Three years ago, Washington was one of the most tax-friendly states for business owners. No personal income tax. No capital gains tax (until 2021). A favorable estate tax threshold. The Washington millionaires tax (SB 6346) changes that equation dramatically—and with it, your business valuation. It adds a 9.9% income tax on earnings above $1 million, joining the 7%/9.9% tiered capital gains tax and the nation’s highest estate tax rate (35% on estates above $3 million). For business owners planning an exit, evaluating their competitive position, or considering whether to stay, the question isn’t just what you owe. It’s what your business is worth after the tax landscape shifted underneath it.
This is the fourth article in our series on Washington’s millionaires tax. Start with the comprehensive overview: What High Earners, Business Owners & Families Need to Know. Our trust-specific analysis covers How SB 6346 Affects Grantors, Trustees & Beneficiaries. And our cross-border companion examines The Oregon Border: Portland-Vancouver Corridor.
The short answer: the Washington millionaires tax impact on business valuation depends on your business structure, your buyer, and your valuation methodology. However, the mechanics are real. For certain businesses, the impact is material.
Business valuation under the income approach—the most common method for operating businesses—estimates the present value of future cash flows. Those cash flows are then discounted at a rate reflecting risk. Consequently, the critical question is whose cash flows you are measuring.
A C corporation pays taxes at the entity level. You calculate its cash flows after federal corporate income tax (21%) and any applicable state-level corporate taxes. Washington has no corporate income tax—only the B&O gross receipts tax. Importantly, SB 6346 does not change C corporation taxation. As a result, the entity’s cash flows and valuation are not directly affected by the millionaires tax.
Instead, the impact is indirect. It hits the owner when they receive salary, bonuses, or dividends. In an M&A context, however, a buyer acquires the entity’s cash flows—not the seller’s personal tax situation. Therefore, the enterprise value of a C corporation doesn’t change because the seller now owes more personal tax on the proceeds.
There is one exception, however. If the buyer is also a Washington resident who will personally extract the C corporation’s earnings (as salary or dividends), then the buyer’s reduced after-tax return may affect what they’re willing to pay. In practice, this primarily affects small C corporations purchased by individual owner-operators—not large acquisitions by private equity or strategic buyers.
S corporations, LLCs, and partnerships work differently because their income flows through to the owners’ personal tax returns. As a result, for a Washington-resident owner earning above $1 million, that pass-through income now faces a 9.9% state tax that didn’t exist before.
This raises the “tax affecting” question. In other words, should you reduce the projected earnings of a pass-through entity by a hypothetical tax when calculating the entity’s value?
The valuation profession has debated this for decades. The IRS historically argued against tax affecting—meaning pass-through earnings should be valued at their pre-tax amount because the entity itself pays no tax. However, the Tax Court’s position has evolved. In recent landmark cases—Jones v. Commissioner (2019), Kress v. United States (2019), and Pierce v. Commissioner (2025)—courts have allowed tax affecting when the valuation methodology uses C corporation-derived market data (which reflects after-tax returns) to value a pass-through entity.
If a valuation expert uses discounted cash flow analysis with discount rates derived from public (C corporation) market data, they now have a stronger argument for tax affecting the pass-through entity’s earnings—including the new 9.9% Washington state tax. As a result, this would reduce the DCF value of the business. For example, consider a pass-through entity generating $2 million in annual owner earnings. Applying a 9.9% state tax reduces those earnings by $99,000 per year (on amounts above $1 million). Capitalized at a typical small business rate of 20–25%, that translates to a valuation reduction of $400,000 to $500,000. Moreover, the effect compounds for higher-earning businesses.
In any transaction, the buyer’s after-tax return drives what they will pay. Before SB 6346, a Washington buyer of a pass-through business received the full pass-through income with no state tax reduction. As a result, that buyer now faces a 9.9% hit on income above $1 million.
Consequently, a rational buyer adjusts their offer downward to maintain the same after-tax return. The math is straightforward: if the buyer needs a 15% after-tax return and the state tax reduces their return by 9.9% on the marginal dollar, then the buyer’s willingness to pay decreases accordingly.
This effect is strongest when both parties are Washington residents. In contrast, it may weaken when the buyer is a nonresident—but only if the business operations can be relocated out of Washington post-acquisition. Otherwise, the pass-through income remains Washington-source income subject to the millionaires tax regardless of the buyer’s state of residence. Similarly, the effect weakens when the buyer is a C corporation (the pass-through income converts to corporate-level income inside the acquiring entity).
For Washington business owners already considering an exit, the window before January 1, 2028 changes the decision calculus. The Washington millionaires tax affects business valuation on both sides of the transaction—and most small business sales look very different from a clean stock sale.
Most small business exits are asset sales, not stock sales. In a stock sale, the entire gain is typically long-term capital gain. By contrast, in an asset sale, the purchase price is allocated across asset categories under IRS rules (IRC §1060)—and each category carries its own tax character. Consequently, a meaningful portion of the proceeds is often ordinary income.
A realistic $5 million asset sale might allocate as follows:
| Asset Category | Amount | Tax Character |
|---|---|---|
| Goodwill & going concern value | $2,500,000 | Long-term capital gain |
| Customer relationships / IP | $500,000 | Long-term capital gain |
| Real property | $900,000 | LTCG (WA exempt) |
| Equipment (§1245 recapture) | $350,000 | Ordinary income |
| Covenant not to compete | $300,000 | Ordinary income |
| Inventory | $250,000 | Ordinary income |
| Consulting / transition services | $200,000 | Ordinary income |
| Total | $5,000,000 |
In this example, $3 million is long-term capital gain, $900,000 is real property gain (exempt from both the WA capital gains tax and the millionaires tax), and $1.1 million is ordinary income. That ordinary income distinction is the key. Before 2028, Washington imposes zero state tax on that $1.1 million. The capital gains tax doesn’t reach it. Nothing does. After 2028, SB 6346 taxes it at 9.9%.
The allocation between ordinary income and capital gains varies by business type and is negotiated in every deal. Service businesses, professional practices, and companies with significant equipment or inventory often allocate 25–40% to ordinary income. The buyer typically prefers a higher ordinary income allocation—covenant not to compete, consulting agreements, inventory—because those categories create larger, faster amortization deductions. After 2028, the seller’s tax cost for conceding on allocation increases substantially because every ordinary income dollar above $1 million now carries a 9.9% state tax that didn’t exist before.
Using the allocation above for a Washington-resident married filing jointly (MFJ) owner already in the 37% federal bracket, with $400,000 in other annual income (salary through closing, distributions, investment income):
Before 2028 (current law):
| Tax Component | Amount |
|---|---|
| Federal tax on ordinary income ($1.1M at 37%) | $407,000 |
| Federal capital gains + NIIT on $3.9M LTCG (23.8%) | $928,200 |
| WA capital gains tax (7%/9.9% tiered on $3M, after ~$270K deduction) | $241,270 |
| WA tax on ordinary income from sale | $0 |
| Total tax on sale | ~$1,576,470 (~31.5% effective) |
Federal taxes and the WA capital gains tax remain identical under the post-2028 scenario. The new cost is the millionaires tax. SB 6346 starts with federal AGI, removes long-term capital gains (Section 302), then adds back the WA capital gains tax base (which excludes exempt real property gains). The result is an adjusted WA income of $4,500,000. After the $1 million exemption, the millionaires tax applies at 9.9%—with a credit for WA capital gains tax already paid (Section 205):
| Tax Component | Amount |
|---|---|
| All taxes from “before 2028” above | $1,576,470 |
| WA millionaires tax (9.9% on $3.5M above exemption) | $346,500 |
| Less: credit for WA capital gains tax paid | ($241,270) |
| Total tax on sale | ~$1,681,700 (~33.6% effective) |
In 2020, Washington imposed zero state tax on this $5 million transaction. No capital gains tax. No income tax. Nothing. Today, the capital gains tax alone takes $241,270. After 2028, the combined state tax bill reaches $346,500—on the same sale, to a state that took nothing five years ago. A business owner closing the identical transaction from Texas, Florida, Wyoming, Nevada, or Tennessee pays $0 in state tax.
The total state tax scales with exit size:
| Exit Size | Total WA State Tax (Post-2028) | Same Exit from TX/FL/WY/NV/TN |
|---|---|---|
| $3 million | ~$184,000 | $0 |
| $5 million | ~$347,000 | $0 |
| $10 million | ~$752,000 | $0 |
| $20 million | ~$1,564,000 | $0 |
Amounts assume asset sale with the allocation above, $400,000 in other annual income, and MFJ filing. Total includes both the WA capital gains tax (7%/9.9%) and the millionaires tax net of credits. If the qualified family-owned small business exemption applies, the millionaires tax portion may be $0.
The exit isn’t the only equation. For pass-through business owners who continue operating after 2028, the millionaires tax applies to annual income—not just a one-time liquidity event. An owner generating $2 million per year in pass-through earnings owes $99,000 annually in new state income tax. Over a 10-year ownership horizon, that is $990,000. At $3 million in annual earnings, the annual cost rises to $198,000 per year—nearly $2 million over a decade. This tax did not exist when most Washington business owners started their companies.
The incremental cost of waiting past January 1, 2028—roughly $105,000 on a $5 million exit—may not by itself justify accelerating a sale. However, that delta is only one variable in a much larger equation. The total state tax burden, the annual cost of continued ownership, and the permanent shift in buyer economics combine to reshape the exit calculus entirely.
The ordinary income tax is entirely new. Before 2028, Washington has zero tax on the covenant-not-to-compete payments, consulting fees, inventory gains, and equipment recapture that make up 20–40% of a typical asset sale. After 2028, every dollar of total income above $1 million is taxed at 9.9%. This is not a rate increase on something that was already taxed. It is a new tax on a category of income that Washington has never taxed before.
Buyer economics shift permanently. After 2028, Washington-resident buyers of pass-through businesses face reduced after-tax returns on the acquired income stream. Rational buyers adjust their offers downward to maintain the same after-tax return. Out-of-state and corporate acquirers are less affected, but the overall buyer pool dynamics tilt against sellers. Selling before the buyer’s cost structure changes preserves your negotiating position.
The rush-to-exit compresses multiples. If a meaningful number of Washington business owners accelerate their exits into 2026–2027, the increased supply of businesses for sale puts downward pressure on valuations. Industry brokers and M&A advisors in states that have enacted similar surtaxes—Massachusetts, Oregon, Minnesota—have reported elevated deal volume in the years preceding effective dates. Sellers who move early, before the window crowds, typically capture better pricing. Sellers who wait compete against a larger pool of motivated sellers on a shorter timeline.
Waiting compounds two risks. Every month of delay means continuing to bear the operational risk of running the business and the regulatory risk of a tax code that has not been interpreted yet. The Department of Revenue has not issued implementing rules for SB 6346. The interaction between the millionaires tax, the capital gains tax, the PTE election, installment sale treatment (IRC §453), and asset allocation negotiations introduces genuine complexity. Selling under current law—which is known, tested, and has two decades of DOR guidance—removes an entire layer of uncertainty from the transaction.
The legal challenge is not a plan. Constitutional challenges to SB 6346 are widely expected, and they may ultimately succeed. But the capital gains tax faced similar challenges and was upheld by the Washington Supreme Court in 2023—two years after enactment. Betting your exit timeline on the outcome of litigation is speculation, not strategy. If the tax is struck down, a pre-2028 seller loses nothing. If it survives, a seller who waited has permanently lost the window.
If you were already considering an exit in the next three to five years, ask this question: Will my business appreciate by more than the total cost of waiting—tax delta, potential multiple compression, and regulatory risk premium—in the next 22 months? If the answer is clearly yes, the window is less urgent. If the answer is uncertain, the pre-2028 window favors action. Business owners tend to overestimate future appreciation and underestimate the cost of regulatory uncertainty. A business that is ready to sell today, into a known tax environment, is worth more than the same business sold into an untested one.
IRC Section 1202 (QSBS) can exclude up to $10 million (or 10x basis) from federal capital gains tax—increased to $15 million for stock issued after July 4, 2025 under the One Big Beautiful Bill Act. Congress designed that exclusion to encourage people to start small businesses and accept the enormous personal risk that entails. Under current law, the exclusion carries through to Washington’s capital gains tax. However, the millionaires tax is a separate state income tax effective in 2028, and whether QSBS gains are included in its base has not been definitively resolved.
Two bills currently in committee would change the equation entirely. SB 6229 and HB 2292 would affirmatively strip the federal Section 1202 exclusion at the state level, imposing Washington’s 7–9.9% capital gains tax on gains the federal government explicitly chose to exempt. A founder who incorporated as a C corp, held stock for five years, and met every qualified trade or business requirement would owe state tax on gains that are 100% excluded federally. On a $5 million exit with gains above $1 million, the capital gains tax alone would exceed $400,000. Combined with the millionaires tax after 2028, the cumulative state exposure grows further.
As startup attorney Joe Wallin detailed in his February 2026 GeekWire analysis, a founder with $10 million in QSBS-eligible gains would pay zero federal capital gains tax but potentially $1.3 million or more in Washington state taxes. Before 2021, that same founder paid zero state tax on the exit. Wallin’s conclusion: “There is no stage of a founder’s journey that Olympia isn’t reaching into.” Founders who understand this math are already evaluating domicile changes before their exits.
SB 6346 exempts gains from the sale of “qualified family-owned small businesses” from Washington taxable income. If your business qualifies, the millionaires tax doesn’t apply to the exit gain—making the timing question less urgent.
The definition of “qualified family-owned small business” is established in statute under RCW 82.87.070. However, meeting the criteria requires careful analysis—ownership structure, revenue thresholds, and activity tests all matter. Business owners who assume they qualify may be surprised. Do not rely on this exemption without professional confirmation from your attorney and tax advisor.
SB 6346 exempts all real property gains from Washington taxable income. For business owners whose primary asset is Washington real estate—developers, commercial real estate investors, hotel operators, farmland holders—the millionaires tax does not apply to gains from property sales. As a result, the exit timing urgency is lower for these businesses. The 7%/9.9% tiered capital gains tax still applies to gains from non-real-estate intangible assets.
The Washington millionaires tax doesn’t hit all businesses equally. The impact on business valuation and exit planning depends on the industry’s typical ownership structure, compensation patterns, geographic mobility, and exit economics.
Joe Wallin—a Seattle startup attorney who has spent his career helping founders build companies in Washington—published one of the most detailed public analyses of the Washington millionaires tax startup impact and how the cumulative tax stack affects the startup ecosystem. Writing in GeekWire in February 2026, Wallin laid out the math that founders, investors, and early startup employees need to understand. He covered the income tax at vesting, the capital gains tax at exit, the estate tax at death, and the interaction with federal provisions like QSBS. His conclusion was stark: “Three years ago Washington was one of the most founder-friendly states in the country. The legislature is dismantling that in real time.”
The table below extends that analysis across industries, assessing which sectors face the highest exposure and which are protected by SB 6346’s exemptions.
| Industry | Impact Level | Why | Key Concern |
|---|---|---|---|
| Technology / SaaS / AI | HIGH | Concentrated, high-value exits (IPOs, acquisitions). RSU/option vesting creates recurring high-income years. QSBS protection at risk—bills in committee (SB 6229/HB 2292) would strip the federal exclusion at the state level. Talent is highly mobile. | Founders and key engineers may relocate before vesting/exit events. WA tech competitiveness erodes vs. TX, FL, NV, TN. |
| Venture-Backed Startups | HIGH | Early employees accept below-market salary for equity upside. As Wallin noted, “they are exactly the people Washington should want to attract and retain.” The after-tax value of that equity is now 9.9% lower for WA residents, making recruiting against Big Tech harder. | Startup recruiting disadvantage. VC-backed companies may incorporate or establish HQ in no-tax states. |
| Professional Services (Law, Consulting, Medicine) | HIGH | Partners and principals typically earn well above $1M through pass-through entities. Income is annual, not one-time. No real estate or family business exemption applies. | Annual recurring 9.9% tax on partner income above $1M. Difficult to relocate clients and operations. |
| Private Equity / Investment Management | HIGH | Carried interest and management fees generate pass-through income well above $1M. These professionals are highly mobile. | Managers may relocate to WY, TX, FL. New fund formation may shift to tax-friendly jurisdictions. |
| Healthcare (Private Practice) | HIGH | Specialists, surgical groups, and multi-provider practices generate partner income above $1M through pass-through entities. | Orthopedists, cardiologists, dermatologists with $1M+ practice income face full exposure. Difficult to relocate a medical practice across state lines. |
| E-Commerce / Digital Businesses | HIGH | Location-independent. Owner income above $1M is common. No physical ties to WA. | Easiest businesses to relocate. Owner can move to WY, NV, FL, TX with minimal disruption. |
| Industry | Impact Level | Why | Key Concern |
|---|---|---|---|
| Manufacturing | MODERATE | Pass-through manufacturing businesses with $1M+ in owner income are taxed. However, many manufacturers are C corps. Physical plants are hard to relocate. | Asset-heavy businesses are sticky. The tax affects the owner, not the equipment. |
| Transportation / Logistics | MODERATE | Fleet operators, freight brokers, and logistics firms often generate $1M+ in owner income through pass-through entities. Asset-heavy operations mean higher §1245 recapture (ordinary income) on exit. Tied to port infrastructure, I-5 corridor routes, and customer networks. | Difficult to relocate away from Puget Sound ports and I-5 freight lanes. Equipment-heavy exits carry higher ordinary income allocation, increasing post-2028 tax exposure. |
| Construction / Trades | MODERATE | Large contracting firms with owner income above $1M are affected. Many smaller operators fall below the threshold. | Businesses near the border may have easier relocation options to Idaho. |
| Commercial Real Estate | LOW–MODERATE | Sale gains are EXEMPT from millionaires tax. However, rental income IS subject to the tax if total income exceeds $1M. Property management income flows through as ordinary income. | Rental income adds to the $1M threshold. But the exemption on sale gains provides significant protection. |
| Retail / Hospitality | LOW–MODERATE | Most independent retail/hospitality businesses generate owner income below $1M. Multi-unit operators with $1M+ are affected. | Lower-income businesses unaffected. High-volume restaurant groups or hotel operators with pass-through income above $1M are exposed. |
| Agriculture / Farming | LOW–MODERATE | Family farm exemption likely applies to qualified sales. Most farm income falls below $1M threshold. | Very large farming operations with $1M+ income may be affected on the operating income. |
| Residential Real Estate / Development | LOW | Sale gains EXEMPT. Construction companies may have pass-through income above $1M, but the core asset disposition is protected. | Development profits (as ordinary income from a business entity) may still be taxed. Gain on developed property sold is exempt. |
Recent employer surveys have found striking results on the Washington business relocation tax question. A significant share of Washington business leaders are considering moving their personal residence out of state, and the percentage considering relocating their business has roughly doubled year over year. Common destinations include no-income-tax states like Texas, Florida, Nevada, Wyoming, and Tennessee, as well as lower-tax neighbors like Arizona and Idaho.
Nevertheless, “considering” isn’t the same as “doing.” In reality, moving a business is materially harder than moving a residence.
If you move your personal domicile to a no-income-tax state (Florida, Texas, Nevada, Wyoming, South Dakota, Tennessee, Alaska, or New Hampshire) before January 1, 2028, you are not a Washington resident when the tax takes effect. Your personal income—including pass-through business income from a Washington entity—is not subject to the millionaires tax to the extent it’s not Washington-source income.
There is an important caveat, however. If your business operates in Washington, then the portion of business income apportioned to Washington may still be Washington-source income taxable to nonresidents under Sections 401 and 405 of SB 6346. The sourcing rules use a receipts-based apportionment factor. In other words, if your customers are in Washington, a portion of the income is Washington-source regardless of where you live.
Moving the business entity itself—reincorporating, relocating employees, shifting operations—eliminates Washington B&O tax. In addition, it reduces or eliminates Washington-source income apportionment and removes the entity from Washington’s jurisdictional reach.
The operational costs are substantial, though. Specifically, you lose proximity to your customer base, your supply chain, your workforce, and your professional network. For businesses with physical operations (manufacturing, retail, healthcare, construction), relocation costs can therefore exceed the tax savings for years.
The businesses with the lowest relocation friction have no physical dependency on Washington. These include e-commerce operators, SaaS companies with distributed teams, investment management firms, consultancies with national client bases, holding companies, and digital-first businesses. For example, a founder running a $5 million ARR SaaS company from a home office in Bellevue can move to Jackson Hole, Wyoming and maintain the identical business—minus the 9.9% tax. A surgeon running a $3 million orthopedic practice in Seattle cannot.
Massachusetts implemented a 4% surtax on income above $1 million in 2023. The evidence on migration is contested, however, and both sides cite data that supports their position.
On one hand, the Institute for Policy Studies reports encouraging numbers for tax proponents. Millionaires by net worth in Massachusetts grew 38.6% from 2022 to 2024, and the surtax generated $2.2 billion in its first year—more than double projections.
On the other hand, the Mass Opportunity Alliance counters with different data. Specifically, 70.7% of high earners who left the state cited the surtax as a factor in their decision. Meanwhile, IRS data shows net outmigration of 45,177 individuals in the year the surtax was enacted. Additionally, Massachusetts’ millionaire growth rate (36%) trailed the national average (49%) and significantly trailed Texas (61%), Arizona (75%), and Florida (77%).
The truth likely lies between the extremes. Most millionaires don’t move—because social networks, family, business relationships, and quality of life anchor them. However, the marginal mover still matters. Consider, for instance, the startup founder choosing where to incorporate, the fund manager deciding between Seattle and Austin, or the retiring business owner selecting their domicile. Importantly, Washington’s 9.9% rate is significantly higher than Massachusetts’ 4% surtax. Furthermore, the combined WA tax stack (income + capital gains + estate) is now among the most aggressive in the country for high earners.
In March 2026, a letter signed by 15 of Washington’s top technology and AI executives warned lawmakers that the millionaires tax “would materially undermine Washington’s ability to keep growing the tech sector, which is a core driver of our economy.” The letter cited a three-year downturn in WA business development and pointed to companies either establishing operations or relocating to Texas and other states with more favorable business environments. AI expert Pedro Domingos noted the “fragility” of startup ecosystems: “One or two wrong moves and permanent relocation happens.”
The Washington millionaires tax doesn’t exist in isolation. Washington’s tax posture has shifted dramatically since 2021, and the cumulative stack directly affects business valuation and exit planning decisions.
| Year | Tax Change | Rate / Impact |
|---|---|---|
| 2021 | Capital gains tax enacted | 7% on first $1M / 9.9% above $1M in long-term gains (after ~$278,000 deduction, inflation-adjusted) |
| 2023 | Capital gains tax upheld (Quinn v. State) | Constitutional challenge resolved; tax is permanent |
| 2025 | Estate tax top rate increased | 20% → 35% (highest in the nation) |
| 2025 | Estate tax threshold increased | ~$2.193M → $3M |
| 2026 | WA minimum wage (CPI-indexed) | $17.13/hr statewide—highest state minimum wage in the nation (federal: $7.25) |
| 2026 | Seattle minimum wage | $21.30/hr—among the highest city minimum wages in the nation |
| 2025 | B&O surcharge on large businesses | +0.5% on companies with $250M+ WA taxable income |
| 2025 | Digital advertising sales tax | New sales tax on digital advertising |
| 2028 | Millionaires income tax (SB 6346) | 9.9% on household income above $1M |
| Pending | SB 6347 estate tax rollback | Would reduce top rate from 35% → 20% |
For a successful business owner, the combined state-level tax on a liquidity event in 2028 includes:
9.9% millionaires tax on income above $1M (unless the family business or real estate exemption applies).
7%/9.9% tiered capital gains tax on long-term gains above ~$270,000 (7% on first $1M in taxable gains, 9.9% above $1M; inflation-adjusted deduction).
Credits prevent full double taxation between these two. However, the combined effective state rate on a large exit still lands in the 10–12% range after credits.
35% estate tax on estates above $3M (pending SB 6347 rollback to 20%).
B&O tax on gross receipts for ongoing business operations.
$17.13/hr minimum wage statewide ($21.30/hr in Seattle)—the highest state minimum wage in the nation, directly compressing margins for labor-intensive businesses and reducing the cash flows that drive business valuations.
By comparison, consider a founder selling the same business while domiciled in Texas, Florida, or Wyoming: 0% state income tax, 0% capital gains tax, 0% estate tax, and minimum wages at or near the federal floor. Consequently, the gap is approximately $800,000 to $1,200,000 per $10 million in exit proceeds—before accounting for the ongoing operating cost differential.
If you haven’t had a formal Washington business valuation in the last two years, get one now. The pre-2028 exit planning window is when you should establish valuations for tax planning, trust transfers, buy-sell agreements, and potential exits. Moreover, a valuation completed before January 1, 2028—when the tax environment was different—may support more favorable pricing for gift and estate planning transfers.
If you operate as a pass-through entity and your income exceeds $1 million, consider whether converting to a C corporation makes sense. After all, C corporation income retained at the entity level is not subject to the millionaires tax until distributed.
The trade-off matters, though. On one hand, C corporations face double taxation (corporate tax + dividend tax) and lose the pass-through deduction (Section 199A). On the other hand, entity-level retention defers the millionaires tax. This is a math exercise, not a philosophical choice—so model both scenarios with your CPA.
If you were already within 2–3 years of selling, consider accelerating to close before January 1, 2028. In particular, this approach is especially compelling for stock sales and businesses that may not qualify for the family business exemption.
That said, do not fire-sell a business just to avoid the tax. The 9.9% tax on amounts above $1 million is meaningful but not catastrophic. For instance, selling a $10 million business at $8 million to avoid a roughly $900,000 tax bill is bad math.
Review the statutory definition of “qualified family-owned small business” under RCW 82.87.070. If your business qualifies, the millionaires tax may not apply to your exit gain at all—significantly reducing the urgency to sell pre-2028. Work with your attorney to confirm whether your business meets the qualification criteria.
SB 6346’s pass-through entity election (Section 502) allows the business to pay the Washington millionaires tax at the entity level. The owner then receives a credit on their personal return. The federal benefit is important: the entity-level payment is deductible as a business expense, bypassing the $40,400 SALT cap (2026). For pass-through owners with income well above $1 million, this can produce meaningful federal tax savings that partially offset the state tax.
If relocation is the right decision for your business and family, do it properly. First, change domicile before January 1, 2028. Then sever Washington ties—driver’s license, voter registration, bank accounts, professional associations, vehicle registrations. Also keep a day count. If you maintain the business in Washington, understand that Washington-source income may still be taxable to nonresidents.
Above all, do not move on paper only. Washington will develop audit capability for the millionaires tax, and a sloppy domicile change will be challenged.
The 35% estate tax rate on Washington estates above $3 million (pending SB 6347 rollback to 20%) further compounds the exit planning urgency. For example, consider a business owner who doesn’t sell pre-2028, doesn’t move, and passes away with a $10 million estate. That owner faces both the income tax on operations and a state estate tax of over $1 million—on top of any federal estate tax (though the $15 million federal exemption shelters most estates).
As a result, coordinating income tax and estate tax planning is essential. For trust-based strategies, see our companion article on trusts.
“Washington didn’t just add one tax. It built a tax stack. Income tax, capital gains tax, estate tax, B&O tax—each one manageable alone, but the combination changes the math on building, owning, and exiting a business in this state. The owners who plan now keep their options open. The ones who wait may find the window has closed.”
— Northern Pacific Asset Management
Northern Pacific Asset Management works with business owners across Houston, Seattle, Portland, and nationwide to coordinate Washington millionaires tax business valuation, exit planning, entity structuring, and multi-state tax strategy. The two-year window before January 1, 2028 is the time to act. Every engagement begins with a candid, no-obligation preliminary discovery meeting.
Serving Houston & The Woodlands · Seattle & Bellevue · Portland & Vancouver WA.
Important Disclosures
This article is published by Northern Pacific Asset Management™ for general informational and educational purposes only. It does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security or financial product. The information presented draws from publicly available sources, including legislative text, regulatory filings, and third-party analysis, and is believed to be accurate as of the date of publication. Northern Pacific makes no warranties or representations regarding the completeness or accuracy of this information.
This article is for informational purposes only and does not constitute tax, legal, investment, or business valuation advice. SB 6346 has passed both chambers of the Washington legislature but has not yet been signed into law as of the date of publication. The information presented reflects our understanding of the proposed legislation, current tax law, and general business valuation principles as of March 2026. Business valuation is highly fact-specific and depends on the entity’s financial performance, structure, industry, and market conditions.
Several provisions discussed in this article—including the qualified family-owned small business exemption—are subject to forthcoming Department of Revenue rulemaking. The AWB survey data reflects self-reported employer sentiment and should not be interpreted as a prediction of actual business or residential relocations. Migration data from Massachusetts is contested and should be evaluated in context. Consult your CPA, business valuation professional, estate planning attorney, and wealth advisor for guidance specific to your situation.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC, and SEC Registered Investment Advisor. Northern Pacific Asset Management and Osaic Wealth are separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
Northern Pacific Asset Management and Osaic Wealth do not provide tax or legal advice.
© 2026 Northern Pacific Asset Management™. All rights reserved. Live^Exponentially® and Sustainable Advantage® are registered trademarks of Northern Pacific Asset Management.
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