Washington passed a 9.9% tax on income above $1 million, but it likely violates the state constitution's ban on income tax. Christian Osgood shows how the surcharge compounds with existing taxes on sales, property, and equipment, and argues it will push high earners and businesses to Texas, Florida, and Arizona.
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Absolutely insane. Washington State's House just passed a basically 10%, 9.9% tax. They're branding the millionaire tax. Now, on top of cutting a whole bunch of awesome state programs like Running Start, where kids can actually cut down on the cost of college and get ahead, they cut those so that they can have more tax revenue. In this video, I'm going to explain exactly what they have passed, what it means, and especially if you are a job provider in Washington State, why you're most likely to move if this stays around. So First of all, it is passed. They're calling it the Millionaires Tax. It's passed the House. Governor said they're going to sign it. Now, there is a small problem in that it violates the state's constitution. Washington State is one of 9 states that does not have any income tax. Now, they make up for it by taxing you up and down the wazoo, especially business owners and landlords. But they come in and they have very, very high sales tax. They have a lot of additional taxes on all sorts of goods and services, tons of toll roads and toll lanes. They have a ton of different revenue streams, but despite being one of the most expensive states to live in, they're going to make it so you don't want to live there if you are a millionaire or a high-income earner. So if your family income exceeds $1 million, which is a significant amount of entrepreneurs, remember this is Seattle. This is home of Starbucks, Amazon, Boeing. A lot of companies that notice have already moved second headquarters to other markets around the country. Kansas, Florida, Texas, they're going to make it so that if you make more than $1 million gross in a year, an additional 10% tax. Now, I'm not super good at math, but if you make an additional million dollars and let's say you provide a couple hundred jobs, well, while you are making this money, you're going to pay an extra $100,000 per million that your family makes. Now, take this as an example, as a business owner who used to be in Washington and left because of this exact tomfoolery. When we're putting these things together, let's take my resort, for example. Washington charges a 10% tax for transient rentals. What does that mean? All hotels, period. If you rent for less than 30 days to any guest, 10% goes to the state. Why? Because they said so. I have an equipment tax. They will send an auditor to my resort every year and count the numbers of rakes, shovels, wheelbarrows, and mattresses for some reason that they find. I get taxed for owning them, not for buying them, which I also paid sales tax on. I get taxed for owning them. Why, you might ask? The actual reason, because those shovels are taking away hardworking people's jobs. Someone could have paid, I could have paid an army of people to dig a trench with their hands instead of a shovel, and I'm jacking all of that taxable labor revenue to the state. So that is the actual reason. The state's like, hey, we're losing revenue. Because of the equipment that you own. So if you buy a shovel, we want you to pay for it every single year. Oh, also, I have property tax on the 13 acres and still have the maintenance and the marketing and all the things it takes to run a resort. So business owners are already paying a brunt of the taxes for Washington State. If you happen to be too successful though, not only will you pay property tax and employee tax and L&I tax and equipment tax, and B&O tax and retail tax and all the other taxes. If you're too successful beyond all of those hurdles in a very difficult state, we're going to go ahead and just take 10% above your federal income tax. If you think that the wealthy are going to continue to give high-paying jobs in this area, you're crazy. The tech jobs are just going to go literally anywhere else. So expect people to be moving to Dallas. To Arizona, if it lasts there. Arizona's getting a little bit weird lately. Florida is getting tons of tech jobs, tons of finance jobs. Here's what we find when we pass these just ridiculous taxes and you beat up only your wealthy job creators, you lower median income. There's less to go around. It's like, hey, how do you avoid the tax? You go somewhere else. I left a while ago. People are going to move out. Now there's some good news. This doesn't go into effect until 2028, so the first payments wouldn't be till 2029. So great news if you're a Washingtonian and you're a business owner, you still have plenty of time to go live anywhere else. Also, they'll probably throw this out as lawsuits will start immediately when they pass this because it is, again, in violation of our state constitution. So it still has to go through the judicial system, and I don't think it can make it. But I will say this, Washington State is crazy, and they have passed some wild things. In fact, a few years back, another reason I left the state, they passed what's called the REIT tax. So there is, and this is for like your house when you sell it or a massive apartment building, there is up to a 3% tax on real estate. It's called real estate excise tax. If we swap partners in an LLC and more than 50% of the equity changes hands, we have to pay what's called a REIT tax. We will pay as if the property sold. Up to 3% of the sales price of the property, not the capital gains. There's a separate capital gains tax. We're just talking about the real estate excise tax. I have a partner who buys me out at 50% of an LLC. Well, one of the two of us is going to have to agree to pay on the first— it's graduated. So your first $500,000, I think it's 1%. It migrates up to everything over $1 million of purchase price. Or valuation is taxed at 3%. So again, let's go back to my resort example. I bought a resort for $4.5 million. It's worth probably about $5.5 million today. If I had a buyout where a partner exited and half of the Robinhood Village Resort has a new owner, well, everything above $1 million has a 3% of the value of the Robinhood. Someone has to pay 6 figures to just trade partners. And if you sell the building, it's also the state. These sort of taxes cause people to leave. It also causes landlords to want to invest elsewhere, which means you have less repairs and maintenance. You get rundown properties, you get tenants with less jobs, so you have more homelessness across the board. These are bad policies and this is not a left versus right thing. This particular issue is crazy tax, period. It's just bad. It's just bad policy. You could do this in a red state and it would be stupid. They're just currently, there's not a lot of 'em doing this because it's a wild idea.. You can't just pass a blanket 10% tax targeting individuals, but especially not your highest producing individuals. It makes no sense. And then as an entrepreneur, there's nothing to aspire to. If I work hard enough, I might be able to give more money to programs that I don't like that the state implements automatically. Washington State needs to tighten its budget. It needs to spend less on ridiculous programs. It doesn't need to do this, but that got passed officially. You are now in the loop, entrepreneurs. Come on down to Dallas. We'll see you guys here. And as always, like, follow, subscribe. I'm always in this real estate channel, but anything that happens with taxes, especially to business owners in Washington State, you better bet this is going to have a huge impact on real estate. So stay tuned. We'll see you on the next episode.
