The Washington State Legislature recently concluded its 2026 session with a handful of important new tax laws. This article addresses two big changes specific to our aviation and business transactions practice.
Aviation Taxes
Last year, the Washington State Legislature passed a “luxury aircraft tax” that would have imposed an additional ten percent tax on the purchase or lease of aircraft valued over $500,000.[1] Specifically, as written, the luxury tax would be an additional tax above and beyond any sales, excise or use tax already imposed, and would apply to the “portion of the selling price in excess of $500,000” for all “noncommercial aircraft” owned or leased in the State of Washington. The tax would have retroactive effect in the sense that it would be imposed on any applicable aircraft as of April 1, 2026, irrespective of the purchase or lease date.
Throughout the preceding year, various aviation-related industry groups advocated against the 2025 tax law, highlighting the benefits of aviation to the Washington State ecosystem beyond any perceived luxury. The benefits include various service industries that necessarily use aircraft for their daily operations, industries in the agricultural, tourism, medical and other related spaces, that positively impact Washington citizens and already generate a significant amount of tax revenue for the region. An additional ten percent tax could curtail some of these services, according to those advocating against the new law, and even drive businesses away that are reliant on aircraft to operate around the region and the country.
During the 2026 session, the State Legislature found the arguments against the luxury aircraft tax persuasive enough to move for a repeal, prompting the state legislator who last year sponsored the tax bill to sponsor legislation this year that would affect a repeal. As a compromise in lieu of the luxury tax, the repeal bill adds a seven cent per gallon increase on the existing aviation fuel excise tax[2] and doubles the annual aircraft registration fee (with an annual two percent increase).[3]
Revenue generated from the fuel tax increase will be allocated to support a new “sustainable aviation fuel airport infrastructure account” created by the State Treasury,[4] which is to be funded by 28 percent of the aircraft fuel excise tax.
Washington State Governor Bob Ferguson signed House Bill 2711 on March 31, 2026, affecting the luxury tax repeal and additional aviation tax changes as set forth above.[5]
Millionaire Tax
Governor Ferguson signed another important tax bill on March 30, 2026 imposing a new 9.9% state income tax on “households” exceeding $1 million in “Washington taxable income.”[6] The income tax would go into effect for tax year 2028, with first filings and payments due in 2029.
Washington State has a litigious history with the concept of a state income tax. A 1933 Supreme Court case[7] codified the longstanding precedent that income qualifies as “property” under the Washington State Constitution, Article VII, which requires that all taxes be (1) “uniform upon the same class of property”,[8] and (2) capped at “one percent” of the monetary value.[9]
The definition of “property” under the Constitution includes “everything, whether tangible or intangible”.[10] Income would thereby qualify under this definition according to the Washington Supreme Court.[11] A graduated income tax would thus violate the uniformity and, assuming the threshold is met, the levy cap requirements.
Those who have followed the legal nuances through the years may appreciate that Washington State’s relatively new Capital Gains Tax[12] dances around this issue, with the Washington Supreme Court upholding this particular tax as an “excise” rather than an “income” tax.[13] The Court said the tax “is appropriately characterized as an excise because it is levied on the sale or exchange of capital assets, not on capital assets or gains themselves.” To support its holding, the Court noted “a long line of precedent recognizing excise taxes as those levied on the exercise of rights associated with property ownership, such as the power to sell or exchange property, in contrast to property taxes levied on property itself.”
Legal challenges to the new income tax law have already been filed.[14] It will take a while for this issue to wind its way back to the Washington Supreme Court for final resolution, but we should have some clarity prior to the 2029 first filing deadline. In the interim, those persons and entities that may otherwise be affected by a millionaire tax have time to prepare, whether that may be a business restructuring, a sale, or even a move as some are contemplating.
As written, the law contains enough complexity to warrant review with a tax professional. The tax analysis begins with the calculation of a base Washington taxable income using the filer’s federal Adjusted Gross Income, minus a $1 million standard deduction, per individual, “or in the case of spouses or state registered domestic partners,” a $1 million combined deduction for the “household” regardless of whether a joint or separate return is filed.[15]
The filer would then proceed to exclude:
- up to $100,000 in charitable contributions,
- long-term capital gains and losses,
- the amount deposited in a capital construction fund,
- certain expenditures disallowed by the IRS related to commercial cannabis activities,
- up to 90% of Washington wagering losses, and/or
- certain tribal income as may be exempted.
Added back in to the calculation are:
- state and local tax obligations (SALT),
- loss carryforwards deducted from federal AGI,
- all income from a trust treated as a non-grantor trust to the extent not already included,
- amortizable bond premiums, and
- pass-through entity tax payments.
In addition to the above, several credits are available to avoid potential double taxation:
- taxes paid by the individual, or a pass-through entity in which the individual is an owner, to another state or political subdivision of the state,
- business and occupation tax or public utility tax,
- any tax imposed pursuant to Washington’s capital gains tax for the same tax year,
- tax expenses incurred by a pass-through entity making a PTET election.
Those persons or entities residing outside the State of Washington, but nevertheless generating income in Washington State may still be subject to the tax. The law is written such that nonresidents may be subject to tax on any “income derived from sources within [the] state” including “the portion of federal adjusted gross income derived from employment within the state of Washington” or “derived from or connected with a business, trade, or profession carried on in this state, including a sole proprietorship”.[16] Moreover, “[c]compensation attributable to professional athletics”, “student athelete[s]”, “rents, short-term gains, and other amounts attributable to the ownership or disposition of any interest in real or tangible personal property” in the State of Washington is subject to the tax.[17]
Moreover, the law expressly states that “[i]ncome derived from sources within this state include an apportioned share of the individual’s distributive share of income, gains, losses, and deductions from pass-through entities that operate in the state …”[18]
The revenue collected under the Millionaire Tax will be deposited into the State “general fund” to support various “sales and tax” relief endeavors, along with the “working families’ tax credit program”, “business and occupation tax relief”, “and to make public investments in K-12 education, health care, human services, and higher education.”[19]
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The information conveyed in this article is for information purposes only, and should not be construed as providing legal advice or in any way creating an attorney-client relationship. If you have any questions about how these new laws will affect you and/or your business, please do not hesitate to contact a Williams Kastner attorney.
[5] Engrossed Substitute House Bill 2711, https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/House/2711-S.SL.pdf#page=1 (accessed April 23, 2026).
[6] Engrossed Substitute Senate Bill 6346, https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/6346-S.SL.pdf#page=1 (accessed April 23, 2026).
[7] Culliton v. Chase, 173 Wash. 309, 22 P.2d 1049 (Wash. 1933).
[8] Constitution Of The State Of Washington, Article VII, Section 1, https://leg.wa.gov/media/o3fg0ey1/washington-state-constitution.pdf (accessed April 23, 2026).
[9] Id., Art. VII, Sec. 2
[10] Id.
[11] Culliton, 173 Wash. 309.
[12] RCW 82.87.010, et seq.
[13] Quinn v. State, 526 P.3d 1 (Wash. 2023)
[14] Benjamin Petter et al. v. State of Washington et al., Case No. 26-2-00073-20 (Klickitat Cty Sup. Ct. Apr 4, 2026) (Complaint for Declaratory Relief)
[15] Engrossed Substitute Senate Bill 6346, Part III, Section 314, https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/6346-S.SL.pdf#page=1 (accessed Apr 23, 2026).
[16] Id., Part IV, Sec. 401, 405.
[17] Id., Sec. 401.
[18] Id., Sec. 402.
[19] Id. at Sec. 1.