SB 6346 establishes a 9.9% tax on individual or household income above $1 million per year starting in 2028. It has an effective date of June 11, 2026, with some sales tax changes beginning July 1, 2026.

As widely reported in the news, on May 4 the Washington Supreme Court denied a voter referendum bid submitted by a political group. The referendum request challenged language in the bill declaring the tax necessary for the state’s budget. The Court found that taxes are essential to supporting state government and therefore cannot be subject to referendum.

But a referendum is not the same as an initiative. Days later, the same group began gathering signatures for a ballot initiative to repeal the new income tax on millionaires. They need to gather more than 300,000 valid registered voter signatures before July 2 to get it on the November ballot.

At least one lawsuit has already been filed challenging the tax. Additional legal challenges may continue to proliferate over the next year, focusing on the law’s constitutionality against a 1933 case that interpreted income as property. Overturning that precedent would represent a nearly century-long shift in legal doctrine.

Sales tax changes in the law

The law makes changes to sales tax on some services beginning as soon as July 1, including further clarifying the application of the sales tax on live presentations and security, as well as exempting schools and libraries from services sales taxes.

Beginning in 2029, the law also repeals sales tax on most services (from SB 5814 in 2025) and exempts sales tax on common grooming and hygiene products, diapers, and certain over-the-counter (OTC) medications. We estimate that these sales tax exemptions will amount to a $140 million revenue loss to cities by 2031.

We estimate that these sales tax exemptions will amount to a $140 million revenue loss to cities by 2031.

Some have argued that because the sales taxes on services were only just implemented, those losses do not need to be mitigated and cities should treat any revenue increases from those taxes as one-time or short-term funding. While this is likely to continue to be an area of disagreement, the important aspect for cities is the need for the state to share at least a portion of the revenue from this new tax on an ongoing basis to help cities fund critical needs.

Local government fiscal health

Concerningly for cities, these sales tax exemptions impact local tax revenues. Cities support the need for less regressive taxes on residents; however, they rely on the state’s existing tax structure to fund essential services. We are asking legislators to help mitigate those impacts.

Legislators did include an intent statement in SB 6346 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 for cities and counties.

During the current legislative interim, it’s important that you talk to your legislators about this funding. Tell them about how lower sales tax revenues impact your city and its residents and ask them to create this account within actual legislation during the next legislative session. Ask that the funding be ongoing and escalate with revenue growth.