Washington’s 2025–2027 Budget: Key Tax Increases and Planning Tips
From Capital Gains to B&O - Here’s What’s Changing and How to Prepare
Washington State Capitol Building
Spoiler alert: If you earn it, drive it, or own it, something is changing.
On April 28, 2025, the Washington State Legislature passed a $77.8 billion operating budget that reshapes the state’s tax landscape in significant ways. The budget, which is now headed to Governor Ferguson for signature, is expected to be enacted in full. While the governor retains line-item veto power, it is unlikely any of the primary revenue provisions will be redlined at this stage.
This budget addresses projected revenue shortfalls while funding education, infrastructure, transportation, and public health. It introduces sweeping tax increases that will impact individuals, businesses, and property owners across the state. Clients should take note of the effective dates and prepare accordingly.
Capital Gains Tax
Who’s affected: Individuals with more than $1 million in capital gains
Effective date: July 1, 2025
New rate: 9.9% (up from 7%)
Estimated revenue: $282M (biennium); $561M (4 years)
Planning considerations:
Explore whether gains can be recognized prior to July 1.
Revisit gifting strategies or consider installment sales where appropriate.
How we’re helping:
We’re reviewing timing and character of gains with clients to minimize the tax burden and support long-term planning.
B&O Tax Increases
Who’s affected: Large service businesses and financial institutions
Effective date: October 1, 2025
New rates:
2.1% general rate for service businesses with >$1M revenue
Additional 0.5% surcharge for corporations >$250M revenue
Financial institution surcharge increases from 1.2% to 1.5%
Planning considerations:
Forecast exposure to new B&O rates
Consider reviewing entity structure and compensation strategies
How we’re helping:
We’re modeling revenue scenarios to help clients understand margin impact and evaluate strategic options.
Sales Tax Expansion
Who’s affected: Businesses using or providing services like temporary staffing, advertising, lobbying, IT services, or security
Effective date: July 1, 2025
Requirement: One-time prepayment for businesses with >$3M in sales
Estimated revenue: $2.9B (biennium); $4.7B (4 years)
Planning considerations:
Identify whether your business buys or sells newly taxable services
Prepare billing, contract language, and compliance systems in advance
How we’re helping:
We’re partnering with clients to assess vendor relationships, prepare for prepayment obligations, and update tax compliance workflows.
Property Tax Cap Adjustment
Who’s affected: Property owners
Effective date: July 1, 2026
Change: 1% annual cap replaced with inflation + population growth formula (max 3%)
Estimated impact: $2.3B per year in additional revenue
Planning considerations:
Review lease terms to determine if tax increases can be passed to tenants
Build rising property taxes into future budgets and cash flow models
How we’re helping:
We’re modeling projected tax liabilities and supporting clients in adjusting rent strategies or reserves accordingly.
Gas Tax & Vehicle Fees
Who’s affected: Drivers and vehicle owners
Effective date: July 1, 2025
Changes:
+6 cents/gallon gas tax
$50 annual fee for electric vehicles
$25 annual fee for hybrids
Estimated revenue: $10B over six years
Planning considerations:
Update 2025 budgets to reflect higher fuel and registration costs
Consider adjusting mileage reimbursement policies or exploring cost-efficient alternatives
How we’re helping:
We’re helping clients in projecting changes in transportation-related expenses.
What This Means for You
These tax updates may feel overwhelming, but thoughtful planning can go a long way. The impact of these changes will vary widely depending on your situation, including your income mix, industry, property holdings, and future plans. At The Purple Group, we're staying on top of these developments and working closely with clients to analyze their exposure, identify planning opportunities, and implement tax-smart strategies that align with their financial goals.
Have questions about how the Washington State budget may impact your finances, business, or future plans? We’re here to help! Schedule a time to chat.
