Washington state lawmakers concluded their 105-day legislative session Sunday, sending Governor Bob Ferguson budgets balanced with spending cuts and more than $9 billion in new and higher taxes designed to close a projected $16 billion shortfall.
The tax package, assembled by the Democratic majority and passed largely on party lines within the final operating budget ($77.9 billion Near General Fund-Outlook), aims much of its weight at large technology firms like Amazon and Microsoft, but its effects will ripple across banks, hospitals, grocery stores, and other industries.
Governor Ferguson, while praising legislators for meeting many of his stated priorities, expressed caution regarding the revenue measures. In an official statement released April 27th, he noted, “I look forward to carefully reviewing the budgets line by line over the next few weeks,” adding, “I intend to carefully review all revenue increases.”
This scrutiny follows his earlier rejection of larger tax proposals seeking as much as $21 billion and later $12 billion before this final package emerged. His caution comes as Washington businesses navigate existing economic headwinds, including federal tariff pressures that, according to a report from the Financial Times, are already causing companies like Amazon to pressure suppliers for significant price cuts.
Complex Tax Adjustments Target Tech, Spread Impact
The revenue plan relies heavily on modifications to the state’s Business and Occupation (B&O) tax, a levy on gross receipts. The most targeted change, part of House Bill 2081, involves the “Advanced Computing Surcharge.”
This rate jumps from 1.22% to 7.5% for companies earning over $25 billion globally, like Amazon and Microsoft, though the total annual payment per company is capped at $75 million, up from $9 million previously.
However, HB 2081’s B&O changes extend further. Service-based businesses, including many tech startups, earning over $5 million annually will see their rate climb from 1.75% to 2.1%.
A temporary 0.5% B&O surcharge will also apply from Jan 1, 2026, through Dec 31, 2030, impacting companies with over $250 million in Washington taxable income (Advanced Computing Surcharge payers are exempt). Additionally, the state’s two main B&O rates, primarily affecting manufacturers, retailers, and wholesalers, are set to permanently increase to 0.5% beginning January 1, 2027.
Another measure, Senate Bill 5814, expands the state sales tax (6.5% base, up to 10.6% combined locally) to cover previously exempt digital automated services. Starting in October 2025, businesses like advertising agencies, software developers, and IT support providers must collect this tax, which is projected to generate $2.9 billion over the next two years.
Finally, Senate Bill 5813 restructures the state’s 7% capital gains tax, creating a new top tier: gains over $1 million will now be taxed at a combined 9.9% (the 7% base plus a 2.9% surtax). This replaces the system where the 7% rate applied above roughly $270,000 and is expected to raise about $321.6 million.
Broad Industry Concerns Voiced
The tax package drew sharp criticism from the business community. A coalition including the Association of Washington Business (AWB) and major chambers labeled it the state’s largest tax increase ever, estimating a total state and local impact exceeding $12 billion. “These costs simply can’t be absorbed by businesses — they will be passed on to consumers in the form of higher prices for everyday goods and services,” stated AWB President Kris Johnson. The coalition warned of impacts on small businesses, including childcare providers, assisted living centers, repair shops, and wholesale grocers.
Kelly Fukai of the Washington Technology Industry Association expressed concern about the state’s competitiveness, telling Bloomberg, “While we’re trying to make it be more progressive, we’re just not getting there… In fact, we’re probably hurting some of the people that we want to hurt the least.” She later added, “when we start adding these costs on like this… I think that’s where we’re hitting this sort of tipping point.”
The Washington State Hospital Association (WSHA) projected the B&O surcharge would cost hospitals $60 million annually, with the service rate increase adding another $17 million yearly burden.
They also highlighted impacts from a separate bill capping certain reimbursements. “There are sometimes unintended consequences,” WSHA’s Chelene Whiteaker told Bloomberg. “Hospitals are seen as quote ‘the big guys.’ Yes, we employ a lot of people, but we’re operating at no-margin or low-margin.” The Washington Food Industry Association warned the B&O changes would create a “pyramiding effect,” inevitably raising food costs for consumers.
Advertising industry groups, meanwhile, are actively lobbying Governor Ferguson to veto the digital services sales tax (SB 5814), arguing it may violate the federal Internet Tax Freedom Act by unfairly targeting digital advertising over traditional forms.
Governor’s Priorities and Federal Context
Governor Ferguson did praise the final budget for meeting his key objectives, such as preserving state reserves (about $2.3 billion total, including $2.1 billion in the Budget Stabilization Account), fully funding K-12 education obligations, financing $100 million in police hiring grants, and making record investments in housing. He explicitly linked the importance of the state’s reserves to potential federal actions under the Trump administration.
“Federal funding makes up 28 percent of our state budget. The Trump Administration is weaponizing funding to punish those it disagrees with to force them into compromising their values,” Ferguson declared in his statement. “Maintaining our Rainy Day Fund reserves will help us weather this storm. I am not going to allow the state that I love to be at the financial mercy of Donald Trump and Elon Musk.” The federal administration implemented new tariff policies earlier in April, actions already causing repercussions for state businesses.
Session Conclusion and Other Legislation
Republicans consistently opposed the tax increases. “This budget spreads taxes across all working Washington residents in a manner that is going to make this state more and more and more unaffordable to live in,” stated Rep. April Connors, R-Kennewick. The session also saw passage of a cap on annual rent increases (7% + inflation or 10% max), unemployment benefits for striking workers, and a state permit requirement for firearm purchases. An overhaul of a parental rights initiative (HB 1296) also passed amidst controversy.
Despite Governor Ferguson’s opposition, the Senate held a symbolic vote passing a wealth tax measure, though it did not proceed further. Its sponsor, Sen. Noel Frame, D-Seattle, remarked, “I think we have shown the people of Washington state what is possible… I hope we will return to that soon.” Lawmakers concluded their work Sunday evening, with House Majority Leader Joe Fitzgibbon calling it the “toughest one that I’ve been through,” partly acknowledging the recent deaths impacting the legislative community.
