Next Steps on State Income Tax on Millionaires

A proposal to establish a state income tax on millionaires was the most contentious and consequential bill considered during the 2026 session. The bill has been signed into law, but several hurdles remain before it can be implemented.

Last month a lawsuit led by former state Attorney General Rob McKenna was filed, challenging the legality of the new tax. The lawsuit focuses on a provision of the state constitution that requires property to be taxed at a uniform rate, arguing that income is property and the tax is not applied uniformly. The case is ultimately expected to be taken up and decided by the state Supreme Court.

Meanwhile, opponents of the law are also mounting an effort to allow the state’s voters to weigh in on the tax. Earlier this week, the conservative political committee Let’s Go Washington, which is the point group for several recent and pending ballot measures, filed an initiative with the Secretary of State’s office. If sufficient signatures are collected in support of the initiative, it will appear on the November ballot.

Assuming the tax withstands legal and political challenges, the governor’s budget office has released updated projections of how much revenue it will bring into the state. Last week the Office of Financial Management released data showing that the net effect of the income tax will be around $2.5 billion annually once sales tax reductions that are part of the law are taken into account.

That would be a considerable influx of revenue, amounting to around 6% of the state’s annual operating budget. But it’s important to note that the “maintenance level” of the state’s budget, accounting for expected growth in existing programs, is anticipated to grow at a similar rate. This means there would be limited opportunity for new spending and programs tied to the implementation of a state income tax, in the absence of other changes to spending and revenue.