Lawmakers approved a suite of tax increases to help close Washington’s projected $16 billion shortfall. The new taxes total $4.3 billion over the next two years as part of the state’s $77.8 billion operating budget.

Business & occupation tax

The largest share—$2.1 billion—comes from increases to the B&O tax. Base rates for manufacturing and wholesale firms rise to 0.5%. Large service businesses with over $5 million in revenue will pay 2.1% (up from 1.75%), and major banks will see their surcharge increase from 1.2% to 1.5%. A new 0.5% surcharge also applies to companies earning more than $250 million annually.

Sales tax expansion

Sales tax will now apply to services like advertising, web design, security, temp staffing, and IT training, and certain digital exemptions will be repealed. A separate provision imposes a new tax on nicotine products, including Zyn pouches.

Capital gains and estate taxes

A 2.9% surtax will apply to capital gains over $1 million, on top of the existing 7% rate. The estate tax exemption increases to $3 million, while tax rates rise across income brackets. Combined, these changes are projected to raise $321.6 million.

Elimination of tax preferences

The budget removes exemptions for items such as precious metal bullion and storage unit rentals, generating $148.5 million in new revenue.

EV credit tax

A new tax on the sale of electric vehicle credits—currently affecting only Tesla—is expected to raise $54.5 million.

The tax package is now on Gov. Bob Ferguson’s desk. The governor must decide on the budget by May 17.