- Business groups challenged Washington’s new income tax in Klickitat County Superior Court, citing constitutional concerns.
- The 9.9% levy targets income over $1 million and is currently scheduled for implementation in 2028.
- Plaintiffs argue the tax creates unknowable business costs that complicate long-term hiring and expansion decisions.
(WASHINGTON) – Washington taxpayers and business groups have asked Klickitat County Superior Court to block the state’s new 9.9% income tax, arguing that the levy is unconstitutional and too difficult for business owners to price into future decisions.
The tax applies to income above $1 million. Washington Gov. Bob Ferguson signed it into law on March 30, 2026. The law is scheduled to take effect in 2028, with payments beginning in 2029. The challenge comes from plaintiffs that include Washington taxpayers, business groups, and a trucking company owner.
The complaint says the tax is an “unknowable” business cost. That argument goes to planning, not only to politics. Owners often commit capital years before income is realized. A tax that starts in 2028 and is paid in 2029 can affect hiring, expansion, distributions, and sale timing well before then.
The lawsuit also attacks the measure under the Washington Constitution’s limits on taxing income. Washington has a long record of litigation over whether taxes labeled as excise or other categories are, in substance, income taxes. The new suit puts that question back before a state trial court.
The immediate tax effect is limited to high earners. The legal uncertainty is broader. Closely held companies often pass profits through to owners. That means a tax aimed at individual income can still shape business cash flow, estimated payments, and investment decisions.
Immigrant founders and investor visa holders face an added layer. E-2 and EB-5 investors often focus on federal compliance first, including source-of-income rules and entity structure. State residency and state taxable income still matter. A Washington resident with income above $1 million could face this levy if the law survives court review.
Federal tax filing rules do not change because of the Washington law. Tax year 2026 federal returns, filed in 2027, still follow IRS rules now in force. Immigrants should continue using IRS Publication 519, the U.S. Tax Guide for Aliens, to determine residency status, and Publication 17 for general filing rules. Treaty positions, dual-status returns, and foreign account reporting remain separate from any Washington litigation.
Business owners who expect variable income should also separate state planning from federal reporting. An H-1B worker, E-2 investor, or green card holder who becomes a Washington tax resident still files federal forms under normal IRS rules. That may include Form 1040, Form 1040-NR, FinCEN Form 114 for FBAR reporting above $10,000, and Form 8938 when FATCA thresholds apply.
⚠️ Warning: The Washington case does not suspend federal filing duties. Taxpayers still must meet April 15, 2027 federal deadlines for tax year 2026, unless an extension applies.
| Item | Current detail |
|---|---|
| Tax rate | 9.9% |
| Income threshold | Above $1 million |
| Law signed | March 30, 2026 |
| Effective year | 2028 |
| Payments begin | 2029 |
| Court | Klickitat County Superior Court |
The state case sits alongside standard federal deadlines that remain fixed for most taxpayers.
| Federal tax event | Deadline for tax year 2026 | Extension |
|---|---|---|
| Individual federal return | April 15, 2027 | Usually to October 15, 2027 |
| FBAR, FinCEN Form 114 | April 15, 2027 | Automatic to October 15, 2027 |
None of those federal dates answer the state-law question before the court. The pending issue is whether Washington can enforce this high-income levy at all, and if so, how businesses should account for it before the first payment year arrives. The present record does not settle when the court will hear the case or whether additional plaintiffs will join.
Owners with expected income near or above $1 million should review entity structure, residency facts, and estimated state exposure now, even though the tax is not scheduled to start until 2028. That includes foreign nationals who became Washington residents this year, investors preparing capital events, and pass-through owners whose taxable income can swing sharply between years.
What to watch next is straightforward: filings in Klickitat County Superior Court, any request to halt enforcement before 2028, and any ruling on the constitutional claim. Taxpayers should keep records that separate wages, business income, and residency periods. Anyone with cross-border income should also review IRS Publication 519, treaty rules in Publication 901, and foreign reporting thresholds before filing tax year 2026 returns in 2027.
⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
