Last month, on May 20th, Governor Ferguson passed a flurry of law changes. The impact of the law changes will have a far-reaching impact on business owners and high net worth individuals like we’ve never before seen. Below, please find a few of the items we believe will be the most impactful.

ESHB 2081

B&O Tax Increases
The Service and Other Activities B&O tax rate for businesses with gross income over $5 million taxable under this classification from 1.75% to 2.1% effective October 1, 2025. Many of the most standard B&O tax rates for various retail, wholesale, and manufacturing activities increase from .471% and .484% to .5% effective 1/1/2027. The tax rate for games of chance increases from 1.5% to 1.8% effective 1/1/2027.

ESBB 5813

Capital Gains
New WA capital gains tax rate takes effect for 2025, bringing the top rate to 9.9%. A capital gains tax rate of 7% is imposed on long-term capital gains above an annual exemption ($270,000 for 2024, with inflation adjustments). The tax applies to profits from the sale of stocks, bonds, and other non-retirement assets. There are exemptions to gains that are not subject to this tax, most notably real estate, retirement accounts, and many small business sales. With the passage of this bill, net long-term capital gains exceeding $1 million above the exemption will be subject to a new 2.9% surcharge, effectively retroactively from 1/1/2025.

Estate Tax
There were many modifications made to the Washington State Estate Tax with the passing of this legislation. Beginning 7/1/2025, the estate tax rates are increased from a top rate of 20% to 35%. However, to provide some relief for the increased rates, the Washington estate tax exemption will increase from $2,193,000 to $3,000,000, adjusted annually for inflation. Annual inflation
adjustments start 1/1/2026. These changes do not impact the potential for a Federal Estate Tax.

ESSB 5814

Extending Sales Tax to Many Services

Piggybacking off ESHB 2081, ESHB 5814 would expand the sales tax base to additional services, including:

  • Custom software and customization of prewritten computer software
  • Information technology (IT) consulting, training, and support
  • Custom website development, data processing and data entry
  • Certain advertising services
  • Security and investigation services
  • Temporary staffing services, except for qualifying hospitals
  • Live presentations both in-person and via electronic means

It would expand sales of taxable digital automated services by eliminating exclusions for:

  • Any service that primarily involves the seller’s application of human effort
  • Data processing services
  • Advertising services

The sales tax changes are effective 10/1/2025.

Gas Tax Hike

The proposed increases will raise the gas tax from 49.4 to 55.4 cents per gallon. The new transportation budget pushes the state gas tax up by 6 cents per gallon for regular fuel and 12 cents for diesel starting 7/1/2025. There is an automatic increase that will see the tax increase by 2% each year beginning in mid-2026. Washington is already among the states with the highest gas taxes.

If you have any questions or concerns, please reach out to our office at 425-883-3111 to arrange a consultation.