Key Takeaways
- Washington state legislators adopted a range of new taxes in the 2025 legislative session, including an increase in B&O taxes, a B&O tax surcharge, an increase in capital gains taxes, an increase in the estate tax, and a range of other taxes.
- Applying a macroeconomic model they used to analyze impacts for the Washington State Department of Natural Resources and to estimate the impact of the Trump Administration's tariffs, Infinite Sum Modeling estimated the impact of those taxes on Washington's economy.
- These new taxes are projected to reduce economic growth in Washington state by up to half a percent of GDP — almost $4.5 billion in 2026, growing to $11.3 billion by 2029.
- The 2025 tax increases will reduce wages for Washington residents by an estimated $1.78 billion in 2026 to about $4.46 billion in 2029.
- Investment in the state may fall steeply — a reduction of about 1% in FY2026 to over 2% in FY2029 (roughly $2.4 to $5.8 billion).
- The model shows consumer prices initially rise in FY 2026, but subsequent years may see a small drop in prices as demand slumps following the tax hikes.
Tax proposals in Washington state and their implications
In 2025 Washington state introduced a series of tax proposals focused on widening the sectoral scope of taxation and increasing taxes on specific services, as well as increasing taxes on wealth accumulation. Supporters claimed these policies are aimed at improving the fiscal health of the state, improving service delivery with respect to health and education outcomes and in part to reduce wealth inequality within the state.
HB 2081 restructures the Business and Occupation (B&O) tax framework. The legislation raises the surcharge on goods for manufacturers, retailers, and wholesalers to 0.5 percent, increases the service tax rate for businesses earning over $5 million in service income from 1.75 percent to 2.1 percent, and applies a dedicated surcharge on large corporations generating annual revenues exceeding $250 million.
HB 2081 also expands the definition of taxable services. The legislation amends the scope of the sales tax to include security services, temporary staffing agencies, and interactive live presentations such as lectures. The digital service sector faces new tax obligations, with website design and custom software development classified as taxable services under the widened definitions.
SB 5813 introduces substantial changes to capital gains and estate taxation. The act imposes a new 2.90 percent excise tax on long-term capital gains exceeding $1 million (retroactive to January 1, 2025). It also adjusts estate taxes for properties valued at more than $1 million by establishing new tax slabs ranging from 10 percent to 35 percent depending on valuation.
SB 5794 focuses on reducing tax expenditures by eliminating numerous tax exemptions. HB 2077 (the "Tesla tax") establishes a framework for taxing zero-emission vehicle credits, including annual reporting and a 2 percent excise tax on the sale of surplus credits, plus a 10 percent tax on banked credits (with specific provisions for manufacturers below certain thresholds).