Washington State historically had no state income tax, which it offset by imposing other taxes, like excise taxes on selling your home, high sales taxes, gross receipts taxes that fell most heavily on small businesses, and estate taxes.
Washington State still has those other taxes, but it imposed a capital gains tax, and now it is likely to adopt a general income tax on high income households, reports Bloomberg News. All this has contributed to Washington State becoming a high tax state, where it was once a state with moderate levels of taxation. Under progressive rule, Washington State ranks a dismal 45th out of 50 states in tax competitiveness/burdensomeness.
Bloomberg explains: “When Washington Governor Bob Ferguson proposed the state’s first income tax in modern history, he said the word ‘affordability’ five times. Ferguson on Tuesday asked the legislature to craft a 9.9% tax on personal income over $1 million, which would revolutionize a state revenue system heavily reliant on sales and property tax. Although his fellow Democrats have for decades failed to push through an income tax, Ferguson said it’s ‘a different time right now.'”
For generations, Washington State had no state income tax, because of anti-income tax provisions in its state constitution. But in 2023, the progressive Washington state supreme court upheld a classic example of an income tax — a Washington State tax on income from capital gains — by making the absurd argument that a capital gains tax is an “excise tax,” not an income tax. That was nonsense. The IRS and all other states deem capital-gains taxes to be income taxes, because they are levied on the amount of income you make from selling an asset, such as shares of stock or the sale of your home. The state supreme court could not deny this, and seems to have been motivated by racial, rather than legal, considerations, in reaching its ruling. It claimed that Washington’s traditional tax system “perpetuates systemic racism by placing a disproportionate tax burden on BIPOC residents,” who pay a higher fraction of sales taxes than of income or capital gains taxes.
As broadcaster Jason Rantz noted, the state supreme court’s opinion “doesn’t read like a Court decision, but a press release from a pro-tax, anti-capitalist Seattle activist group. But that’s what the Washington State Supreme Court has become.” The state supreme court’s 7-to-2 ruling is in tension with the fact that, as the tax consulting firm RSM notes, “the IRS defines capital gains as income and the Washington capital gains tax relies on federal income tax reporting.”
If other state supreme courts similarly redefine income taxes as excise taxes, that could weaken tax limits contained in other states’ laws, such as Virginia law’s ban on income taxes levied by cities and counties. Virginia’s judges are elected by Virginia’s state legislature, which is controlled by the Democrats. Due to recent massive gains by Democrats in Virginia’s House of Delegates, where Democrats when from a 51-to-49 majority to a 64-to-36 majority, the legislature is likely to replace the Republican majority on the Virginia Supreme Court with a progressive Democratic majority, as incumbent Republican justices’ terms come to an end.
In Washington State, progressive rule has led to more and more onerous taxation, notes the Tax Foundation. Although Washington State’s constitution forbids a corporate income tax, Washington
imposes a high multiple-rate gross receipts tax, called the Business & Occupation Tax. Because it is based on gross revenues rather than net income (profits), it yields very high rates of taxation on low-margin businesses and leads to tax pyramiding, where goods and services have the tax embedded several times over, imposed on each transaction within the production process.
The state’s sales tax, imposed atop the gross receipts tax, is not just a high rate but is also imposed on a base that includes an unusual share of business inputs, particularly in the digital products space. In 2025, lawmakers adopted legislation further expanding digital products taxation and notably including digital advertising in the base, which raises legal concerns along with economic ones. Washington also levies a progressive real estate transfer tax and the nation’s highest-rate estate tax, with the top rate raised to 35 percent in 2025, rivaling the 40 percent top federal rate. High UI taxes and an uncompetitive UI tax structure also contribute to the state’s poor Index ranking.
