State Income Tax
On Wednesday March 11th, the Washington state legislature voted in favour of a proposed 9.9% income tax. Referred to as the “Millionaires Tax”, the tax is projected to begin in 2028 and be levied on income over US$1 million that is earned by Washington state residents. Now that the proposed bill has been approved by the legislature, it will move to Governor Bob Ferguson who has indicated he intends to approve it and sign into law.
Cross-Border Impact
Families, resident in Washington state, are subject to state estate taxes on their net worth where they pass away as domiciles of the state. With a lifetime exemption of approximately US$3 million, much lower than the US federal lifetime estate and gift tax exemption of US$15 million, Washington state estate tax can apply to situations where no US federal estate tax applies. We have blogged about Washington state estate taxes previously HERE.
Recently, Washington passed a capital gains excess tax on its residents. Starting in 2025, the rates increase from 7% to 9.9% on gains over $1 million.
High net worth families can be mobile. Two years ago, Amazon founder Jeff Bezos left the Seattle area for Florida, which happens to have no state income tax. This week, Starbucks founder Howard Schultz announced, on LinkedIn, his intention to move to Miami.
State lawmakers state that this new tax would impact roughly 30,000 households and raise US$4 billion annually. However, similar to the flight of high-net-worth individuals from California in the face of a proposed wealth tax on state residents, wealthy families moving from Washington before this tax is effective can have a serious impact not only on the projected tax revenue but also the economic activity they take with them.
Impact on Professional Sports
With salaries over $1M, the tax would apply to the players on the Super Bowl champions, Seattle Seahawks. Team general manager John Schneider stated that the tax would have a negative impact on signing free agents. Previously, the Seahawks had an advantage over their division rivals that play in California and Arizona, states with personal income taxes. This advantage may disappear in 2028.
We have blogged about the impact of Canadian and U.S. income taxes on professional sports teams and free agent signings HERE.
Controversy
For most of its existence, Washington state has not levied personal income taxes on its residents. Its state constitution. In the 1930s, Washington voters approved a state income tax, however a state Supreme Court case ruled that the tax violated the state constitution, thus ending the tax before it could start. There is a long history of income tax proposals, court challenges and voter referendums in Washington and we can expect these to occur from now until 2028 when the tax is scheduled to start.
Next Steps
Andersen can help families potentially impacted by this proposed tax.
Please contact Steven Flynn Managing Director and Partner to learn more.
