Governor Ferguson has recently signed several tax bills passed by the legislature this session. For this post, we’ll be covering some of the major changes outside the Millionaire's income tax bill, which will be covered in a separate article.
Most years, the Department of Revenue drafts technical corrections legislation which corrects, clarifies and codifies their policies into existing statute. As these are based on current DOR tax policies, they are not intended to raise or lower state revenues, but are informative on DOR interpretations of existing statutes. SB 6113 offered some changes to the expanded list of taxable services passed last session; the changes below are effective retroactively to October 1, 2025.
Finally, with the Governor’s recent signature on the Millionaire’s tax bill, most services which became subject to sales tax on October 1, 2025, will be repealed January 1, 2029, if the income tax goes into effect. Advertising services will remain subject to sales tax.
Also pending the income tax becoming effective, certain grooming and hygiene products, diapers and over the counter drugs will no longer be subject to sales tax effective January 1, 2029.
Note if the income tax is ruled unconstitutional or repealed at the ballot box, the sales tax changes in that bill are nullified. However, three clarifications in this bill would survive and are effective July 1, 2026:
Effective 7/1/26, revenues from most wholesale sales of food and food ingredients are not subject to the additional 0.5% B&O surcharge on revenues over $250 million.
Also, note that any of the changes to sales taxability stated above may also change the corresponding B&O classification of these revenues (e.g. from Retailing to Service B&O).
Last session, the legislature increased the Washington estate tax rates to the highest in the country, topping out at 35% on taxable value above $9 million. SB 6347 reduces these tax rates to what they were prior to last session’s law.
Effective July 1, 2026, the Washington estate tax rates are tiered between 10%-20% with the top rate applying to taxable value above $9 million. Also effective on this date, the standard exclusion amount per estate is set at $3 million which is functionally not indexed to inflation.
Under HB 1376, taxpayers are allowed to make pre-payments for Washington capital gains taxes up to six months before the due date, which allows better matching of the tax payment to the year the corresponding assets were sold. Tax payments for 2026 can be made as early as October 15th, 2026.
Also notable were the tax bills which failed to pass this year. There were a few proposals to impose payroll related taxes on employers, one which drew inspiration from Seattle’s payroll expense tax. A bill which would have imposed taxes on data brokers based on brokering personal data also failed to advance.
Another stalled bill would have decoupled Washington’s capital gains tax from the federal Qualified Small Business Stock gain treatment. This is a federal incentive used by small business start-ups and their investors to exempt all or a portion of the gain when the business is sold.
So, will we see these proposals again in the future? Who knows, but if the recently passed Millionaire's income tax is overturned, there will be budget issues bringing tax proposals back to the table in Olympia.
The Sweeney Conrad Tax Services Team provides proactive tax compliance and strategic planning guidance to individuals, closely held businesses, and family enterprises throughout the Pacific Northwest.