Washington state governor signs millionaires tax into law

Washington Gov. Bob Ferguson signed the millionaires tax bill on Monday at a ceremony in Olympia.

Senate Bill 6346 sponsored by Sen. Jamie Pedersen, D-Seattle, and the House companion bill sponsored by Rep. Joe Fitzgibbon, D-Seattle, is now law.

It institutes a 9.9% income tax on annual household earnings exceeding $1 million, with the tax taking effect on Jan. 1, 2028, and collected during the 2029 tax season.

"Adoption of the historic millionaires tax makes our tax system more fair, and means free meals for K-12 students, the largest tax break in state history for small businesses, eliminating the sales tax for baby diapers, and sending a check to nearly 500,000 working families to make life more affordable," Ferguson said during the ceremony.

In its first full year of implementation, the tax will send more than 41.3% of revenue raised back to Washington families and small business owners, according to the governor.

It's a historic change for a state that did not have an income tax.

Lawmakers estimated the tax would impact 20,000 to 30,000 households of the state's roughly 8.1 million residents and apply only to income above $1 million. It is expected to generate $3.7 billion annually.

More significant for investors, the tax could increase in-state demand for Washington's bonds.

The key market ramification lies in the state-level tax exemption for municipal bonds. The bill stipulates that interest on Washington-issued state and local bonds will be exempt from the 9.9% levy.

"With this bill, we're going to begin to right a historic wrong that has plagued our state for nearly 100 years, and made our tax system one of the worst and most regressive in the entire country," Pedersen said. "We've asked Washington's working families for far too long to shoulder far too much of the tax burden for the things we care about, and we have not asked enough of our wealthiest neighbors."

The cuts to taxes for small business owners through the proceeds of the millionaires tax will get Washingtonians to a place "where our ideas and work bring us to a place of not just surviving, but thriving," said Terrence Jeffrey Santos, a small business owner.

The bill will reduce and eliminate the business and occupation tax for 138,000 small businesses, according to the governor's office.