Washington Income Tax, Capital Gains and Estate Tax for Business Owners: 9.9% From 2028, 7% and 9.9% Gains Tax
Washington Income Tax, Capital Gains and Estate Tax for Business Owners: 9.9% From 2028, 7% and 9.9% Gains Tax
If you are forming or running a business in Washington, the first tax question is usually whether you owe Washington state income tax. For now, the answer is no. Washington has no wage tax, no corporate income tax and no personal income tax on wages or business profit. That is about to change. A 9.9% tax on individual taxable income above a $1 million standard deduction takes effect January 1, 2028, and the state already taxes capital gains and estates in ways that affect owners. This guide covers what applies today, what is scheduled, and what to confirm before you make decisions.
Informational content, not legal or tax advice. This guide describes Washington tax rules as of October 26, 2026. Tax laws, court rulings and ballot measures can change quickly. Talk with a qualified CPA or tax attorney before you act on anything here, especially if you are planning a sale, a restructuring or an estate transfer.
What Washington Taxes Today
Washington built its tax system around a gross receipts tax instead of an income tax. Three taxes matter most for a typical business:
- Business and occupation (B&O) tax. A gross receipts tax on business revenue. It applies whether or not your business made a profit.
- Retail sales tax. The state rate is 6.5%, plus any local sales tax where the sale occurs.
- Capital gains excise tax. Applies to individuals only, on Washington capital gains from the sale of most assets. Details are below.
Because there is no corporate income tax, a C corporation does not pay a separate state income tax on its profit today. The B&O tax is what reaches your revenue, so it is the tax you will file most often.
The B&O Tax: The Tax You Will Actually File
Most business owners deal with B&O tax before any other state tax. Keep these points in mind:
- It is a gross receipts tax with more than 50 activity classifications.
- It has no deduction for labor, materials or other costs. A low-margin business can owe tax on revenue that produced little or no profit.
- It applies regardless of profit.
- Washington has 39 counties and 281 incorporated cities and towns. About 54 cities add their own B&O tax. The Department of Revenue does not administer those local taxes, so confirm your city's requirements with the city directly.
You register through the Department of Revenue's Business Licensing Service (BLS), which issues your 9-digit Unified Business Identifier (UBI) number. The statewide Business License Application is required if your business:
- Needs city, county or state endorsements
- Operates under a name other than the owner's full legal name
- Plans to hire employees within 90 days
- Sells anything subject to sales tax
- Has gross income of $12,000 or more per year
- Owes any tax or fee to the Department of Revenue
The processing fee is $50 to open a business, plus separate endorsement fees. Online applications take about 10 business days. Applications that need city or state endorsements can take 2 to 3 weeks longer, and mailed applications can take up to six weeks. If you formed an LLC or corporation, you must file with the Secretary of State first, then submit the Business License Application.
Apply at dor.wa.gov/open-business/apply-business-license. Confirm current fees on the Department of Revenue site before you file.
The 9.9% Income Tax Starting January 1, 2028
ESSB 6346, passed in 2026, imposes a 9.9% tax on individual taxable income above a $1 million standard deduction. The key facts are below.
| Item | What to know |
|---|---|
| Rate | 9.9% on individual taxable income above the $1 million standard deduction |
| Effective date | January 1, 2028 |
| First payments | 2029 |
| Pass-through election | Annual election to pay the tax at the entity level |
| Court challenge | A constitutional challenge, Petter v. State (Klickitat County Superior Court, filed April 2026), was reported pending. If a court of final jurisdiction invalidates the tax, it is void. |
| Ballot measure | Repeal initiative I-645 is on the November 3, 2026 ballot |
The status of both the lawsuit and I-645 can change before the tax takes effect. Check the Secretary of State's elections page for the ballot measure and the Department of Revenue for implementation guidance. Do not assume the tax will or will not apply until you have checked the current status.
What It Means for Pass-Through Owners
The income tax reaches individual taxable income. That means owners of LLCs, partnerships and S corporations, whose business income passes through to their personal returns, are the group most likely to feel it. The annual pass-through election lets an entity pay the tax at the entity level instead. Whether that election helps depends on your ownership, how much income the entity earns and how your structure is set up. Ask your CPA to model both paths once the rules and the court outcome are clearer.
The 7% and 9.9% Capital Gains Excise Tax
Chapter 82.87 RCW imposes an excise tax on Washington capital gains. The 9.9% rate here is separate from the 9.9% income tax above. Key terms:
| Item | What to know |
|---|---|
| Rate | 7% on the first $1 million of Washington capital gains, 9.9% above $1 million |
| Who pays | Individuals only |
| Standard deduction | $278,000 for 2025, adjusted yearly |
| Exempt property | Real estate and most depreciable business assets |
| Tax year | Applies from tax year 2025 |
For business owners, several points need attention:
- Pass-through sales. Because the tax applies to individuals, a gain from an LLC or S corporation that flows through to your personal return may be affected. Confirm how your entity's gains are reported.
- Exempt assets. Real estate and most depreciable business assets are exempt. A sale of a whole business often mixes asset types, so have your CPA separate the assets and confirm which portions qualify.
- Records. Keep acquisition dates, purchase prices and improvement costs for every asset you may sell. You will need them to calculate gain.
The $278,000 deduction is for the 2025 tax year and adjusts each year, so confirm the current amount for the year you sell.
Estate Tax: $3 Million Exclusion and 20% Top Rate
ESB 6347 sets Washington's estate tax for deaths on or after July 1, 2026:
- The exclusion is $3,000,000.
- The top rate is 20% on value above $9 million.
An interest in a business you own at death is generally part of your taxable estate. If the total value of your estate exceeds the exclusion, estate tax may be owed. Owners with a business worth a meaningful share of their net worth should review their estate plans now, not after a health event. Planning options such as ownership transfers, buy-sell agreements, trusts and life insurance funding need an estate attorney and a CPA working together. Confirm the current exclusion and rate with the Department of Revenue before you rely on them.
Action Checklist for Business Owners
- Register correctly. If you formed an LLC or corporation, file with the Secretary of State first, then submit the Business License Application with BLS.
- Track gross receipts by activity. Your B&O classification determines your rate, and the tax applies to revenue regardless of profit. Confirm any city B&O obligation separately.
- Track asset basis and type. Gains from exempt real estate and depreciable assets are treated differently from other gains, so classify assets when you buy them.
- Model the pass-through election before 2028. Ask your CPA to compare entity-level and owner-level payment.
- Check the ballot and court status. Review the status of I-645 after the November 3, 2026 election and the Petter v. State case before you make structural decisions.
- Review your estate plan. Compare your business's value against the $3,000,000 exclusion.
Where to Confirm Current Figures
Tax figures and deadlines change. Confirm them with these sources before you file or plan:
- Washington State Department of Revenue for B&O, sales tax, business licensing and implementation guidance on the income tax and estate tax
- Washington Secretary of State, Corporations and Charities Division for entity formation and annual reports
- Corporations and Charities Filing System (CCFS) to file formation documents online
- Washington Secretary of State, where the elections page shows the current status of I-645
- Washington Small Business Development Center (Washington SBDC) for business advising
- SBA Seattle District Office for federal small business resources serving Washington
Washington's tax picture is changing faster than in most states. Build your plan around the rules in force today, track the scheduled changes, and bring a CPA or tax attorney in before any major sale, restructuring or estate decision. This guide is informational content, not legal or tax advice.