Expansion of the Working Families Tax Credit to 460,000 new working families. The Working Families Tax Credit is an existing program in which qualifying families receive a check from the State for an amount between $300 and $1,300. SB 6346 more than doubles the number of families who qualify.
Reduce or eliminate the B&O tax for an additional 138,000 small businesses. Small businesses are the backbone of our economy and our communities. They drive economic growth and create jobs. This bill gives them much-needed relief.
Investing in affordable childcare: SB 6346 invests more than $320 million of the revenue into affordable childcare in the first full biennium. Washington ranks fifth nationally for the highest childcare costs.
Providing significant funding dedicated to support affordable childcare will provide relief to families.
Eliminate sales tax on diapers, over-the-counter drugs, and hygiene products. That benefits all Washingtonians, potentially saving families hundreds of dollars per year.
The tax will take effect on Jan. 1, 2028, and those owing will have until April, 2029 to remit payment.

CHALLENGES TO THE TAX ARE ALMOST A CERTAINTY

Despite Ferguson's signing the tax into law on Monday, the fact that it isn't scheduled to take effect for nearly two years leaves a wide window for an assortment of actions which are expected to challenge it.

Republicans in the state are largely opposed to the taxation and have already pledged to launch an initiative to repeal the tax on this November's ballot.

In order to get an initiative before voters by the fall, the state GOP will need to officially procure and deliver the signatures of over 300,000 Washington residents by July 2.

In addition to the possible ballot initiative, there are also several lawsuits which have already been in the works since the bill began gaining traction in both the House and Senate, including one from The Citizen Action Defense Fund, who says it plans to take the tax to court for being unconstitutional under state law.

Former state Attorney General Rob McKenna has already noted his disapproval of the new tax, calling it a progressive income tax which is unconstitutional and adding, “If the State proceeds with the new income tax, it will create a direct conflict with binding precedent and the constitutional protections that safeguard taxpayers. We are preparing to challenge the tax in court.”

Meanwhile, Ferguson has countered by saying he not only expects an uprising of legal challenges, but welcomes them. Dubbing it an appropriate action that will ultimately allow the state Supreme Court to decide the issue.