Why It Matters
Washington state’s new income tax on households earning more than $1 million annually faces a constitutional challenge that could determine whether the levy ever takes effect. The lawsuit argues the tax violates longstanding state constitutional limits on property taxation, setting up a legal battle with implications for Idaho’s Pacific Northwest neighbor and the broader regional tax landscape.
What Happened
The Citizen Action Defense Fund filed a lawsuit Thursday in Klickitat County Superior Court seeking to invalidate Washington’s recently approved income tax. The legal team includes former state Attorney General Rob McKenna and former state Supreme Court Justice Phil Talmadge.
Governor Bob Ferguson signed the measure into law less than two weeks before the legal challenge was filed. The tax imposes a 9.9 percent levy on household income exceeding $1 million annually, applying only to earnings above that threshold. The law also includes expanded tax breaks for small businesses and low-income families.
The tax is scheduled to take effect January 1, 2028, with the state beginning collections in 2029 if it survives legal challenges.
By The Numbers
The key figures in the Washington income tax fight:
- 9.9 percent tax rate on income above $1 million
- $1 million annual household income threshold
- January 1, 2028 scheduled implementation date
- 2029 projected year for first tax collections
- 1 percent maximum rate under current Washington constitutional limits on flat income taxes
The Legal Argument
Opponents base their challenge on Washington state’s Constitution, which classifies income as property. Under current law, any progressive income tax must conform to property tax rules or require a constitutional amendment excluding income from the property definition. Washington’s Constitution currently limits any income tax to a flat rate of no more than 1 percent.
McKenna stated that Washington courts have consistently held that income is property and property taxes must be uniform and limited. The lawsuit contends the new law disregards both constitutional language and decades of Supreme Court precedent.
State Senator Jamie Pedersen countered that the income-as-property framework is outdated. He noted that most courts classify income taxes as excise taxes on economic activity rather than taxes on property ownership.
Jackson Maynard with the Citizen Action Defense Fund warned that supporters in various industries fear the tax will expand beyond its stated scope to affect more taxpayers.
Zoom Out
Washington remains one of nine states without a personal income tax. The state relies heavily on sales taxes and business levies for revenue, creating one of the most regressive tax structures in the nation. Progressive lawmakers have pursued income tax proposals for years, facing consistent legal and political obstacles.
The legal battle follows a similar pattern to Washington’s capital gains tax, which survived a state Supreme Court challenge in 2023. That ruling classified the capital gains levy as an excise tax rather than an income tax, establishing precedent that supporters of the new tax cite in their defense.
Pedersen said supporters expect an initiative to repeal the tax will be filed, allowing voters to decide the issue directly. Revenue from the tax would fund schools, healthcare, higher education, and public safety according to the law’s supporters.
What’s Next
The lawsuit will proceed through Klickitat County Superior Court with appeals likely heading to the Washington State Supreme Court regardless of the initial ruling. A ballot initiative seeking voter repeal is expected to be filed separately.
The legal timeline remains uncertain, but the 2028 implementation date provides time for court proceedings to conclude before the state begins collecting revenue. Invest in Washington Now, a group that backed the income tax, argues voters will support the measure once they understand its scope and funding priorities.
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