Tax insight

Washington State enacts significant tax legislation

Insight
5 minute read
May 29, 2025

What happened?

Washington State Governor Bob Ferguson (D) on May 20 signed various tax bills (legislation) as part of the state’s FY 26-27 biennium budget that among other provisions will: 

Increase various Business and Occupation Tax (“B&O”) tax rates
Increase the Advanced Computing Surcharge from 1.22% to 7.5%
Increase the Financial Institution Surcharge from 1.2% to 1.5%
Adopt a 0.5% surcharge for businesses with over $250 million in Washington taxable receipts
·Remove various tax preferences
Impose B&O tax on certain state-chartered credit unions and self-storage rentals
Add a special B&O tax rate for certain payment processors
Clarify the investment income deduction
Allow certain entities with investment income to qualify for an expanded voluntary disclosure program
Impose Retailing B&O tax and retail sales tax on various specified services
Remove certain exclusions from Digital Automated Services (“DAS”)
Adopt a luxury tax on certain vehicles and aircraft
Adopt changes to the recently enacted capital gains tax
Modify the estate tax

Why is it relevant?

The legislation establishes broad-based alterations aimed at high-income individuals and corporations and expands the tax base through surcharges, repeals exclusions and preferential rates, expands the retailing base for certain services, and adopts targeted rate increases.

Actions to consider

Businesses with Washington State activity should carefully reassess their financial strategies and compliance obligations. In addition, high-net-worth individuals in Washington State should be aware of several recent legislative developments that could significantly impact their financial and estate planning strategies. Taxpayers should be aware that Governor Ferguson has indicated that certain elements of the tax changes, especially regarding the sales tax and B&O tax, may be subject to future legislative changes based on feedback from affected businesses.