Washington’s Proposed Millionaires Tax: What Commercial Real Estate Investors Should Know
Washington State has long been known as one of the few states with no personal income tax, a feature that has historically attracted entrepreneurs, investors, and commercial real estate developers.
That policy may be facing its biggest challenge yet.
In 2026, Washington lawmakers advanced a proposal commonly referred to as the “Washington Millionaires Tax,” which would impose a 9.9% tax on income above $1 million per year. If adopted and upheld by the courts, it would represent the first broad personal income tax in Washington State history.
For commercial real estate investors in Washington, the proposal raises important questions about taxation, investment strategy, and the long-term business climate in the state.
Key Details of the Proposed Washington Income Tax
The current proposal focuses on very high-income households.
Highlights of the proposal include:
-
Tax Rate: 9.9%
-
Income Threshold: Income above $1 million annually
-
Who Pays: High-income individuals and households
-
Estimated Revenue: $3–4 billion per year
-
Projected Start: 2028 implementation with collections beginning in 2029
For example, if an investor reports $1.5 million in annual income, the tax would apply only to the amount above $1 million.
That means the taxable portion would be $500,000, resulting in an estimated $49,500 state tax under the proposal.
Why Washington Lawmakers Are Proposing an Income Tax
Supporters of the measure argue that Washington’s tax system relies heavily on sales tax, which tends to affect lower-income households more heavily.
The revenue from the proposed tax would likely fund programs such as:
The broader goal is to make Washington’s tax structure more progressive by shifting part of the tax burden to higher-income earners.
The Constitutional Question
The biggest hurdle for a Washington income tax is the state constitution.
For decades, Washington courts have interpreted income as a form of property. Because the state constitution requires property taxes to be uniform, previous attempts at implementing a graduated income tax have failed.
As a result, most observers expect that if the law passes, it will immediately face a constitutional challenge in the courts.
Many analysts believe the legislation is partly designed to prompt a new ruling from the Washington Supreme Court, potentially revisiting the state’s historic interpretation of income taxes.
Why This Matters for Commercial Real Estate Investors
Although the proposed tax targets only high-income households, it could still affect many commercial real estate investors, developers, and syndicators.
Pass-Through Income From Real Estate
Most real estate investments are structured through LLCs, partnerships, and other pass-through entities.
This means income flows directly to the investor’s personal tax return.
For investors involved in:
-
Property development
-
Value-add repositioning
-
Syndications
-
Large asset sales
a profitable year could easily push income above the $1 million threshold, triggering the proposed tax.
Impact on Real Estate Investment Strategy
Washington’s lack of an income tax has historically helped attract investors from higher-tax states like California and Oregon.
If a broad income tax eventually survives court challenges, it could influence:
-
Investor relocation decisions
-
Where investment funds are domiciled
-
Long-term capital allocation
However, because the tax applies only to very high income levels, the broader market impact remains uncertain.
Interaction With Washington’s Capital Gains Tax
Washington already implemented a 7% capital gains tax on gains above $250,000 beginning in 2022. Real estate transactions are generally exempt from that tax.
However, certain types of investment income and partnership distributions may still be impacted by the proposed millionaires income tax, depending on how income is structured.
For real estate investors, this means tax structuring and entity planning may become increasingly important.
When Could This Tax Actually Take Effect?
Even if the legislation ultimately passes, the timeline would likely unfold over several years.
A realistic sequence could look like this:
-
The Washington Legislature passes the bill
-
Legal challenges are filed almost immediately
-
Courts review the constitutionality of the tax
-
The Washington Supreme Court ultimately decides the issue
Because of this process, the proposed tax would likely not take effect until the late 2020s, if it survives legal review at all.
The Bottom Line for Washington Real Estate Investors
For now, the proposed Washington Millionaires Tax remains uncertain and faces significant legal hurdles.
However, commercial real estate investors should keep an eye on the proposal because it could eventually affect:
-
Pass-through income from real estate investments
-
Large property sale profits
-
Syndication and investment structures
-
Long-term investment decisions in Washington State
While the policy debate continues in Olympia and the courts, one thing remains clear: tax policy is becoming an increasingly important part of real estate investment strategy.
For more information on Commercial Real Estate Investing in Snohomish County, feel free to reach out and set up a call or meeting.
Weitz Commercial
2716 Colby Ave
Everett, WA 98201
t: 206.306.4034
Scott@Weitzcommercial.com
