Beginning January 1, 2028, a 9.90 percent tax is imposed on the receipt of Washington taxable income.  Only individuals are subject to payment of the tax.  The first tax payments and returns are due in calendar year 2029.

Washington Base Income. 

The determination of Washington taxable income starts with a taxpayer's federal AGI and incorporates the following modifications to arrive at the taxpayer's Washington base income:

• long-term capital gains: 
1. exclude all long-term capital gains and losses from the taxpayer's federal AGI; 
2. add net long-term capital gains subject to Washington's capital gains tax; and 
3. add the Washington capital gains tax standard deduction, to the extent the deduction reduced the amount of long-term capital gains subject to the Washington capital gains tax;
• state and local debt obligations—add interest income from debt obligations of other states; interest income from Washington-based state and local debt obligations are excluded from the federal AGI; 
• state and local taxes—add state and local income taxes and the B&O and public utility taxes to the extent these taxes have been deducted in determining a taxpayer's federal AGI;
• carryovers—add loss carryforwards for taxable years ending before the bill's effective date;
• incomplete non-grantor trusts—add income from an incomplete non-grantor trust; and
• federal debt obligations—deduct interest income from federal debt obligations to the extent it is included in the taxpayer's federal AGI. 

After making these modifications, a nonresident individual will allocate income attributable to sources or activity in Washington to arrive at the taxpayer's Washington base income. 

Income excluded from the taxpayer's federal AGI, including tribal income, is also exempt from the state tax calculation unless a specific provision in state law requires otherwise.

Finally, income earned by a nonresident participating as a keynote speaker, panelist, or moderator at a convention or trade show may be included if the nonresident meets the same nexus exclusion provisions for trade convention attendance or participation as for other Washington taxes.

Washington Taxable Income.

From the taxpayer's Washington base income, four deductions and one income increase are applied to arrive at the taxpayer's Washington taxable income.

First, a taxpayer may deduct from their Washington base income a standard deduction of $1 million per individual, or in the case of spouses or domestic partners, their combined standard deduction is limited to $1 million, regardless of whether they file joint or separate returns.  The standard deduction is adjusted annually for inflation beginning in 2030.  The standard deduction is reduced for an individual who was not a resident for the entire year.  The reduction is based on a fraction which equals the individual's Washington base income divided by their total federal AGI.

Second, a taxpayer may deduct from their Washington base income the amount of charitable contributions they claimed for the taxable year under section 170 of the internal revenue code, up to a maximum deduction of $100,000 per individual, or in the case of spouses or domestic partners, their combined charitable deduction is limited to $100,000, regardless of whether they file joint or separate returns.

Third, a taxpayer must add to the taxpayer's Washington base income the taxpayer's distributive share of the tax expense incurred by a pass-through entity making an election to pay the tax at the entity level. 

Fourth, a taxpayer may deduct 90 percent of Washington-allocated gambling losses incurred in the current taxable year; however, the gambling loss deduction cannot exceed the amount of gambling income included in the taxpayer's Washington base income. 

Finally, a taxpayer may deduct from the taxpayer's Washington base income the amount deposited into a CCF to be later used for the construction, reconstruction, or acquisition of fishing vessels, if the contribution amount has reduced the taxpayer's federal taxable income for the taxable year. 

Tax Credits. 

A resident individual may claim a tax credit for any income tax paid to another state, or to a political subdivision of that state, on income that is also subject to tax under this bill.

A tax credit is available against taxes owed under the bill for any B&O tax or public utility tax paid on the same income that is subject to the new tax.

A tax credit is also available for any Washington capital gains tax paid on capital gains taxed under the bill.

Allocation and Apportionment.  

For resident individuals, all income is allocated to the state of Washington.

For nonresident individuals, income derived from sources within this state is assigned to Washington based on various allocation and apportionment methodologies.

An individual who is not a Washington resident for an entire tax year is considered a part-year resident.  Their Washington AGI includes all income earned while considered a resident plus only Washington-source income earned while a nonresident.  Special rules apply to income from a pass-through entity. 

Nonresident Employment Compensation. 

A nonresident individual is subject to tax on the portion of their federal AGI derived from employment within the state of Washington, regardless of the location of the commercial domicile of the employer.  Compensation for services performed by a nonresident as part of their employment is allocated to this state to the extent the services are rendered within the state.  If the services are performed both within and outside the state, the compensation will be apportioned based on the ratio of days worked in the state to total days worked, or by another reasonable method approved by the DOR.

Nonresident Business Activities. 

For a nonresident operating a business within and outside the state, income is assigned to the state generally following a model law called the Uniform Division of Income for Tax Purposes Act (UDITPA) developed by the Multistate Tax Commission.  Under UDITPA income from a business, trade, or profession carried on in this state, including any distributive share of a pass-through entity of a business, trade, or profession carried on in this state, must be classified as either apportionable income or non-apportionable income.  Apportionable income is assigned to the state using a receipts factor based on in-state versus total receipts.

In addition, income is apportioned as follows:

• Sales of tangible personal property are sourced to the state when delivered to an in-state purchaser or shipped from an in-state location under certain conditions. 
• The sale, rental, or lease of real or personal property is sourced to the state when the property is located in Washington.  
• Services are sourced to the state if the services are delivered within the state.  
• Intangible property that is sold, rented, leased, or licensed is sourced to the state when it is used in the state under various criteria. 
• Capital gains and losses from sales of real property located in Washington are allocable to the state. 
• Interest and dividends are allocable to the state if the business's commercial domicile is in the state. 

The bill also addresses the allocation of income to Washington from net rents and royalties from tangible property and patent and copyright royalties.  

Nonresident Professional Athletes Compensation.

For nonresident members of a professional athletic team, the portion of compensation attributable to athletic performances in the state must be apportioned to Washington.  To determine this amount, a duty day methodology is used.  The nonresident athlete's compensation is apportioned based on a ratio.  The ratio is the number of duty days in Washington divided by the total number of duty days worldwide for the tax year.  The nonresident athlete's total compensation worldwide is multiplied by the ratio to reach the nonresident's Washington apportioned income.  "Duty days" is defined as the days during the tax year from the beginning of the official preseason training period of a professional athletic team through the last game in which the professional athletic team competes or is scheduled to compete during the tax year.  

Nonresident Student Athletes' Name, Image, and Likeness. 

For nonresident student athletes, the portion of the AGI of a nonresident student athlete derived from the commercial use of the student athlete's name, image, or likeness (NIL) is allocated to this state if the publicity services provided by the student athlete related to such commercial use of the student athlete's NIL primarily occur in Washington.  Payments by an institution of higher education representing a percentage of institutional athletic revenues to a nonresident student athlete will be apportioned to Washington in a form and manner consistent with a duty day methodology developed by the DOR.  The DOR is required to submit proposed legislation to the Legislature that would implement an apportionment methodology using a duty day approach by January 1, 2028.

A part-year resident's Washington AGI includes all income earned while a resident plus only Washington-source income earned while a nonresident.  Special rules apply to income from a pass-through entity.   

Pass-Through Entity Tax Election. 

Pass-through entities, such as partnerships and limited liability companies, may elect to pay tax at the entity level.  The tax rate is 9.90 percent, and the tax amount would be similar to the Washington tax liability of the individual owners.  Pass-through entities may opt in annually by filing an election by the DOR's deadline, no later than June 15 of the taxable year, and the election is irrevocable for that year.  The election must be signed by an authorized person, depending on the entity type.  Electing entities must make estimated tax payments similar to individuals, based on reasonable income estimates, though no estimated payments are required before July 1, 2029.  Owners receive a credit for their share of tax paid by the entity and must report their distributive income on their own Washington returns.  Resident and nonresident owners report income differently based on sourcing rules, but both may claim the credit.  In calculating the individual Washington taxable income, owners must add back any distributive share of the tax expense deduction that is reflected in the federal AGI.  Electing entities must file an annual return with all required information, and the DOR may adopt rules to administer and streamline the process. 

Estimated Tax Payments.  

Beginning July 1, 2030, individuals subject to the tax must make estimated payments to the DOR using rules aligned with federal estimated tax payment requirements.  The estimated tax amount is calculated by dividing the annualized tax by the number of months in the reporting period.  Estimated tax payments are not required when the annualized tax liability is under $5,000. 

Penalties and interest may apply to underpaid estimated taxes unless the estimated tax payments are either at least 90 percent of the tax shown on the tax return or 100 percent of the tax shown on the previous year's tax return.

Administration of the Tax.

Taxpayers owing tax must annually file a Washington income tax return on or before the filing date of the taxpayer's federal income tax return.  Individuals not owing tax are not required to file a return.  Tax returns and all supporting documents, must be filed electronically using the DOR's online tax filing service or some other method of electronic reporting allowed by the DOR.  A taxpayer is required to attach a copy of the taxpayer's federal income tax return and other supporting documentation.  Each taxpayer required to file a Washington income tax return must, without assessment, notice, or demand, pay any tax due to the DOR on or before the filing date, regardless of any filing extension.

If a taxpayer has obtained an extension of time for filing the federal income tax return for the taxable year and the taxpayer provides the DOR, on or before the date fixed for the filing of the return and regardless of any filing extension, information satisfactory to the DOR confirming the federal extension, the taxpayer is entitled to the same extension of time for filing the return.

If any Washington tax return is due, and is not filed with the DOR by the due date or any extension granted by the DOR, a penalty is assessed in the amount of 5 percent of the tax due for the taxable year covered by the return for each month or portion of a month that the return remains unfiled.  The total penalty assessed may not exceed 25 percent of the tax due for the taxable year covered by the delinquent return.

If the federal income tax liabilities of both spouses are determined on a joint federal return for the taxable year, they must file a joint Washington income tax return.  If the federal income tax liability of any individual, including either spouse of a marital community, is determined on a separate federal return for the taxable year, they must file separate Washington tax returns.  State-registered domestic partners may file a joint Washington tax  return even if they filed separate federal returns for the taxable year.  The liability for Washington income tax of each spouse or state-registered domestic partner is joint and several, except under certain conditions.  

A taxpayer's method of accounting for purposes of the tax is the same as the taxpayer's method of accounting for federal income tax purposes.  If no method of accounting has been regularly used by a taxpayer for federal income tax purposes or if the method used does not clearly reflect income, the Washington income tax due must be computed by the cash method of accounting. 

Interest and penalties for underpayments and overpayments of taxes under current law are applied to such underpayments and overpayments with respect to Washington income taxes owed as part of the April tax return.  There is also a 5 percent penalty applied for the substantial underpayment of estimated Washington income tax payments.  "Substantially underpaid" means that an individual's total annual estimated Washington income tax payments were less than 80 percent of the actual annual Washington income tax due and at least $5,000.

Crimes. 

Any person who knowingly attempts to evade the Washington income tax is guilty of a class C felony.  Any person who knowingly fails to pay tax, pay estimated tax, make returns, or supply information, as required under the bill, is guilty of a gross misdemeanor.

Miscellaneous Provisions.  

Various pension statutes are modified to specify that pension income is not exempt from the Washington income tax.  In addition, the tax complies with federal child support enforcement requirements.

If a court of final jurisdiction invalidates the Washington income tax, the entire bill is null and void.

Initiative 2111 is amended to specify that it does not apply to the Washington state income tax. 

All new tax preferences created in the bill are exempt from the automatic ten year expiration date, TPPS, and JLARC review. 

The bill specifies that the new tax is necessary for the support of the state government and its existing public institutions and also specifies that the DOR will continue with implementation efforts regardless of litigation.

Distribution of Revenues.

One hundred fifty million dollars in revenues from the Washington income tax is deposited each fiscal year in a new Local Government Public Defense Funding Stabilization Account (LGPDFS Account) where revenues must be used by cities and counties for public defense services.  The remainder of new revenues are deposited in the State General Fund to fund new sales and use tax exemptions, the expiration of sales taxes on certain services enacted in 2025, the expansion of a small business tax credit, and the WFTC program, including its expansion. 

Local Government Public Defense Funding Stabilization Account. 

The revenues deposited in a new LGPDFS Account must be used by cities and counties for public defense services.  Ten percent is distributed to cities on a pro rata basis, based upon the annual number of misdemeanor criminal cases filed in courts under each city's jurisdiction, as determined by the Office of Public Defense.  The remaining 90 percent is distributed to counties as follows:

• Six percent must be distributed as a base allocation among the counties; a county's base allocation is equal to the total amount to be distributed to counties based on the total county allocation, divided by 39.
• The remaining 94 percent of the amount for counties is distributed as follows:
  1. Forty percent must be distributed on a pro rata basis to each county based on the county's personal income ratio as provided in the bill.
  2. Sixty percent must be distributed on a pro rata basis to each county based upon the annual number of criminal cases filed in the county superior court as a percentage of the total annual number of criminal cases filed in the superior courts of all counties.

Tax Relief.  

The bill extends the age requirement of the WFTC program eligibility to individuals 18 years of age or older, regardless of the number of qualifying children.  This expanded eligibility takes effect on January 1, 2029, for applications submitted beginning in calendar year 2029.  The expansion of the WFTC program eligibility is included in the current TPPS for the WFTC program and is exempt from the 10-year expiration date. 

Beginning January 1, 2029, diapers as well as grooming and hygiene products are exempt from the sales and use tax.

Beginning January 1, 2029, for non-service businesses, the small business B&O tax credit amount is increased from $55 per month in the tax reporting period to $125 per month.  For service businesses, the small business B&O tax credit amount is increased from $160 per month in the tax reporting period to $375 per month.  The B&O tax annual filing threshold is increased to $250,000.

The sales and use taxes for retail services included under ESSB 5814—Chapter 422, Laws of 2025, except for advertising services, are repealed effective January 1, 2029. 

(In support) When thinking about the future I want for this state, like well-funded public schools and universities, housing for our citizens, and the accessibility of great health care, it is difficult to see how it can be achieved with our current tax structure.  Last year, we were forced to solve significant budget problems with the old, upside down tax system.  As a result, it sparked a collaboration on the millionaire's tax to address the structurally regressive tax system.  The millionaire's tax allocates the burden for funding the system in a fairer way.

Forty-one other states are funded though an income tax.  Like the WFTC and other tax programs, this income tax operates at the household, not the individual level.  Moreover, the bill gives tax breaks to businesses and the citizens.

Sometimes you are in the right place at the right time and become a millionaire.  And once you have wealth, it is easy to make more money because the investment opportunities for the wealthy do not carry the same inherent risk.  An investment loss does not mean a millionaire will lose their home or go hungry.  Our current economic system works extremely well for the wealthy.  We need a good tax policy that requires paying a fair share to support a system that supports the millionaires so well.

This bill offers a modest targeted tax reform that requires the wealthy people of this state to contribute their fair share.  This bill imposes a low tax rate compared to other income tax states.  Less than 1 percent of households would be asked to pay this tax.  Washingtonians that are not millionaires are suffering while dealing with the rising cost of housing and groceries.  This bill represents a modest proposal for taxing those at the top and significantly assists low-income Washingtonians by funding essential state services.  This bill will help Washington pay for education, healthcare, public defense, and childcare subsidies.  This bill makes the tax system fairer and only applies to incomes over $1 million which counteracts the generous tax incentives provided by the federal government in United States House Resolution 1.  Millionaires want to pay their fair share and give back to the state that made them millionaires by providing the next generation with good public education, clean water and air, and robust government services.  Millionaires want Washington to continue to be the best state in the nation. 

This bill will provide schools with the resources they desperately need.  This bill helps correct the state's regressive tax system.  This bill will help those who struggle most in the state like low-income and immigrant communities.  It is known that people with lower incomes have the worst health outcomes.  There is a 14.5-year lifespan difference between higher-income counties and lower-income counties in this state.  This bill will help narrow that lifespan gap.  This bill is a key step to making the Washington tax system more equitable.  Due to rising costs and lack of revenue, the state is constantly forced to make deep cuts to education and healthcare.  Along with relentless policies from the federal government reducing revenues available for state services, it is critical that the state passes this bill to ensure that all Washingtonians have what they need to succeed.  This tax represents a fair and sustainable funding stream for state services.  This bill strengthens long term monetary stability while protecting small businesses due to the addition of the capital gains credit and the pass-through provision.

One way to achieve tax fairness is the expansion of the WFTC.  The WFTC lifts people out of poverty and changes lives by addressing real needs.  It helps Washingtonians do more than just get by paycheck to paycheck.  It is a mechanism to get out of debt, invest in yourself and actually put money in savings.  By building stronger communities we create stronger businesses and grow our economy.  The constitution is a living document and is meant to change with the times.

The state faces budget cuts to programs that are vital for our most vulnerable.  Without services, people end up in crisis and even in institutions.  In the long run, it not only costs the state more money, but it also severely impacts people's quality of life.  This bill will do a lot to help the state maintain its support of Washingtonians.  Further, it will ensure we keep our commitments to schools. 

Wages have not kept up with inflation for most Washingtonians.  It is more and more difficult to keep up with just basic needs, let alone save for a home.  In the meantime, the wealthiest 1 percent continue to get wealthier.  They take advantage of our state resources like roads and infrastructure and benefit indirectly from our social programs; however, they do not pay a comparable amount in taxes as compared to other citizens.  This bill will begin to address the imbalance.

In our community colleges and universities, we offer education at a good price.  Enrollments are up, but budgets are being cut, and we cannot offer the courses students need.  Economic growth does not come from the largesse of the wealthy, but from an educated workforce.  This will help grow our economy by providing stable funding to education and other necessary state programs.

(Opposed) The Washington Supreme Court has ruled repeatedly that the Legislature must follow the property tax rules for an income tax.  Property has been defined by constitutional amendment to be everything that is tangible and intangible.  Six separate times constitutional amendments to have an income tax have been defeated by voters.  Everyone understands the plain meaning of property and this bill ignores that simple fact.  If you want an income tax, you need to amend the Constitution. 

We are concerned about the long-term impact of this tax.  The millionaire's tax is tax on employers and will prevent reinvestment in businesses.  At this time we need to strengthen the competitiveness of this state and reduce burdens on small and medium businesses.  Moreover, generational wealth is important to the ethnic business community.  This bill will limit access to capital and will make it more difficult for these businesses to get loans.  At least 20 percent of Washington businesses will be harmed by this bill.

This bill will hit family businesses and farms hard while the large, publicly traded businesses escape the income tax and get a huge tax break.  Small and medium size businesses are important to Washington's economy, but this tax targets them.  In addition, this bill will discourage starting a business in this state.  Starting a business is a risk, but if you work hard and innovate, you can also get a large financial reward.  Washington is taking away this incentive.  With federal and state income taxes, compensation that startup employees worked decades to obtain will be forfeited.  This is the reason I will be moving my business out of Washington. 

They call this a tax on millionaires, but it is really a tax on certain businesses structured as pass-through entities.  Many of these businesses are low margin and are boom and bust.  In addition, these businesses may look like millionaires on paper, but it is really working capital that you are taxing.  You will stop businesses from reinvesting in themselves to grow, invest in equipment, and hire employees by treating it as income.  The bill needs to recognize losses in prior years and recognize how business truly works.

This bill targets the people who make this economy possible.  The amount of enmity toward the wealthy is disturbing and undeserved.  If they end up leaving the state due to this tax, we will be the ones left paying all the bills. 

This is one of the most unpopular bills in the history of the Legislature.  The people are telling you that they do not want this tax bill passed, but nothing we do seems to change your mind about going through with this. 

In addition to ignoring the Constitution, the Legislature is ignoring Initiative 2111, which they enacted only two years ago.  It said that the state would not impose a net income tax.  And now, you want to impose an income tax on millionaires.  How do we know we will not be next?

Washington needs to learn how to budget.  The wealthy already pay 37 percent in income taxes at the federal level.  Why should they pay more?  Our schools are already highly funded, but student outcomes are declining.  Schools need fewer unfunded mandates and rules in order to focus on education.  This bill is merely greed disguised as good. 

Small businesses are struggling, especially in rural areas.  This bill merely increases taxes on us to a point where we will probably have to close.

While 23 states are cutting taxes, Washington is raising taxes at a record pace.  Despite that Washington is facing billion dollar deficits.  We are overspending and these shortfalls are not going away.  Each new tax does not reduce regressivity, but instead leads to more spending.

The persistent introduction of new taxes by legislators is destroying the competitiveness of Washington businesses.  People want a predictable tax environment and are willing to relocate for that.  Redomiciling is becoming a booming industry and this bill will not stop it.  There is a marriage penalty baked into this bill and will eventually be applied to everyone.  Finally, this is not necessary to implement the budget and should be subject to referendum. 

(Other) The inclusion of public defense funding is appreciated.  Counties and cities struggle to fund indigent defense.  With the Washington Supreme Court's new staffing requirements local government's budgets will be further depleted.  By the time the funding kicks in, the needs of cities will have grown.  In addition, the sales and use tax exemptions in the bill will further reduce local revenues.  The bill should also dedicate funding for health care access and affordability. 

The layer of the income tax over our existing tax structure creates a unique burden for the hospitality industry which is an especially volatile industry.  We need protections for seasonal businesses such as income averaging to help protect them.

(In support) Senator Jamie Pedersen, prime sponsor; Radu Smintina, School's Out Washington; Rian Watt, Economic Opportunity Institute; April Sims, Washington State Labor Council; Gleb Psych, Washington Physicians for Social Responsibility; Jabe Blumenthal; Hans Mulders, Chelan Hospitality Inc; Maria-Elena Valasquez; Molly Gallagher, Statewide Poverty Action Network; Alina Swart; Gwen Goodfellow; Ayan Mohamed; David Carney; Tim Mackie; Guadalupe Paredes; Filma Fontanilla; Yulia Goncharova; Josie Tracy, Washington Physicians for Social Responsibility; Gabbi Nazari, Pro Choice Washington; Vanessa Saavedra, Northwest Health Law Advocates; Courtney Normand, Planned Parenthood Alliance Advocates; Shaena Garberick; Po Leapai, Washington Low Income Housing Alliance; Emma Scalzo, Balance Our Tax Code; Silvia Santana Alvarez; Radu Smintina; Melissa Russell; C'zar Carter-Alexander; Sam McVeety; Ivon Lopez; Lilliane Ballesteros, Latino Community Fund; Ayde Stephanie Torres; Rev Bob Feeny; Lupita Suarez; Deb Wilson; Felipe Rodriguez-Flores; Emily Vyhnanek, Washington State Budget and Policy Center; Nancy Torres-Corona; Sam Hatzenbeler, Economic Opportunity Institute; Matt Loschen; and Joel Ryan.

More than 20 persons signed in. Please contact the House Public Records Office at https://leg.wa.gov/public-records-requests/ or call (360) 786-0926.