The Washington State Legislature has approved the “millionaires’ income tax.” The measure would apply a 9.9% tax on annual household income above $1 million. Governor Ferguson has indicated that he will sign the bill into law.
AGC strongly opposed the legislation, raising concerns about how the policy could affect construction companies that operate as pass-through businesses, and that it is just bad public policy.
AGC would like to thank the industry leaders who stepped forward to share their perspectives during the legislative process, including Brett Ferullo (Northwest Construction), Ryan Likkel (WRS), and Sherry Harris (Ergosynch Engineering), who testified before the House Finance Committee. We also appreciate members who highlighted the impacts of the proposal through opinion pieces, including AGC President Jeff Tiegs (Lincoln Construction), who authored an op-ed in the Tacoma News Tribune; Roy Swihart (Interwest Construction), who wrote and op-ed for the Everett Herald; and AGC Executive Director David D’Hondt, who published an op-ed in the Seattle Daily Journal of Commerce.
AGC also recognizes the significant effort made by lawmakers who raised concerns about the legislation. House Republicans led a nearly 25-hour floor debate on the bill. Ultimately, all House and Senate Republicans voted in opposition, joined by eight House Democrats (Reps. Bronoske, Morgan, Reeves, Richards, Rule, Shavers, Timmons, and Walen) and three Senate Democrats (Sens. Cortes, Hansen, and Krishnadasan).
While the tax is aimed at high-income individuals, many small and mid-sized construction firms report business income on their owners’ personal tax returns. Because many construction companies are structured as S-corps, LLCs, or partnerships, company profits “pass through” to owners and are reported as individual income.
For construction businesses, this can create a unique challenge. A company may report more than $1 million in income in a given year even though much of that money is used to fund business operations, including payroll, equipment purchases, bonding requirements, and working capital for future projects.
Construction income can also fluctuate significantly depending on project timing. Completing a large project in a single year may temporarily increase reported income, even though those funds may already be committed to project costs or reinvested back into the company.
Before the bill passed, it was amended to allow taxpayers to carry forward a deduction equal to 80% of net operating losses from prior tax years.
It is anticipated that the measure will be challenged in court and put before voters. Washington courts have historically ruled against graduated income taxes under the state constitution.
AGC will continue monitoring the issue and will provide updates as developments occur in the weeks and months ahead.
For more information, contact AGC’s Michele Willms.