Article | by Andrea Potter

The Washington State Senate passed Senate Bill 6346 on February 16, 2026, by a 27-22 vote, advancing legislation that would impose a 9.9% tax on annual income exceeding $1 million beginning with tax year 2028. The proposal, known as the “Millionaires Tax,” now moves to the House of Representatives, with the legislative session scheduled to conclude on March 12th.

For business owners and high-wage earners, this development represents more than a policy debate. It signals a potential structural shift in Washington’s tax environment—one that requires thoughtful modeling and long-term planning well before any tax is collected.

Washington has long distinguished itself as one of only nine states without a personal income tax. Instead, the state’s revenue structure relies primarily on sales tax, the Business and Occupation (B&O) tax, property tax, and excise taxes. Senate Bill 6346 would mark one of the most significant departures from that framework in decades.

Under the proposal, a 9.9% marginal tax would apply to Washington taxable income exceeding $1 million. For resident individuals, all income would be subject to allocation to Washington. For nonresident individuals, income derived from Washington sources would be subject to tax based on established sourcing, allocation, and apportionment methodologies.

In practical terms, the tax applies only to income above the $1 million threshold. For example, a taxpayer with $1.2 million of Washington taxable income would owe the 9.9% tax on the $200,000 excess, resulting in an additional $19,800 of state tax.

While the rate itself has drawn attention, the mechanics of the proposal are what matter most for high-income individuals and closely held business owners. The tax is calculated annually, meaning liability is determined year by year, creating both exposure and planning opportunities. A business owner who typically earns $800,000 but experiences a $1.5 million year due to a bonus, major contract, equity payout, stock option exercise, or asset sale would face the tax only in that higher-income year. Timing becomes critical.

For owners of pass-through entities—S corporations, partnerships, and many professional service firms—the issue is even more nuanced. Income allocated to owners would generally count toward the $1 million threshold whether or not the cash is distributed. In a strong year, a business might generate significant taxable profit while retaining earnings for working capital, expansion, or debt reduction. The owner could owe tax on income that never actually hits their personal bank account. That disconnect between taxable income and cash flow is where planning will matter most.

The timing of liquidity events also takes on heightened importance. A business sale, partial buyout, deferred compensation payout, or large investment gain occurring in a single tax year after 2028 could layer this proposed tax on top of federal obligations and Washington’s existing capital gains tax. Structuring transactions over multiple years, evaluating installment approaches, and coordinating income recognition strategies could materially change outcomes. These strategies are most effective when modeled years in advance rather than months before closing.

The proposal includes a charitable deduction cap of $100,000, which may influence philanthropic planning for high-income households. For those who are already charitably inclined, thoughtful coordination of donor-advised funds, timing of major gifts, and income recognition could provide both impact and tax efficiency. These decisions are most effective when integrated into broader multi-year income projections.

The legislation also pairs the proposed income tax with expanded B&O tax relief for smaller businesses, including a full exemption for businesses under $300,000 in gross receipts beginning in 2029 and partial relief up to $600,000. While that relief may meaningfully benefit smaller enterprises, it is unlikely to offset the impact for many high-earning owners of larger firms. Still, it reflects a broader restructuring effort rather than a simple rate increase.

It is important to acknowledge that the bill’s path forward is not certain. The House must pass it, the governor must sign it, legal challenges are likely, and a voter initiative could ultimately determine its fate. However, uncertainty does not eliminate risk. Waiting for complete clarity may significantly narrow available planning options.

For business owners and high-wage earners, the appropriate next step is thoughtful, proactive planning. Working with an advisor to develop multi-year income forecasting through at least 2030 can help identify potential spike years and quantify exposure. Reviewing entity structure, distribution strategies, compensation arrangements, and anticipated liquidity events now preserves flexibility as the landscape evolves. Succession plans, equity redemptions, and exit timelines may all warrant reevaluation in light of potential changes to Washington’s state tax landscape.

The key takeaway is this: if enacted, the proposed tax would apply on an annual, marginal basis. That structure introduces variability in year-to-year exposure. With variability comes planning opportunity—but that opportunity diminishes as implementation approaches.

If you would like to discuss how this proposed legislation might affect your situation, the team at Geffen Mesher is ready to help.

About Geffen Mesher: Geffen Mesher is a Portland-based CPA and advisory firm with nearly a century of experience serving businesses, families, and investors across the Pacific Northwest. We focus on providing ongoing financial strategy, accounting, and tax advisory services for businesses and individuals across numerous industries. Learn more at info@gmco.com.