Washington’s Proposed Millionaire Tax Signals a Broader Shift in State Tax Strategy

What is in the proposed Washington-state “millionaire tax” legislation

Lawmakers in Washington state have advanced legislation that would impose a 9.9% tax on personal income above $1 million, marking the most direct move toward a personal income tax in decades.

If enacted, the tax would take effect in 2028, with payments beginning in 2029. The bill is projected to generate roughly $3.5–$3.7 billion annually. Revenue would be used to fund programs such as tax credits for lower-income households, education, and other public services, while also attempting to reduce reliance on Washington’s historically high sales taxes.

The proposal targets a narrow slice of taxpayers, estimated at 20,000 to 30,000 households, but its implications extend far beyond that group. Our State & Local Tax leaders have reviewed the proposal and are monitoring the broader implications of this type of legislation.

No income tax to structural shift

Washington historically has been one of the few states without a personal income tax, relying instead on sales, property, and business taxes. This structure has often been cited as both a competitive advantage and a point of criticism, advantageous for high earners and businesses, but also considered one of the more regressive tax systems in the country.

Voters have rejected similar income tax introduction proposals multiple times, and the state’s constitution has historically been interpreted to prohibit graduated income taxes by classifying income as property.

However, the current proposal is significantly different from previous attempts. It builds on more recent policy developments, most notably the 2021 capital gains tax, which was upheld as an excise tax rather than an income tax, and signals a broader desire among lawmakers to reshape the state’s tax framework.

In that sense, the millionaire's tax is less of a one-off policy and more of a continuation of a gradual transition toward taxing income, even in a state that has historically resisted it.

What this means beyond Washington

While the proposal is Washington-specific, it could have national implications, particularly for high-income taxpayers and multi-state businesses.

A potential signal for other states

Washington’s move reflects a broader trend, states are reevaluating how to generate revenue while addressing perceived inequities in their tax systems. Some are pursuing more progressive taxation on high earners, while others continue to reduce or eliminate income taxes altogether.

If Washington successfully implements this tax, especially if it withstands expected legal challenges, it could serve as a blueprint for other states seeking new revenue streams without broad-based tax increases.

Increased complexity for high-income, multi-state taxpayers

For individuals earning over $1 million, particularly those with income sourced across multiple states, the proposal introduces new layers of complexity:

• Income sourcing and apportionment will become more critical, especially for executives, investors, and business owners operating in multiple jurisdictions
• Credits for taxes paid to other states may mitigate double taxation, but require careful coordination and documentation
• Residency and domicile planning will likely take on greater importance as taxpayers evaluate where income is earned versus where it is taxed

This is particularly relevant in a remote and hybrid work environment, where income may be generated across several states simultaneously.

A broader shift in tax planning strategy

Perhaps most importantly, Washington’s proposal underscores a larger trend: state tax bodies are becoming more dynamic and more divergent.

For high-income individuals and middle-market business owners, this means:

• Greater need for proactive, multi-state tax planning
• Increased focus on timing of income events (e.g., liquidity events, equity compensation
• More scrutiny on residency and business footprint decisions

The bottom line

Washington’s proposed millionaire tax could represent a potential inflection point state income tax discourse.

Whether or not the legislation ultimately survives legal and political challenges, it highlights that states are willing to reconsider long-standing tax structures in pursuit of revenue stability and equity.

For taxpayers, particularly those with significant income or multi-state exposure, the message is clear,
state tax strategy is no longer static, and planning must evolve accordingly. Stay ahead of the evolving state tax landscape, connect with our State and Local Tax team to assess how these changes may impact your planning strategy.

Talk to a SALT Advisor