Why It Matters
Washington state’s new income tax on high earners is already facing a significant legal challenge — and the outcome could have lasting consequences not just for Washington residents, but for tax policy across the Pacific Northwest. If upheld, the tax could set a precedent that opens the door to broader income taxation in a state that has never had one, raising concerns among businesses and workers across the region.
Idaho, which competes with Washington for business investment and high-earning residents, could see economic ripple effects depending on how the legal battle unfolds. A tax-friendly Idaho stands to benefit if Washington’s new tax burden drives wealthy individuals and job-creating businesses eastward across the border.
What Happened
A legal challenge to Washington’s newly enacted income tax — informally called the “millionaires tax” — was filed Thursday in Klickitat County Superior Court by the Citizen Action Defense Fund. The lawsuit seeks to have the tax invalidated in its entirety.
The challenge is being led by two prominent legal figures: former Washington State Attorney General Rob McKenna and former state Supreme Court Justice and Senate Judiciary Chair Phil Talmadge. The suit was filed less than two weeks after Governor Bob Ferguson signed the measure into law.
The law imposes a 9.9% income tax on households earning more than $1 million annually, applying only to income above that threshold. Supporters of the measure included expansions of tax breaks for small businesses and low-income families as part of the package.
The Constitutional Argument
At the heart of the lawsuit is a long-standing interpretation of Washington’s state constitution: that income is classified as property. Under that framework, any progressive income tax must conform to property tax rules — meaning it would need to be a flat tax of no more than 1% unless the constitution is amended to exclude income from the definition of property.
“For nearly a century, Washington courts have been clear: income is property, and property taxes must be uniform and limited,” McKenna said in a prepared statement. “This law disregards both the plain language of the Constitution and decades of consistent Supreme Court precedent. We are confident the courts will strike it down.”
Supporters of the tax, including state Sen. Jamie Pedersen, argue the constitutional framing is outdated. Pedersen contended the tax functions more like an excise tax — a levy on earning income rather than on holding property — and that the question is ultimately one for the state Supreme Court to resolve.
This legal dispute mirrors an ongoing battle in Washington state, where a conservative leader has separately asked the state Supreme Court to allow an income tax referendum to go before voters.
By the Numbers
- 9.9% — The income tax rate applied to earnings above $1 million annually
- $1 million — The household income threshold above which the tax applies
- 1% — The maximum rate allowed for a flat income tax under current Washington constitutional interpretation
- Jan. 1, 2028 — The date the law is scheduled to take effect
- 2029 — The earliest year the state would begin collecting revenue, if the law survives legal challenges
Concerns About Future Expansion
Critics are warning that the tax, once legally established, would not remain limited to millionaires. Jackson Maynard of the Citizen Action Defense Fund said the group represents people across a range of industries who fear the tax will eventually be expanded to cover lower income levels.
“We have other people in a lot of different industries, and they’re all very, very concerned that this is not just going to apply to the folks identified in the bill — that it is gonna be expanded as an income tax to other people,” Maynard said.
Those concerns are not unfounded. Washington has never had a broad-based income tax, and critics argue that creating any income tax framework — even one targeting only the highest earners — lays the legal and political groundwork for future expansion. The situation closely echoes debates in other states where legal challenges to new government mandates have been filed by law enforcement officials and civil organizations seeking to protect constitutional boundaries.
What’s Next
The Klickitat County Superior Court will take up the lawsuit, though the case is widely expected to eventually reach the Washington State Supreme Court. Sen. Pedersen also indicated that opponents are expected to file an initiative to repeal the tax, which would put the question directly before Washington voters.
Revenue from the tax, if it survives, would be directed toward schools, health care, higher education, and public safety — though none of that spending can begin until 2029 at the earliest. For now, the fate of Washington’s first-ever income tax rests with the courts.
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