A small pile of significant tax bills is getting delivered to Gov. Bob Ferguson.
Collectively, they form the financial linchpin to the state’s next budget and would generate the revenue needed to erase a chunk of a shortfall Ferguson has pegged at $16 billion over the next four fiscal years. The tax package is expected to net around $9.4 billion over that time.
Democrats drew up the bills. They used their majorities in the House and Senate to pass them over the opposition of Republicans and a few moderate Democrats.
It is not known if the first-term Democratic governor will sign them all. He rejected Democrats’ recent $12 billion package as unsustainable and too risky.
Before that, Ferguson stated his objections publicly to relying on a novel wealth tax that was an original cornerstone of Democratic lawmakers’ approaches. So it got set aside.
He shared his dislike privately of raising the cap on annual property tax growth. It disappeared. As did a payroll tax on large companies.
Below is a breakdown of five tax bills heading to the governor, which would help pay for spending in the two-year $77.8 billion state operating budget lawmakers approved. These measures do not cover the slate of tax and fee increases legislators are relying on for the separate transportation budget.
House Bill 2081 is the most far-reaching, affecting an estimated 191,000 taxpayers, per the latest fiscal analysis. It is projected to bring in the most money of the tax bills, nearly $2.1 billion for the next budget and $5.6 billion over four years. That covers roughly a third of the shortfall.
It permanently increases the state’s two primary business and occupation tax rates on gross proceeds — 0.471% and 0.484% — to 0.5%, starting Jan. 1, 2027. Another provision of House Bill 2081 boosts the tax rate for service businesses with annual taxable revenue exceeding $5 million from 1.75% to 2.1%.
Financial institutions with annual net income of $1 billion or more would see the rate for an additional tax they pay rise from 1.2% to 1.5% starting Oct. 1. This will impact about 200 businesses, Democrats have said.
About 400 corporations with more than $250 million in annual revenue would be subject to a 0.5% surcharge for three years starting Jan. 1, 2026. That extra would be levied on amounts above the $250 million threshold. Among those exempted from that surcharge is Boeing.
There’s also a major change in a levy on technology companies that goes directly toward higher education, including student financial aid. The “advanced computing surcharge” applies to firms with global revenue above $25 billion — think Microsoft and Amazon. It would raise the tax rate from 1.22% to 7.5% and boost a cap on payments from $9 million to $75 million.
Senate Bill 5814, the other major money-maker for the state, is counted on to raise $1.1 billion for the next budget and $2.7 billion over four years. It would do so by applying the retail sales tax to more services, such as temporary staffing, advertising, security and lobbying. The change would occur Oct. 1 and affect an estimated 35,000 firms, according to a Department of Revenue analysis.
It also contains a provision to begin taxing certain products with nicotine, like Zyn pouches. If it becomes law, this new tax takes effect Jan. 1, 2026.
And an estimated $1.1 billion will flow into coffers of local governments around the state since they receive a share of sales tax.
Senate Bill 5813 will add a layer to the capital gains tax. In addition to the existing 7% tax on gains over $270,000 from the sale or exchange of long-term assets like stocks, bonds and business interests, the bill tacks on another 2.9% for gains exceeding $1 million. About 900 taxpayers would be impacted.
The bill also makes revisions in the state’s estate tax — a tax on the right to transfer property at the time of death. Rates would increase, but the value of property excluded from the tax would climb to $3 million, up from the current $2.1 million. Lawmakers assume this legislation will generate $321.6 million for the next budget, and slightly less in the one after that.
Senate Bill 5794 seeks to bring in revenue by getting rid of tax breaks that the Department of Revenue estimates are used by 15,000 taxpayers. These changes are counted on to bring in $148.5 million for the next budget, according to budget documents.
Among the many tax preferences targeted for elimination are ones exempting sales of precious metal bullion. Another change would make operators of self-service storage facilities begin to pay taxes on the renting or leasing of individual units.
House Bill 2077 would begin taxing the sale of electric vehicle credits between automakers. This has been dubbed the “Tesla tax” because the firm led by Elon Musk is the only automaker with credits to sell in Washington. This brand-new tax is projected to generate $54.5 million for the operating budget.
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