Last week, Democratic Washington Gov. Bob Ferguson signed the largest tax increase into state law with the passage of the bi-annual budget (Senate Bill 5167) and several other bills that increase taxes for Washington residents.
This is despite multiple statements to the press over the last few months from the governor indicating that he would be willing to compromise on taxes. At the beginning of April, Ferguson told My Northwest, “We cannot adopt a budget with anywhere near the levels of taxes currently proposed by the House and Senate.”
As Washington Policy Centers' report card for Washington's Future indicates, Washington is currently ranked 45th in the nation for its business tax climate.
The bills signed into law include,
Senate Bill 5161, the transportation budget, increases the gas tax by 6 cents per gallon on gas and 12 cents per gallon on diesel. This will drive up transportation and delivery costs for all products and services in Washington.
House Bill 2081 will increase the business and occupation (B&O) tax, which is assessed on gross revenue of a business. Even if a business makes a loss, a business still pays B&O taxes on all received revenue. The rate increase is dependent on the type and income of the business and ranges from .03% to .35%. The increase in B&O taxes will be passed on to the consumer in the form of higher prices for goods and services.
There is a new B&O surcharge of 0.5 percent on taxpayers with a taxable income over $250 million, which will expire on Dec. 31, 2029.
Senate Bill 5814 is a massive sales tax expansion, adding sales taxes for the first time to many service-related activities. As examples, IT services, custom website development, custom software, security services and advertising services will all now need to charge customers sales tax on every transaction.
Senate Bill 5794 repeals and revises several tax preferences. The governor vetoed the removal of the tax preferences for community banks. It adds a new B&O (gross) tax on storage units up to 1.75%. The increase in B&O taxes and the removal of the tax preferences will be passed on to the consumer in the form of higher prices for goods and services.
Senate Bill 5813 increases the capital gains on long term capital assets sold valued at over $1 million from 7% to 9.9%. This adds a significant cost to selling an investment or other capital asset valued at over $1 million. For larger estates of $9 million and up, the estate tax rate is increasing from 20% to 35%.
Overall, the budget (Senate Bill 5167), totaling approximately $77.8 billion in appropriations, reflects a 6.5% increase over the $71.9 billion appropriated in the 2023-25 biennium, and a $9.3 billion increase in spending over the next four years, far outpacing inflation and population growth.
Ferguson mentioned some vetoed items in the budget but did not elaborate during the bill signing.
While investments in education, health care and climate programs address pressing issues, their scale and structure raise concerns about affordability, efficiency and long-term consequences. Taxpayers, already grappling with high costs of living, deserve a budget that maximizes value through competition, innovation and accountability and not massive tax increases.
The 2025-27 budget, while comprehensive, misses the mark on these principles, leaving taxpayers to question whether the largest tax increase in state history is really worth it.
•••
Mark Harmsworth is the director of the Small Business Center at the Washington Policy Center.
