The so-called “millions tax” was approved by the Washington Senate on Monday, pushing forward a measure that would create a 9.9% tax applied to annual taxable personal income of more than $1 million.
Gov. Bob Ferguson earlier this month criticized Senate Bill 6346 for doing too little for small businesses and low-income residents in the state. The measure passed Monday included changes that made more small businesses eligible for business and occupation (B&O) tax exemptions.
“The proposal is moving in the right direction,” Ferguson said in a statement. “That means, as this program moves forward in the final weeks of the legislative session, we must direct more money directly to Washington’s hard-working families and small business owners. I look forward to our continued collaboration to make our state more affordable.”
The measure passed with 27 Democratic lawmakers voting in favor. The 22 abstentions included three Democrats.
Lawmakers adopted two amendments, including one to end the expansion of the sales tax on select services that sparked controversy in the tech industry and a lawsuit from Comcast last year. However, the expansion of advertising services will not be repealed as part of the amendment, which will take effect in 2030.
SB 6346 marks the first time in decades that state lawmakers have pursued a personal income tax aimed at high-income residents. The law will take effect in two years and includes small businesses and low tax breaks.
The bill has drawn opposition from some tech leaders and entrepreneurs who worry it could undermine the industry by undermining Washington’s tax laws that favor startup founders, investors and high earners.
Supporters of the proposed law counter those fears and say the bill helps overhaul the state’s regressive tax code, which relies heavily on property, sales and business taxes to fund education and other public programs.
This bill is expected to generate approximately $3.7 billion annually.
The move comes as the state struggles to close a more than $2 billion budget hole through spending cuts and the announcement of potential tax reforms, while some of Washington’s largest employers cut thousands of jobs on their payrolls.
SB 6346 would:
- Create a 9.9% tax on household income over $1 million, which is estimated to apply to less than 1% of the state’s households.
- Taxpayers get an exemption from the deduction for contributions of up to $100,000, up from $50,000 in the original bill.
- Businesses with less than $300,000 in revenue will be exempt from the tax beginning in 2029, expanding the number of eligible businesses from the $250,000 cutoff in the original bill. The break will apply to about 65% of all businesses.
- The B&O surcharge will also be removed from 2029.
- Certain hygiene items will be exempt from sales tax starting in 2029.
The income tax would be used in part to expand the Working Families Tax Credit, which provides a sales tax rebate for low- to moderate-income families. It also helps fund the social security system.
“Today was an important step. For Washington’s 1.1 million school children, people struggling to get health care, and small businesses looking for help, that help is on the way,” bill sponsor and Senate Majority Leader Jamie Pedersen, D-Seattle, said in a statement.
Washington is one of nine states with no income tax. If approved by legislators, the governor said the proposed tax will definitely go before the voters for approval and will face legal challenges.
Kirby Winfield, a founding general partner at Seattle venture capital firm Ascend, is among those who oppose the law.
“This tax is another brick in the anti-business wall from state and local law enforcement. The average Amazon employee probably won’t notice, but these things are very damaging to the company’s bottom line,” Winfield told GeekWire earlier this month.
As state leaders look to raise income taxes, they are also working to repeal a recently passed policy that sharply increased Washington’s estate tax and criticized tech leaders. A new proposal, Senate Bill 6347, was also passed on Monday, with 38 lawmakers of both parties voting for and 11 Democrats voting against the bill.
Democratic leaders who support SB 6347 fear that wealthy residents will leave the state to avoid the tax — which is higher than any other estate tax, the Seattle Times reported.
Pedersen told the Seattle Times that when it comes to taxes, “it’s not good for us to be outsiders.”
Both bills will now be considered by the House of Representatives. This year’s 60-day legislative session is scheduled to end on March 12.
Related:
- Opinion: Here’s what’s missing from the tax debate in Washington state
- Opinion: ‘Millionaire tax’ threatens Washington’s first economy – here are the statistics to prove it
- Opinion: The ‘millionaire tax’ is not an existential threat to Washington’s first economy
- Washington’s ‘millionaire tax’ targets high earners as tech leaders warn of early fallout
