Washington voters kept the state’s 9.9% tax on income above $1 million, and a Feb. 5 court hearing opens the next round in the fight over whether it lasts.
For a store owner reading Ecommerce Paradise from Washington, this tax lands on the personal return, not the company. An LLC that nets $1.5 million passes that profit straight to its owner’s income, so the tax counts what the store earns, not what the owner pays themselves.
The law does not start until Jan. 1, 2028, and the first payments come in 2029. That gives you a window, and the court calendar decides how to use it. I covered the repeal vote before Election Day. This post covers what came after, and what it does to a store’s books, entity and exit plans.
Know what your store really nets before 2028. A pass-through owner gets taxed on profit, not on cash in the bank, so clean monthly books are the first thing a Washington operator needs. Track your store’s profit in QuickBooks →
Washington’s 9.9% Income Tax Survived the Repeal Vote
Initiative 645 would have repealed the tax starting in 2028. According to KOMO News reporting published Nov. 4 and updated Nov. 5, the Associated Press called the race on Thursday with 78% of votes counted, and the initiative failed.
The Seattle Times, in a Nov. 10 report republished by CPA Practice Advisor, said the tax survived the repeal effort “by a wide margin.” Neither report I read gives final vote percentages, so I am not quoting any.
The tax comes from ESSB 6346, which Gov. Bob Ferguson signed on March 30, 2026. Per the final bill report, it charges 9.9% on Washington taxable income above a $1 million standard deduction that spouses and domestic partners share. The tax starts Jan. 1, 2028, and the first returns and payments come in 2029.
The calculation starts with federal adjusted gross income, according to Clark Nuber, and then applies Washington adjustments. Residents owe tax on income from all sources. Nonresidents owe tax on Washington-source income only, and the bill sets sourcing rules for employment income and for business income.
Long-term capital gains and losses are generally left out of the base. Net long-term gains that are already subject to Washington’s separate capital gains tax are added back, and a nonrefundable credit for the capital gains tax paid offsets the overlap. The final bill report also allows a charitable deduction up to $100,000, applies an 80% haircut to certain net operating loss carryovers, and does not exempt pension income.
Pass-through owners get their own rule. Per Clark Nuber, eligible partnerships, LLCs and S corporations can elect to pay the 9.9% at the entity level starting in 2028, and the owners receive a credit against their individual tax. Estimated payments for electing entities are not required before July 1, 2029.
The $1 million deduction adjusts for inflation starting with taxes collected in 2030, then every second year, per the final bill report. The Seattle Times reported that state estimates project more than $3 billion a year starting in 2029 from about 25,000 households.
The same law sweetens the business tax side. From Jan. 1, 2029, the small business B&O credit rises from $55 to $125 a month for non-service businesses and from $160 to $375 for service businesses, and the annual B&O filing threshold rises from $125,000 to $250,000, according to the final bill report. The bill also says it becomes void if a court of final jurisdiction invalidates the income tax.
Culliton v. Chase and the 93-Year Fight Behind the Tax
The lawsuit rests on a 1933 case. In Culliton v. Chase, the Washington Supreme Court treated income as a form of property under the state constitution, which means property taxes must be uniform and capped at 1% of value, per the Seattle Times report.
Ten plaintiffs filed suit in April 2026. They include three married couples with household income above $1 million and four trade groups that represent business owners, according to the Seattle Times. Former Attorney General Rob McKenna is among their lawyers. He called the tax something that “clearly flies in the face of the constitution, of precedent and of voter will.”
The plaintiffs argue the tax breaks two rules at once. A graduated rate (9.9% for some filers and 0% for everyone else) is not uniform, and a rate above 1% exceeds the cap. The state Attorney General’s office is defending the tax and says it is constitutional.
The hearing is set for Feb. 5 in Klickitat County Superior Court, and the Seattle Times expects any ruling to be appealed directly to the state Supreme Court. State Sen. Jamie Pedersen, the Senate Majority Leader and a main architect of the tax, told KOMO he expects to lose at the superior court level and feels optimistic about the Supreme Court.
Supporters have their own case. The Washington Education Association, the Washington State Labor Council and the Statewide Poverty Action Network asked to join as defendants, and they plan to argue that Culliton was wrongly decided if the case reaches the Supreme Court. Jessica Levin, an associate teaching professor at Seattle University School of Law, told the Seattle Times the court will likely have to revisit the 93-year-old ruling.
Pedersen put the stakes in one line: “Either income taxes are not property taxes, or the (new tax) is unconstitutional. There is no in-between.” He also called Washington’s tax system “one of the worst and most regressive in the entire country.”
The other side warns about flight. Per the Seattle Times, opponents say high earners, employers and investors may leave for lower-tax states. I-645 sponsor Brian Heywood told KOMO he believes the tax is unconstitutional and that the Supreme Court may be in a bind.
The politics have limits too. Per KOMO, Ferguson said he would not sign a bill that lowers the $1 million threshold, and he called a payroll tax a non-starter after Microsoft President Brad Smith warned that jobs could leave the state. Pedersen suggested replacing the B&O tax with a corporate net income tax.
Washington is not alone this month. Colorado voters passed Amendment 87 in the same election, and I broke down what its top rate does to owners. Two states settling high-earner income taxes at the ballot in the same week is a pattern worth tracking.
What a 9.9% Tax Does to an LLC Owner Clearing $1M+
My read starts with a warning. I am not a tax or legal advisor, so treat everything below as a model for your conversation with a CPA, not advice.
First, the tax is narrow. A household needs more than $1 million of Washington taxable income before it owes a dollar. If your store nets $300,000, nothing in this law changes your 2028 return.
Second, the base is profit, not cash. The Startup Law Blog, whose author says he opposed the law, warns that partners and S corporation shareholders can owe tax on allocated income without receiving matching distributions. A store that pours its profit into inventory and ads still shows that profit on the owner’s return. I laid out the same trap in my cash flow guide on why a payout is not profit.
Here is hypothetical math, simplified, with no credits or other adjustments. Suppose a married couple’s federal AGI is $1.6 million, all of it ordinary income from an LLC-taxed store. The $1 million shared deduction leaves $600,000, and 9.9% of that is $59,400. At $1.2 million the tax is $19,800, and at $2 million it is $99,000. Every dollar above the deduction carries the full 9.9%.
Third, the entity does not dodge it. The calculation starts from AGI, so S corporation wages and distributions both count. The choice between an LLC and an S corp still changes your payroll taxes, and my breakdown of LLC versus S corp for ecommerce covers that trade-off. The new tax adds a second reason to model it.
The entity-level election is the real planning tool. Electing to pay at the entity level moves the cash call to the company, and the owners take a nonrefundable credit. The credits do not generally produce refunds or carryforwards, per Clark Nuber, so the election needs a written CPA model before 2028. If you are still choosing a structure, my guide on converting an LLC to an S corp later shows how reversible that decision is.
Moving is the instinct, and moving is slower than it sounds. The Startup Law Blog says relocation plans need evidence of an actual move and a review of any remaining Washington-source income. A mailing address does not settle domicile. My explainer on the 183-day rule for digital nomads shows how residency tests work in general, but Washington’s own test is a fact question for a CPA.
Nonresident owners face a separate unknown. The bill uses sourcing rules for business income, and I have not seen guidance on how those reach a remote seller with customers in Washington. Until guidance lands, that stays a question for a tax professional, not a conclusion.
An exit changes the math. Net long-term gains subject to Washington’s capital gains tax are added back to the income tax base. In the Startup Law Blog’s example, $100,000 of capital gains tax and $140,000 of income tax before the credit leave $40,000 of income tax, for a combined $140,000. The blog also says stock-sale proceeds, compensation, business income and deferred payments may each be taxed differently, so a seller should model the deal terms before signing. Buyers pay more for tidy numbers, which is why I wrote about how clean books add value to an ecommerce exit.
Here are the scenarios, with thresholds. If a court of final jurisdiction strikes the tax down, the bill says it becomes void, and Clark Nuber notes the 2029 small business relief could fall with it. If the courts uphold it, the tax starts Jan. 1, 2028 for anyone above $1 million. If the Legislature changes course, Pedersen’s corporate net income tax idea is the one to watch, while Ferguson has ruled out a lower threshold. These are possibilities, not forecasts. I found no date for a Supreme Court ruling.
One counterpoint deserves honesty. Opponents argue owners will leave, and an online store makes that easy because its customers are not tied to the owner’s zip code. Supporters argue the revenue closes a budget gap without cuts. Both claims are untested until the tax has been collected for a year or two.
My read for a high-ticket operator is simple. Do the cheap work now, which is clean books, an entity review and a residency checklist. Wait for the court before you move a company or a family. If you would rather hand the build and the daily operation of a store to a team while you sort out where to live and how to be taxed, that is the job of my turnkey done-for-you store build.
A 9.9% pass-through tax turns entity structure into a money decision for Washington owners. See how to form your business →
Five Moves for Washington Store Owners Before 2028
Nothing is due this week, so the useful work is preparation. Here are five moves, in order.
- Run your own number. Take last year’s household AGI, subtract $1 million, and multiply anything left by 9.9%. If the result is negative, you are at zero today. Send the figure to your CPA, and read my guide to filing taxes as an ecommerce seller if you handle your own return.
- Separate profit from cash every month. Connect your store to Finaloop or QuickBooks. My walkthrough on the Shopify and QuickBooks integration keeps revenue from double counting.
- Ask your CPA for a written answer on the pass-through entity election before Jan. 1, 2028. Bring your operating agreement and your last two years of returns. Once you decide on a structure, Northwest Registered Agent can handle the formation and filing side.
- Build a clean paper trail if you might leave. Keep the business bank account separate through Mercury. Use a real mailing address from AnytimeMailbox for the company. Remember that an address by itself does not prove you moved.
- Put Feb. 5 on your calendar and read the ruling when it lands. Do not restructure on a superior court decision, since the Seattle Times expects any ruling to be appealed directly to the Supreme Court. If you want help fitting the result into your growth plan, my 1-on-1 coaching is built for that.
Frequently Asked Questions
Does the tax apply to my store’s revenue?
No. It applies to individuals, and the base starts from federal adjusted gross income. Revenue is not income, but profit that flows through an LLC or S corp to your return counts, as covered in my dropshipping taxes checklist.
Is the tax in effect now?
No. It starts Jan. 1, 2028, with the first returns and payments in 2029, per the final bill report. Nothing changes on your 2026 or 2027 return.
What happens if a court strikes it down?
The bill says it becomes void if a court of final jurisdiction invalidates the tax. Clark Nuber notes that the 2029 small business relief could fall with it.
Does forming my LLC in another state avoid it?
Not for a Washington resident. Residents owe tax on income from all sources, so the state where the company is formed does not change where your income is taxed. My Wyoming LLC cost guide covers what out-of-state formation does and does not do.
Does selling my store trigger the tax?
It can. Net long-term gains subject to Washington’s capital gains tax are added back to the income tax base, with a credit for the capital gains tax paid. Ask a CPA to model the deal before you sign.
I am nowhere near $1 million. Should I care?
Not for the tax, but you should care if your plan gets there. Start with my free high-ticket niches list. Then join the Ecommerce Paradise Academy on Skool with the 7-day free trial, then paid.
Want my team to build and run your high-ticket store while you work out where to live and how to be taxed? See the turnkey done-for-you service →
That is the full picture as of Nov. 12, and the Feb. 5 hearing is the next date that matters. Subscribe to the YouTube channel for daily breakdowns. More breaking news coming through the day.
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- NFIB: Tax Worries Hit Highest Level Since May 2021
- High-Ticket Niches List: 150+ Best Dropshipping Niches for 2026
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Trevor Fenner is an ecommerce entrepreneur and world traveler from Seattle, Washington, and the founder of Ecommerce Paradise, a platform focused on helping entrepreneurs build and scale profitable high-ticket ecommerce and dropshipping businesses. With over a decade of hands-on experience, Trevor specializes in high-ticket dropshipping strategy, niche and product selection, supplier recruiting and onboarding, Google & Bing Shopping ads, ecommerce SEO, and systems-driven automation and scaling. Through Ecommerce Paradise, he provides free education via in-depth guides like How to Start High-Ticket Dropshipping, advanced training through the High-Ticket Dropshipping Masterclass, and fully done-for-you turnkey ecommerce services for entrepreneurs who want a faster, more hands-off path to growth. Trevor is known for emphasizing sustainable, real-world ecommerce models over hype-driven tactics, helping store owners build scalable, sellable, and location-independent brands.
He maintains homes in Seattle and Bali, spends most of the year overseas, and usually returns to Seattle for about a month each summer.
