Taxapalooza Recap: Washington's Tax Overhaul Meets a New Federal Landscape

Bellevue Chamber  |  April 20, 2026

Three tax and finance experts took the stage at April's Chamber Lunch to walk Eastside employers through the most consequential tax changes in a generation. At the federal level, the "One Big Beautiful Bill" Act locked in lower rates and expanded key business deductions, and in Olympia, the 2025 session produced the largest tax increase in state history and put a 9.9% income tax on the books for 2028.

Cyndy Ranzau of RBC Wealth Management, Scott Edwards of Ballard Spahr, and Neil Strege of the Washington Roundtable joined Chamber President Joe Fain for an hour that moved quickly between policy mechanics, client behavior, and Washington's long-term fiscal trajectory. The through line was hard to miss: Businesses and high earners are already making decisions about where to put the next dollar.

the "One Big Beautiful Bill"

Ranzau opened with the federal bill signed July 4, 2025, as the individual tax rates that were set to sunset were made permanent, keeping the top rate at 37% instead of reverting to 39.6%. The state and local tax deduction cap rose from $10,000 to $40,000 for incomes under $500,000, with a phase-out to $600,000 and a reset to $10,000 in 2030. The estate tax exemption jumped to $15 million, and was made permanent.

For business owners, the 199A qualified business income deduction was made permanent, along with 100% bonus depreciation and the research and development deduction. The Section 1202 small business stock exclusion rose from $10 million to $15 million for companies started after July 5, 2025, and opportunity zones were made permanent with a new deferral window opening in January 2027.

"My entire job has job security because Congress likes to make change." — CYNDY Ranzau, RBC Wealth Management

Washington's Largest Tax Increase in State History

Edwards then took the stage, describing the 2025 legislative session as enacting the largest tax increase Washington has ever passed. Business and occupation rates rose across the board, while sales tax was extended to a broad range of services including IT training, technical support, custom website development, software customization, and digital advertising. Washington is now only the second state in the country to tax digital advertising, a move the legislature structured to skirt federal Internet Tax Freedom Act constraints.

The sales tax expansion, Edwards said, created, "a tremendous amount of chaos and pandemonium," with statutory language that does not match how businesses actually operate, and little Department of Revenue guidance on how to source a digital service sale to a specific state. The new 9.9% income tax on income above $1 million takes effect in 2028, with first payments due in 2029. A legal challenge led by former Attorney General Rob McKenna and former Supreme Court Justice Phil Talmadge through the Citizen Action Defense Fund is expected to reach the state Supreme Court by 2027.

"Businesses are concerned about doing business in Washington. To the extent they're looking to expand, they tend to be looking outside the state." — Scott Edwards, Ballard Spahr

The Spending Question Behind Every Tax

Strege pulled the focus back to what's driving the tax conversation. Between the Great Recession and COVID, state revenue grew 15 to 20 percent each biennium, but in the 2023-25 biennium, revenue growth slowed to 3.5% while the legislature increased spending by 15.8%. Strege called it the "original sin" — the moment revenue and spending lines inverted — and every tax conversation since has been an effort to pull revenue back up, rather than bring spending down.

A Washington Roundtable affordability study released earlier this year found Washington is the fifth most expensive state in the country, behind only California, Washington D.C., New Jersey, and Hawaii. Costs here grew twice as fast as California's between 2013 and 2025, and all 12 of Washington's urban regions rank in the top quartile nationally for cost. To balance the 2027-29 budget within existing revenues, the legislature would need to cap spending growth at 2.8%, compared to a biennial average closer to 10%.

"Hope is a strategy. Sometimes, it's something the legislature employs." — Neil Strege, Washington Roundtable

What Comes Next for Eastside Employers

Both Ranzau and Edwards reported a growing exodus among their clients. Longtime Washingtonians who once said they would never leave are relocating to Montana, Idaho, and Nevada, or restructuring their lives around the 183-day threshold.

The Chamber will keep pressing Olympia for sustainable budgeting reforms that match spending to revenue, so the next tax conversation starts from a healthier baseline than the last one.

Dive deeper into Taxapalooza here!