Washington and Oregon are both overhauling significant pieces of their tax systems in 2026 — and the changes are layered, phased, and in some cases still moving through the courts. For high-income individuals, business owners, pass-through entities, and companies with operations in either state, these developments are worth understanding now, not after effective dates arrive. REDW state and local tax specialists, Principal Thomas Miller and Senior Manager Jeanna Schenk, break down the most important updates and what questions you should be asking your advisor.
Washington Millionaires’ Tax Stays Off the Ballot
In May, the Washington Supreme Court ruled that the state’s new 9.9% tax on income above $1 million cannot be challenged through a voter referendum. In practical terms, that means the law will not go before voters for approval or repeal.
The tax, often referred to as the millionaires’ tax, was signed into law in March 2026 and is scheduled to take effect in 2028, with the first payments due in 2029. A separate legal challenge is still pending, so the law could still face constitutional scrutiny. But for now, the court’s decision removes one major path opponents hoped to use to stop it.
Who May Be Affected?
This development is most relevant for:
- high-income individuals,
- business owners,
- investors,
- executives with large compensation events,
- and people living outside Washington who may still earn Washington-source income.
If you were waiting to see whether voters might overturn the tax, that is no longer likely. At this point, any major change would most likely come through the courts or future legislative action.
Why Does This Matter Now?
Even though the tax does not begin until 2028, planning often takes time. Questions around residency, where income is sourced, how a business is structured, and when income is recognized can all become more important if this law remains in place.
This ruling makes the law feel more concrete. While the legal challenge is still important, it may be wise to begin evaluating possible exposure now rather than waiting until the last minute.
Washington’s Sales Tax on Services: Still Changing
Washington also made significant changes to its sales tax treatment of services. After expanding sales tax to many new service categories in 2025, the state has now decided to roll back much of that expansion — but not right away.
Under the new legislation, most of the added service categories will be removed from the sales tax base starting January 1, 2029. However, advertising services will remain taxable. In the meantime, the state has also carved out some earlier exemptions and made retroactive technical fixes to the 2025 law.
Who May Be Affected?
This is especially important for businesses that provide or purchase services such as:
- advertising,
- IT support,
- software-related services,
- staffing,
- investigation and security services,
- and live presentations.
Certain schools, libraries, nonprofits, and youth-related organizations may also benefit from specific exemptions or carveouts.
Why Does This Matter Now?
For many businesses, the rules are not necessarily becoming simpler. Instead, Washington now has a phased approach: some services remain taxable, some will eventually be removed, and some categories have already been clarified or narrowed.
That means businesses may need to revisit:
- whether they are charging sales tax correctly,
- whether they have updated invoices and contracts,
- whether exemptions apply,
- and whether there may be opportunities for corrections or refunds.
In short, this is not just a future issue for 2029. It is also a current compliance and process issue for businesses that have been affected since the 2025 changes took effect.
Oregon Tax Planning Update: PTE Election and Bonus Depreciation
Oregon also enacted important tax changes in April 2026. Two of the most significant relate to bonus depreciation and the state’s pass-through entity elective tax, often called the PTE election.
Beginning with tax years starting on or after January 1, 2026, Oregon will no longer fully follow current federal bonus depreciation rules. Instead, Oregon will require taxpayers to use an older version of the federal law when calculating the state deduction. This could create a larger difference between federal and Oregon taxable income for businesses making significant capital investments.
At the same time, Oregon extended its pass-through entity elective tax for two more years, so it will remain available for tax years beginning before January 1, 2028.
Who May Be Affected?
These changes are especially important for:
- partnerships and S corporations,
- owners of pass-through businesses,
- companies planning significant equipment or other capital purchases,
- and businesses that have been relying on federal bonus depreciation for tax planning.
Why Does This Matter Now?
The bonus depreciation change could increase Oregon taxable income for some businesses and affect estimated payments, projections, and year-end tax planning. Businesses that assumed Oregon and federal depreciation would remain aligned may need to revisit those assumptions.
The PTE election extension, on the other hand, may offer continued planning opportunities for eligible pass-through owners. For some taxpayers, it may remain a valuable way to manage the federal limitation on deducting state and local taxes.
Because of these changes, Oregon taxpayers may benefit from reviewing state-specific tax projections rather than relying solely on federal results.
Is It Time to Review Your Washington or Oregon Tax Strategy?
Both Washington and Oregon continue to make significant changes to their tax systems, and some of those changes are happening in stages rather than all at once. For individuals and businesses affected by these developments, early review can help avoid surprises and uncover planning opportunities.
If Washington’s millionaires’ tax, the evolving sales tax rules on services, or Oregon’s PTE and depreciation changes could affect you, this is the right time to run the numbers — not after the 2028 effective dates are on your doorstep. REDW’s State and Local Tax team works with high-income individuals, business owners, and pass-through entities across the Pacific Northwest and Southwest.
