Washington State is facing an unprecedented budget season – it must fill an operating budget deficit estimated to be between $12 and $15 billion over the next four years. This leaves a gap of $5 to $8 billion that lawmakers need to close with reductions, spending delays, or new tax collections. The entire two-year budget for the state is around $70 billion.

The budget is a top concern for Governor Ferguson. He outlined his blueprint at the end of February, which includes:

  • One furlough day per month for most state workers.
  • Eliminating about 1,000 full-time employees through cutting vacant or new positions, attrition, and other means.
  • Directing all state agencies to plan for a 6% funding reduction.

These changes are not guaranteed—they depend on budget negotiations over the next two months.

Many elected officials and advocacy groups are divided on how to address the budget deficit:

  • Some oppose new taxation, arguing overspending is the issue.
  • Others propose new tax areas, emphasizing the importance of state programs and the potential harm of budget cuts.

Either way, the state is expected to implement a combination of both tax increases and spending cuts.

Below are some potential taxes that might be considered. Some have already been introduced in bills, while others are still in discussion.

GSBA wants to hear from you!

We cannot advocate without knowing the potential impact these options could bring to our state’s small businesses.

Are there some taxes that you prefer more than others? Are there any that will harm your business?

Please let us know in the form below or reach out directly to [email protected].

B&O Tax

Inslee’s Proposal (HB 1320): Temporary & Permanent Tax Increases
  • Increase the tax rate for businesses in the service and other activities category making over $1m a year (from 1.75% to 2.10%; a 20% increase) beginning October 1, 2025, and ending Dec 31, 2026.
  • Beginning Jan 1, 2027, the rate for these businesses would be 1.925% (10% above the current rate).
  • Beginning Jan 1, 2027, all B&O tax rates increase by 10%.
Impact:
  • Would raise $1.045 billion in 2025-2027 and $1.580 billion in 2027-2029.
  • Compared to the November 2024 forecast, this equals a revenue increase of 6.9% in 2025-27 and 9.6% in 2027-29.
Senate Democrat Revenue Options:
  • Impose an additional 1% B&O surcharge on all businesses with a taxable income over $500m (excluding financial institutions).
  • Alternative: Apply the surcharge only to the portion of income above $500 million.
  • Estimated to raise $850m in 25-27 (5.6% increase); $4.3bn in 27-29 (26.2% increase).

Payroll Expense Tax Increase

6.2% payroll tax paid by employers on total compensation for employees making above the Social Security threshold.

  • Main proposal: Impose tax on companies with $8m or more in WA payroll.
  • Estimated to raise $380m in 25-27 and $7.5bn in 27-29 (45.7% increase).
  • Alternative proposal: Apply the tax to all businesses.
  • Estimated to raise $410m in 25-27 and $8.3bn in 27-29 (50.6% increase).

Wealth Tax

Inslee’s Proposal (HB 1319): 1% tax on taxable worldwide wealth of each WA resident.
  • Taxable wealth = fair market value of financial intangible assets exceeding $100m owned or controlled by the resident.
  • Estimated to raise $3.380 bn in 25-27 and $6.9bn in 27-29.

Capital Gains Tax

  • Current law: Tax rate of 7%, standard deduction of $270,000 in 2024.
  • Proposal: Increase to 9.9% for gains over $1 million.
  • Alternative: Increase to 9% on all gains over $250,000.

Delivery Fee for Online Purchases

  • 30 cent fee would apply to packages delivered by Amazon, UPS, and other shippers.
  • Estimated to raise $112m in 2026 and $160m by 2030.

Property Tax Growth Limit Increase (HB 1334)

  • Increase property tax growth limit from 101% to 103% for state and local taxing districts.
  • Estimated to raise $104m in 25-27 and $329m in 27-29.

New Tax on Firearms (HB 1386)

  • 11% tax on the sale of ammunition, firearms, and parts.
  • Estimated to raise $25m in 25-27 and $37m in 27-29.

Written by Gabriel Neuman (he/him), GSBA Policy Counsel and Government Relations Manager

The information is intended to inform the GSBA community about legal and policy developments. Nothing in this post should be construed as legal advice or a legal opinion, and readers should not act upon the information contained in this article without seeking the advice of legal counsel.