SB 6346 passed in dramatic fashion last week after a grueling and record-breaking 24 consecutive hours of debate on the House floor. The bill establishes a 9.9% tax on individual or household income above $1 million per year starting in 2028. It now heads to the Governor’s desk for signature.

Unfortunately, the final bill removed all dedicated local public defense funding. The final version also contained several sales tax exemptions on certain common products, impacting local sales tax revenues.

The bill makes changes to sales tax on some services in the short term beginning July 1, 2026, including further clarifying the application of the sales tax to live presentations and security, as well as exempting schools and libraries from services sales taxes. The bill also repeals the sales tax on most services and exempts common grooming and hygiene products, diapers, and certain over-the-counter (OTC) medications beginning in 2029.

The fiscal note for the bill estimates that the exemption of sales tax on hygiene products, diapers, and OTC medications, alongside the repeal of parts of last year’s SB 5814, will amount to a revenue loss to cities in the hundreds of millions of dollars by 2031. Because so many amendments came in the final days of session, the Legislature is still calculating the fiscal impact of these changes. We will report more on those impacts to cities in our next Legislative Bulletin.

We wish to thank the cities that heeded our call last week and reached out to their legislators to advocate for mitigation of local sales tax revenue losses that are expected as a result of this legislation. Your calls, emails, text messages, and conversations were impactful.

Local government fiscal health

There is some good news. Due to your engagement, legislators included an intent statement within the bill to create a new account to help cities with these losses.

The statement in Section 1 (12) says that the Legislature recognizes that the sales tax reductions in the bill impact local revenues. To offset some of those impacts, the statement says the Legislature intends to create a city and county fiscal health account for future transfers from the general fund to mitigate a portion of the revenue loss to local government. The transfers to local governments will be unrestricted and available for general use.

While that is merely a statement of intent, the final operating budget’s four-year outlook (looking forward to FY 2027-29) includes a line item titled “Local Government Fiscal Health” with an intent to transfer $200 million from the general fund to the new account for local sales tax impacts from the millionaires tax bill.

We are still hopeful that the Legislature will take up creating this account within actual legislation in the next legislative session. We don’t yet know what split will occur between local governments, work that will likely take place this legislative interim. Look for more information from us about this issue in the coming months. Lastly, our legislative efforts to secure specific public defense funding continues.

Even with its passage and the Governor’s intent to sign, SB 6346 still has a few obstacles to clear. There is a high likelihood of a ballot measure to the voters proposing to repeal the bill and expected legal challenges over its constitutionality under a 1933 case interpreting income as property.

Ask legislators to support local sales tax mitigation in millionaires tax bill

March 9, 2026

SB 6346 is expected to get a House floor vote soon with amendments that include further state and local sales tax exemptions and remove public defense funding. The bill establishes a 9.9% tax on individual or household income above $1 million per year starting in 2028.

The most recent striking amendment would remove all the local public defense funding and includes an intent statement to mitigate some of the revenue losses to local governments. It also includes a state and local sales tax exemption for over-the-counter (OTC) medications.

We appreciate that there was language included in the intent section indicating a legislative commitment to mitigating a portion of the local sales tax loss. We also appreciate that there has been an indication of setting aside as much as $200 million to support local governments and mitigate those losses. Cities would like to see that $200 million commitment included in legislation instead of only a statement of intent.

Ask your House members to support a commitment to mitigate local sales tax revenue losses in the bill and commit to working with cities in the next session to find more sustainable and less regressive local funding tools.

Talking points:

• Mitigate sales tax loss: Commit to mitigation that supports cities’ revenue needs and addresses impacts to local revenue.
• Help cities establish less regressive tax options:Like the Legislature, cities are interested in additional local revenue tools that are less regressive. But we are limited by a tax structure that is heavily reliant on sales, property, and B&O taxes. Work with cities on new revenue tools that address state and local needs in a fair and balanced way.

More details

*The new OTC drug sales tax exemption estimate has yet to be added to this total.

Contact your legislators now and ask them to support the commitment to cities and provide funding for sales tax losses.

Cities need mitigation for lost sales tax revenue in millionaires tax bill moving through the Legislature

February 27, 2026

SB 6346 was amended in the House with more sales tax revenue loss for cities but still includes some public defense funding. The bill establishes a 9.9% tax on individual or household income above $1 million per year starting in 2028.

The new tax is expected to bring $4.1 billion to the state in 2030, and legislators have also looked for ways to ease the sales tax burden on taxpayers. However, our state tax structure means that cities are heavily reliant on a mix of sales, property, and business and occupation taxes, so these sales tax offsets ultimately harm cities’ ability to fund critical local services.

The proposal includes sales tax exemptions on hygiene products, cleaning products, and diapers, as well as a repeal of several new sales taxes implemented in last year’s SB 5814. Removing those taxes creates an alarming $120 million revenue loss for cities by 2031. The increase in sales taxes to cities for the implementation of SB 5814 is just now beginning to arrive in your sales tax returns, but by 2031 those new sales taxes would have been expected to generate over $100 million for cities. AWC is asking the Legislature to mitigate this reversal by backfilling cities’ sales tax losses.

We need city officials to call your legislators now and ask them to support this call for mitigation.

The new tax on millionaires will generate more than $4 billion annually and should not come at a cost to cities. Ask them to support mitigation of the lost revenue and tell their leadership that it is a must-have before they act on the bill.

AWC has been closely engaging on this bill, and we were initially intrigued by the inclusion of local indigent defense cost proposals in the bill. However, new amendments have capped that allocation at $150 million per year to all local governments. This portion would be shared using the RCW 10.101 split at 10% cities/90% counties, which means that cities would receive just $15 million per year for indigent defense services. We’ve advocated for between $50 million and $70 million to more realistically aid adjustment to the new costs we project from the Washington Supreme Court’s caseload standards order.

The problem is that an extreme math problem exists in this amended bill. The sales tax exemptions in the bill would mean $120 million less revenue for cities, whereas city indigent defense costs alone are expected to exceed $165 million by 2036. Therefore, the tax changes in this bill completely offset the proposed city gains for indigent defense, as outlined in the table below.

We have heard some legislators indicate that the losses to cities would be offset by the revenue tools in HB 2442. But the tools in HB 2442 are mostly increased flexibility for existing revenues without significant new tools. It also doesn’t address the fact that the Legislature is impacting local revenue and potentially expecting local leaders to go to their voters with more taxes.

Reach out to your legislators before it's too late and ask them to support our sales tax mitigation proposal.

Two things you can do to advocate on the millionaires tax to address city funding needs

February 20, 2026

SB 6346 passed the Senate on Presidents Day. As widely reported in the news, the bill establishes a 9.9% tax on individual or household income above $1 million per year, starting in 2028.

AWC’s advocacy work on the legislation is largely centered on the bill’s proposal to include funding for indigent defense for local governments.

Gov. Bob Ferguson said in a press conference last week that he supports the bill but wants it to include things that cut taxes on working families. He gave examples such as a sales tax exemption on common products and statewide sales tax holidays, both of which would effectively decrease local sales tax collections.

Here are two things you can do today to help:

1. Contact your legislators.
   Reach out to your House representatives and ask them to help cities with two changes:
   • Include funding for city public defense costs in a range of $50 million to $70 million; and
   • Mitigate the loss of local city sales tax revenues so that the changes are revenue-neutral for cities.
2. Sign on to the committee record.
   You can also sign in on the bill before 7 am February 24 without having to testify. You can include written comments that address cities’ needs as outlined in the bullets above. Make sure you send those committee comments to your legislators as well.

Background on the bill

As passed in the Senate, the bill now includes the following provisions. The three with the biggest city impacts are listed first:

• Public defense funding: Dedicates 7% of revenues to city and county public defense services (at a 10% cities/90% counties split as directed in RCW 10.101).
• Hygiene product sales tax exemption: Provides a sales and use tax exemption for grooming and hygiene products. This sales tax exemption will result in an estimated loss of $10 million annually for cities.
• Repeals some portions of SB 5814: Repeals sales taxes on certain specified services, with the exception of the tax on advertising, which were enacted in SB 5814 in 2025. This much-discussed legislation has created many implementation questions and hurdles for public and private organizations alike as we learn in real time how to tax common services like live presentations, private security contracts, IT, and more. Notably, this repeal wouldn’t be enacted until 2030, which means cities will be receiving revenue (estimated at $109 million in FY 2027), collecting tax as a seller, and paying sales tax as a consumer on these transactions from now until then.
• Low-income tax credit: Expands eligibility for the Working Families Tax Credit to people who are at least 18 years old and meet other eligibility requirements for the preference.
• B&O tax credit: Increases the business and occupation (B&O) tax credit for small businesses and increases the B&O tax return filing threshold to $250,000.
• B&O surcharge expiration: Expires a B&O surcharge on businesses with gross income over $250 million a year earlier.
• Income tax rule change: Exempts the individual income tax from a statutory prohibition on state and local income taxes.

Estimated current & future indigent defense costs vs. SB 6346 revenue dedicated for city public defense

*Additionally, the Governor expressed wishes for more sales tax exemptions that would impact local sales tax collections, such as the bill’s current loss of $10 million in hygiene product sales, and the unknown loss from any sales tax holidays will also negatively impact local budgets. Lastly, the revenue change from repealing most of SB 5814’s sales tax on services could completely offset the proposed city gains for indigent defense.

SB 6346 still has many hurdles to clear. Even if it passes the Legislature, the new tax is expected to be challenged on the November ballot and subject to legal challenges over its constitutionality.

Dates to remember

SB 6346 is scheduled for a public hearing in the House Finance Committee on Tuesday, February 24, at 8 am.

SB 6346 is scheduled for a vote in the House Finance Committee on Friday, February 27, at 8 am.

AWC engages on millionaires tax bill

February 16, 2026

SB 6346 establishes a 9.9% tax on individual or household income above $1 million per year, starting in 2028.

It is one of AWC’s 2026 legislative priorities to secure more state funding for the indigent defense needs in our communities. SB 6346 currently directs 7% of revenues to county and city public defense services, at the current 90% counties/10% cities split in RCW 10.101.

AWC estimates that cities spend more than $55 million annually on indigent defense, and the workforce needed to meet the new Washington Supreme Court caseload standards will likely triple that total in the next 10 years to $165 million, if not more.

As currently drafted, SB 6346 would provide about $28.5 million annually for city public defense needs beginning in 2029. While it’s significant compared to the approximately $1.8 million in state grant funds currently available, it still represents a modest share of the total cost cities provide. By the time these funds become available, it’s estimated that city costs for indigent defense will have grown to $80 million annually.

Cities are requesting that the state’s cost share for municipal indigent defense be closer to $50 million to $70 million annually as the costs for cities increase over the next 10 years. The goal is for a meaningful amount of state funding that can be distributed to cities based on actual assigned public defender cases. AWC does not want any increase in city public defense funding to come at the expense of county public defense needs, which are also substantial, and cities support additional county public defense funding.

We are also highlighting the local impact to cities of a sales tax exemption in the bill that will result in an estimated loss of $10 million annually for cities. With the current bill’s proposed funding for city indigent defense at $28.5 million and a loss of $10 million in local sales tax, it would produce a net increase in city funding of just $18.5 million.

AWC is continuing to heavily advocate for the Legislature to enhance indigent defense this session.

Please talk to your legislators about this bill and ask them to:

• Ensure that the bill includes funding for city public defense costs in a range of $50 million to $70 million; and
• Mitigate the loss of local city sales tax revenues so that the changes are revenue-neutral for cities.

SB 6346still has a number of hurdles to clear. Even if it passes the Legislature, the new tax on millionaires is expected to be challenged on the November ballot and subject to legal challenges over its constitutionality.

Millionaires tax bill includes public defense funding for counties, but not cities

February 9, 2026

A new tax proposal making waves in the news proposes an income tax on high earners.

HB 2724 and SB 6346 establish a 9.9% tax on individual or household income above $1 million per year, starting in 2028.

Washington is one of the few states without a personal income tax, so this legislation represents a significant change in our state’s tax code, which is historically reliant upon sales, property, and business and occupation taxes.

Per the bills, sponsored by Rep. Joe Fitzgibbon (D–Burien) and Sen. Jamie Pedersen (D–Seattle), revenue from the new tax would go into the state’s general fund, with 5% of the revenue set aside for county public defense. Additional revenues would be used to expand eligibility for the working families tax credit, doubling eligibility for the small business B&O tax exemption, early sunset of a B&O tax surcharge, and provide a sales tax exemption for hygiene products.

Currently, in the limited available data on local government public defense funding, cities are spending more than 20% of the statewide local government share for indigent defense services. We are reminding legislators of the vast expense of the service that cities provide, which is expected to triple over the next decade as local governments meet the Washington Supreme Court’s caseload standards.

We are using this opportunity to remind legislators about the importance of funding municipal public defense. AWC will continue to advocate for our legislative priority to increase indigent defense resources for cities now and into the future.

Current state indigent defense coverage

Washington is one of only five states in the U.S. where public defense is funded significantly by local budgets. About 90% of our state’s small public defense allocation goes to counties. For cities, Office of Public Defense (OPD) grants cover only 3% of the conservatively estimated $54 million in known annual municipal costs.

*Available state data is not complete. From this total, 13% of county and 53% of city data are not included.