Washington state’s first income tax on millionaires may only indirectly affect commercial property taxes or investment, but business advocates say the bigger effect of the measure will be to hasten an exodus of talent and startup capital from Seattle.
In a region where entrepreneurs launched such tech giants as Microsoft and Amazon and grew them into some of the world’s most valuable companies and real estate occupiers, some are bristling at a law to enact a 9.9% tax on income above $1 million.
Washington Gov. Bob Ferguson this week signed the law that's set to take effect in 2028; before then, the measure is expected to face legal challenges from opponents. The tax would raise up to $4 billion a year from about 21,000 households, less than 1% of Washington’s population, to fund tax breaks and childcare subsidies for low-income families, according to an analysis of the bill by the Washington Department of Revenue.
"We are preparing to challenge the tax in court," Rob McKenna, lead counsel of the Olympia, Washington-based Citizen Action Defense Fund, said in a statement. “Washington’s constitution is clear, and the courts have been equally clear for nearly a century — income is property, and progressive income taxes are unconstitutional under existing law.”
Washington was one of nine states without an income tax, relying on sales tax and other levies to fund the government. Ferguson described signing the tax on millionaires into law as "truly a historical step forward in rebalancing our tax code."
He added during a bill signing ceremony this week in the state capital of Olympia that “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."
Washington joins other states such as California, Massachusetts and New Jersey and cities such as New York that have pushed for extra taxes on people earning over $1 million in taxable income.
Business advocates, including the state construction industry and anti-tax groups, vowed to swiftly challenge the new income at the ballot box as well as in court. These groups have previously raised concerns over measures directed at Seattle area businesses and high earners.
In May 2018, the Seattle City Council passed an annual head tax of $275 per employee on large companies to fund services for the homeless — and repealed the measure a month later under pressure from Amazon and other businesses. Two years later, the council passed Jumpstart Seattle, another levy aimed at Amazon and other big companies that is based on the number of highly paid employees rather than total workers.
The statewide income levy adds to increases in local payroll, property and business taxes in recent years that have contributed to downtown Seattle's record-high 35% office vacancy rate, according to Jon Scholes, president of the Downtown Seattle Association. Major employers such as Amazon have moved thousands of workers to nearby Bellevue, in part to escape the tax burden.
"We don’t need more taxes on businesses in Seattle — we need more businesses paying taxes," Scholes said in an email to CoStar News. “We’ve been losing jobs downtown, and that’s a trend that negatively impacts the entire city by softening the tax base. When that happens, the burden is shifted to residents. Nobody wins in that scenario.”
Business impact
The new tax is a burden on Washington's construction sector, especially small- and medium-sized firms, said Michele Willms, lobbyist for the Washington chapter of Associated General Contractors, which represents the state's construction industry.
The levy treats business revenue as personal wealth, which "squeezes contractors' working capital used to pay employees, purchase materials and keep projects moving," Willms told CoStar News.
"We are looking forward to the legal challenge and are hopeful it will be successful," she said. "It becomes increasingly difficult for contractors to do business and grow in Washington, when you combine this with recent increases in business and occupancy taxes and rising costs for healthcare, unemployment insurance, workers’ compensation, paid family and medical leave."
Washington's new income tax is among several moves across the country to tax relatively high earners to help pay for healthcare, social services and transit projects during an era of federal funding cuts. Unions and lawmakers in California are taking the effort even further, drafting the nation’s first statewide tax on the assets of billionaires.
The Service Employees International Union and United Healthcare Workers are trying to qualify a statewide measure called the 2026 Billionaire Tax Act for the Nov. 3 ballot. The initiative would impose a one-time 5% levy on stocks, art, businesses and other assets of California's estimated 200 billionaires.
The proposal in the Golden State, opposed by business groups, would raise more than $100 billion over five years to backfill federal cuts to health services for lower-income people that were signed by President Donald Trump last year, supporters said.
Two progressive members of Congress, Sen. Bernie Sanders and Rep. Ro Khanna of California, have proposed taking the effort nationwide.
Their proposed “Make Billionaires Pay Their Fair Share Act” would impose a 5% annual federal wealth tax on individuals worth $1 billion or more.
Capital shift
Billionaire real estate investors like Barry Sternlicht say that such taxes are causing businesses and wealthy people to flee from high‑tax states to red states such as Florida.
Such tax regimes could reshape capital flows across the country as investors take advantage of resetting prices for office and multifamily properties in the next major wave of real estate activity, the Starwood Capital Group CEO said recently.
California’s proposed wealth tax has been a contributing factor to why the CEOs of major tech giants like Facebook’s Mark Zuckerberg and Google’s Larry Page have made the move to Miami, snapping up multimillion-dollar residences throughout the city.
Former Starbucks CEO Howard Schultz recently announced plans to move from Seattle to Miami while the coffee giant itself is moving key operations from Seattle to Nashville.
Scholes of the Downtown Seattle Association said during the group's State of Downtown event last month that the city is "going in the wrong direction” by imposing record tax increases on businesses.
“There are many great reasons to do business in Seattle, but we must recognize that companies have choices," Scholes told CoStar. "We need to put ourselves in a more competitive situation."