Gov. Bob Ferguson just signed a new state income tax (SB 6346). Supporters call it a “Millionaire’s Tax,” designed to make Washington’s wealthy “pay their fair share” –  but the impact is much broader, placing an unfair burden on smaller businesses like home builders.

BIAW and other small business advocates opposed the new tax, pointing to the marriage penalty, pass-through concerns and the volatile nature of the construction business—not to mention the fact that this tax will inevitably apply to everyone over time.

There’s a lot of misinformation out there. Here are some common myths and the reasons why builders should pay attention.

MYTHS vs. FACTS

Myth #1: This only affects about 20,000 households in Washington, or less than 1% of the wealthiest households in Washington so it won’t hurt builders.

Fact: Many builders could be exposed—especially those operating as LLCs or S-corps where business income flows to personal returns. A strong year—closing multiple homes or finishing a subdivision—could easily push income over $1 million, triggering the tax.

Then there’s the unfair treatment of married couples. According to the legislation, the $1 million threshold for the tax applies to individuals, couples and domestic partners. So, married couples making a combined total of over a $1 million would be subject to the tax.

 Myth #2: This tax won’t apply to real estate activity.

Fact: While it’s true the sale of real estate is exempt, the tax can still hit builder income. While Washington excludes real estate from its capital gains tax, this new tax is based on total income (AGI). If project income flows through to the owner and exceeds the threshold, it may be taxed—regardless of how the underlying asset is classified.

Myth #3: This is a tax on steady, high salaries.

Fact: It hits volatile, project-based income. Homebuilding income is not predictable. Builders often see big spikes in revenue and long gaps between projects.

This tax applies in peak years, even when cash is already committed to land, labor and materials.

 Myth #4: Builders can just plan around this.

Fact: Timing creates real risk. Builders may owe tax based on income reported on paper, but the cash may be tied up in projects, payments may be delayed and margins are already tight.

Myth #5: This is a one-time, limited change.

Fact: Washington voters have rejected income tax proposals multiple times over the last century. Allowing this legislation to stand sets a precedent and establishes a new framework tied to income that will inevitably expand to lower thresholds and apply more broadly over time.

What Builders Should Do Now

1. Talk with a CPA about entity structure and income timing.
2. Monitor legal challenges. The BIAW Board of Directors recently voted to participate in a lawsuit being presented by Attorney General Rob McKenna.
3. Stay engaged on the political front. There’s discussion around a possible referendum and BIAW is also preparing for mid-term elections.

Future 42 has developed a new website called “IncomeTaxWashington.com” with more information and analysis. Be sure to check it out!

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