The Washington Senate approved legislation Monday that would impose a 9.9 percent tax on household income exceeding $1 million, a measure projected to generate $3.7 billion annually while affecting less than 1 percent of state residents. Senate Bill 6346 passed on a 27-22 vote and now moves to the House of Representatives for consideration before the legislative session ends March 12.
The bill, sponsored by Senate Majority Leader Jamie Pedersen, targets funding for public education, health care, child care, and public safety while providing tax relief to small businesses and low-income families. Revenue would also fund the elimination of sales tax on hygiene products and exempt roughly 65 percent of Washington businesses from the business and occupation tax starting in 2029.
How the Tax Would Work
Households earning $1 million or less would pay nothing under the proposal. The 9.9 percent rate applies only to income above the $1 million threshold, meaning a household earning $1.2 million would pay the tax on $200,000.
The measure includes a $100,000 charitable deduction, increased from $50,000 in the original bill. Counties would receive 7 percent of collected revenue—approximately $259 million annually—to fund public defense systems, up from 5 percent in the initial proposal.
Small businesses grossing less than $300,000 annually would be exempt from the B&O tax beginning in 2029, a threshold raised from $250,000 through a committee amendment. State officials described the change as a major small business tax reduction. A B&O surcharge would also be eliminated that year.
An amendment from Senator Marko Liias repeals recent sales tax expansions on select services, cutting hundreds of millions in taxes for retail businesses.
Washington’s Tax Structure
Washington’s tax structure has been described by state and policy analyses as regressive compared with other states, with a greater share of tax burden falling on lower-income households. Households in the bottom 20 percent of income pay 13.8 percent of their earnings in state and local taxes, while the top 1 percent pay just 4.1 percent.
The state relies heavily on sales taxes, which generate 51 percent of revenue, and property taxes, which contribute 25 percent. This structure places a disproportionate burden on lower-income residents who spend a larger share of income on taxable goods.
Recent reforms include a 7 percent capital gains tax on profits exceeding $250,000, enacted in 2021 and affirmed by voters in November 2024 with 64 percent support across 32 of 39 counties. The state also implemented a carbon emissions tax in 2021, though critics note broken promises regarding agricultural exemptions.
Polling from 2024 shows 54 percent of Republicans, 52 percent of Independents, and 71 percent of Democrats support taxing millionaires. The Working Families Tax Credit, a sales tax rebate for low and moderate-income households, would expand under the bill.
Business Opposition and Legal Concerns
The National Federation of Independent Business opposes the measure, arguing it effectively functions as an income tax on sole proprietors and pass-through entities, which comprise 85 percent of small businesses in Washington. A member poll conducted by NFIB showed 98 percent opposition.
“A millionaire’s tax today, a tax on you tomorrow,” the organization stated, warning the legislation could create cash flow problems for business owners taxed on undistributed income. Pass-through entities report business income on personal tax returns, meaning owners would face the 9.9 percent rate even if profits remain in the company.
The bill exempts C-corporations, creating what critics call a competitive disadvantage for smaller business structures. Governor Bob Ferguson has signaled concerns about insufficient small business relief in the proposal.
The Washington Policy Center said it expects lawmakers to revisit the $1 million threshold in future years, citing projected budget pressures. Todd Myers of the organization noted that lawmakers raised taxes by a record $9 billion in 2025 yet still face revenue gaps.
“Politicians promise a ‘limited’ income tax. I bet $100 it won’t stay limited,” Myers said, pointing to historical patterns including a 2024 bipartisan income tax ban that lawmakers later ignored.
Constitutional challenges are expected. Washington voters have rejected state income taxes multiple times, and opponents argue the measure violates constitutional prohibitions. Pedersen acknowledged political challenges in past statements, according to policy analysts tracking the debate.
What Happens Next
The House of Representatives must approve the bill before it reaches the governor’s desk. The 60-day session concludes March 12, leaving limited time for negotiations and amendments.
If enacted, the tax would layer onto existing levies including the capital gains tax and payroll taxes, reshaping Washington’s appeal for high earners and technology workers concentrated in the Seattle area. Some tax professionals said they expect higher-income households and affected business owners to review options such as charitable giving and business-structure planning if the measure advances.
For households below the $1 million threshold, benefits include sales tax elimination on shampoo, deodorant, and other hygiene products, plus expanded access to the Working Families Tax Credit. Eligibility details are available at workingfamiliescredit.wa.gov.
The 2029 B&O tax exemption would affect approximately 65 percent of state businesses, though pass-through owners with personal income exceeding $1 million would still face the new levy. Business groups recommend members contact legislators through NFIB advocacy tools.