Yes. The legislature raised several taxes totaling at least $9 billion in 2025, including: 

• Business & Occupation Tax surcharge (0.5%) on certain businesses grossing at least $250 million per year 

• Increasing base B&O rates to 0.5% for all businesses, which take effect January 1, 2027 

• Adding sales tax to several services, such as IT, custom software, security, staffing services, digital advertising, and in-person instruction 

• Raising the capital gains tax from 7% to 9.9% on long-term gains of $1 million or more 

• Increasing the estate tax with a new top rate of 35% on estates over $9 million 

• Also, gas taxes were raised 6¢ per gallon, vehicle weight fees went up, and the tax on vehicle sales went from 0.3% to 0.5%, a new 8% luxury tax on noncommercial vehicles costing over $100,000 was created, and tire replacement fees jumped from $1 to $5 per tire, but that revenue goes to the transportation budget, not the operating budget which would get proceeds from this new income tax.  

• If you’re a small business owner, the tax could still apply to your business earnings if they are $1 million or more 

• It includes a marriage penalty, meaning if you and your spouse earn more than $1 million together, the tax would apply to your combined household earnings. 

• Creating this new income tax through a bill, instead of a constitutional amendment, allows future legislatures to simply lower or eliminate the $1 million deduction any time they want. The Majority Leader, and prime sponsor of the “Millionaire Tax” bill, has said as much. 

• Is your business a full C-corporation? If so, you would be exempt from this new income tax.  

• If you’re a sole proprietor or owner of a pass-through entity that reports business earnings and expenses on your personal federal income tax return, like a partnership, LLC, or S-corporation, and your business earns $1 million or more, you could be subject to the tax or its filing requirements. 

• The tax will be based on your federal adjusted gross income (AGI), then you add in your portion of B&O taxes paid and any undistributed or retained earnings, deduct that year’s losses, subtract charitable contributions (under the limit), calculate any income from or taxes paid to other states, figure out if you paid more in B&O than your income tax liability, and more. With the complicated calculations expected to be a part of this new income tax, many small business owners who aren’t millionaires may be swept into this so-called “Millionaire Tax” based on business earnings, not take-home pay.  

• Not exactly. In Culliton v. Chase, 174 Wash. 363, 289 P. 2d 81 (1933), the state Supreme Court ruled 5-4 that income is property and thus subject to the state constitutional 1% property tax cap. 

• That was 93 years ago. Today, that decision could be overturned by our state’s Supreme Court, allowing an income tax not just on millionaires but on any Washingtonian.  

• An Initiative to the Legislature prohibiting state and local taxes on income was enacted in 2025. However, as an Initiative to the Legislature, not to the People, this or any future legislature can repeal that law. Lawmakers could also exempt new taxes from it, like the so-called “Millionaire Tax” legislation does.  

The so-called small business tax relief continues to be a moving target, but here’s what we know so far. 

Proponents plan to spend income tax funds on: 

• Repealing the new sales tax on some services added in 2025, but keeping the tax on digital ads and expanding it to all advertising services – cost estimate not yet available

• County public defense fund – $185-$280 million 

• Sales tax exemption for grooming and hygiene products – $86 million 

• Increasing the Working Families Tax Credit – $44 million 

• Small business tax relief – $108 million by increasing the B&O tax filing threshold to $250,000 which exempts 65% of small firms and doubling the Small Business Tax Credit for firms grossing up to approximately $500,000 per year. 

• Big business, startups and very small firms may see some relief, but the bill does nothing to help the small businesses that are likely to pay the new tax.  

NFIB is urging small business owners and supporters of small business to reach out to their state legislators with a customized message using our simple email tool. 

NFIB balloted our members on the proposed “Millionaire Tax.” 98% of respondents oppose this income tax. 

NFIB’s Washington State Director and small business owners including the chair of NFIB’s Leadership Council testified before the state Senate Ways & Means Committee, offering solutions and bringing several key arguments in defense of Main Street:  

• Sole proprietors and owners of pass-through entities will be ensnared in the new tax because it would apply to business earnings, not just salary or wages.  

• Taxing undistributed funds or retained earnings, and limiting B&O tax overpayments and business losses to just that tax year, would squeeze cash flow and jeopardize capital investments.  

• This proposal dramatically favors big businesses, giving five times as much tax relief to large corporate competitors at the expense of small businesses, and exempts C-corporations entirely.  

Have you taken action yet to protect small businesses from this new tax? If not, please take action now.