Mid-Week Washington Legislative Update: Significant New Tax Proposals

April 16, 2025

Mid-Week Legislative Update – Budget & Tax Focus

As budget negotiations intensify in the final eleven days of session, Democratic leaders in the House and Senate introduced a suite of new tax proposals on Tuesday aimed at generating revenue to support the state's biennial operating budget – now estimated to have a $12 billion deficit at desired spending levels over the next four years. These measures, mostly introduced as companion bills in both chambers, reflect a strategic shift towards more targeted taxation, replacing or supplementing earlier, broader tax proposals that faced significant opposition.​ Collectively, these new bills forecast nearly $13.3 billion in new revenue over the next four years. The new Senate bills are up for public hearing Wednesday evening in the Ways & Means Committee, with committee votes scheduled for Friday morning. The House versions of several of the Senate measures are scheduled for a public hearing, or, if previously heard, a committee vote, in the Finance Committee on Friday morning. Governor Bob Ferguson, who sent lawmakers searching for new revenue options after he declared his opposition to a proposed wealth tax, has not weighed in on any of the new proposals.   

Tax Proposals Introduced/Still in Mix:

Zero-Emission Vehicle Credit Tax (HB 2077 / SB 5811)

Dubbed the “Tesla Tax,” but impacting several electric vehicle manufacturers, this proposal targets the sale and banking of zero-emission vehicle (ZEV) credits. It imposes a 2% tax on the sale of ZEV credits to other manufacturers and a 10% tax on banked credits, treated as sold at the start of each model year. In 2025, pooled credits could be taxed up to 50%, depending on compliance levels, potentially reducing to 10% if manufacturers meet or exceed Washington's EV sales targets compared to other California-aligned states. While a fiscal note is pending, projections estimate approximately $200 million in revenue over four years. The bill is being heard in Senate Ways & Means Wednesday and House Finance on Friday.

Property Tax Lid Lift for K-12 Education (HB 2049 / SB 5812)

Aimed at enhancing K-12 education funding, this measure revises the limit factor for state and local property tax levies to 100% plus population change and inflation, capped at 103%. It also increases the per-pupil limit by $500 in calendar year 2026, with an additional 3.3% above inflation annually through 2030. The House bill's fiscal note estimates $200 million in revenue for 2025–27 and $618 million for 2027–29. The Senate version, now conformed to the previously heard House vehicle, is up for hearing in Ways & Means on Wednesday and a vote in both Ways & Means and House Finance on Friday.  

Capital Gains Tax Expansion & Estate Tax Adjustment (HB 2082 / SB 5813)

This proposal expands the existing 7% tax on capital gains above $250,000 by imposing a 9.9% tax rate on gains over $1 million. It concurrently increases the estate tax exclusion amount to $3 million. While a fiscal note is not yet available, projections estimate $1–1.5 billion in revenue over four years. The House version is not yet scheduled for hearing, but the Senate version is set for hearing Wednesday and a committee vote Friday.

Business & Occupation (B&O) Tax Modifications (HB 2081 / SB 5815)

These companions propose significant changes to Washington’s B&O tax structure, with estimated revenue of $6 billion over four years. B&O rates across multiple classifications would go up, mostly starting January 2027, including retailing, wholesaling, manufacturing, and services. The services rate would increase for those grossing $1 million+ annually from 1.75 to 2.1 percent, while the general retail/wholesale/manufacturing rate would rise from 0.484 to 0.5 percent. Insurance producers and brokers are impacted, with their rate increasing from 0.484 to 0.5 percent. The proposal also adds several new high-income surcharges, including a 0.5 percent surcharge on businesses with more than $250 million in Washington taxable income (from 2026-2030), and a 1.5 percent surcharge on financial institutions with income exceeding $1 billion, effective October 2025 with no sunset. The Advanced Computing Surcharge (ACS), currently at 1.22 percent, would jump to 5 percent beginning January 2026. For some large businesses, multiple rates and surcharges could layer, such as a tech firm subject to the new 5 percent ACS, the $250 million surcharge, and the standard B&O rate, resulting in effective rates exceeding 7-8 percent of gross receipts. The Senate version is up for hearing Wednesday in Ways & Means and a committee vote Friday, while the House version is set for hearing Friday in the Finance Committee.

Sales Tax on Services (HB 2083 / SB 5814)

This measure proposes to extend Washington’s retail sales tax to a broad range of currently untaxed services, including IT consulting and support, data processing, custom software development, online advertising (excluding print, radio, and TV), security and investigative services, and temporary staffing. These changes, effective October 2025, would bring many professional and business services under sales tax for the first time. The bill also expands the definition of tobacco products to include synthetic nicotine products such as Zyn, effective January 2026. Additionally, monthly sales tax filers (over $3 million in 2026 sales) would be required to prepay their July 2027 state sales tax liabilities in June 2027 as a one-time budget maneuver, projected to generate $800 million. The bill’s total revenue impact is estimated at $4 billion over four years. The bill is up for hearing Wednesday in Ways & Means with a committee vote set for Friday. The House version has not been formally introduced as of today.

Repeal of Tax Preferences (SB 5794)

Still in the mix from the Senate’s previously announced revenue package, this bill aims to repeal various tax exemptions, affecting approximately 15,000 taxpayers across a broad array of sectors. The fiscal note estimates revenue of $403 million for 2025–27 and $604 million for 2027–29. Heard in late March, the bill is now up for a Ways & Means Committee vote on Friday.

Increasing Alcohol Taxes (HB 2079)

On Wednesday, the House introduced this proposal to increase a slate of taxes on alcohol, doubling existing taxes on makers of wine and cider, and beer, by the liter and barrel respectively, and imposing an additional liter and barrel tax on these beverages. It does not yet have a published revenue projection and has not yet been scheduled for a hearing, but may be added to Friday’s Finance Committee hearing in the House.

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