The Washington Exodus Begins: Wealthy Families Weigh Their Options as Washington’s Tax Landscape Shifts

What’s in this article:

• A State in Transition
• Washington State Tax History
• Who is Leaving—and Why
• Where They’re Going: State-by-State Profiles
• Striking the Balance
• Guided Assessment Tool

A State in Transition

For decades, Washington State was a haven for high earners. With no personal income tax, no capital gains tax, and a modest estate tax, the Evergreen State attracted entrepreneurs, tech executives, and retirees who valued the combination of a thriving economy, world-class natural beauty, and a tax-friendly environment. That era is rapidly drawing to a close and many high-income earning Washington residents are now looking for a way out.

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A Washington State Tax History

WA Cares Fund Payroll Tax

The transformation began in 2019, when the Washington Legislature established the WA Cares Fund—the nation’s first state-run, publicly funded long-term care insurance program. Funded by a mandatory 0.58% payroll tax on all W-2 compensation with no income cap, the tax became effective in July 2023 after an initial delay. For high-earning tech workers whose compensation packages include substantial stock grants and bonuses, the WA Cares payroll deduction introduced an entirely new cost of living in the state. The program’s limited lifetime benefit of $36,500 struck many affluent families as woefully inadequate relative to the tax burden imposed, particularly given that average nursing home costs in Washington now exceed $152,000 per year.

Capital Gains

Then came the capital gains tax. Enacted in 2021 and first collected in 2022, Washington imposed a 7% excise tax on long-term capital gains above an annual standard deduction ($278,000 in 2025, adjusted for inflation). The Washington Supreme Court upheld the tax in 2023, and voters rejected a proposed repeal in November 2024. In May 2025, Governor Ferguson signed Senate Bill 5813 into law, adding a 2.9% surcharge on gains exceeding $1 million above the standard deduction—meaning the 9.9% top rate effectively applies to gains above $1,278,000, applied retroactively to January 1, 2025. For a Washington resident selling a business or significant equity position, the combined federal and state tax rate on long-term capital gains now exceeds 30%.

The Millionaire Tax

And now, the most significant shift yet: the Millionaire Tax. In March 2026, Senate Bill 6346 passed the Washington State Legislature and Governor Ferguson signed it into law on March 30. The bill, which will become effective beginning in 2028, imposes a 9.9% income tax on Washington residents earning more than $1 million annually. While proponents frame it as a necessary rebalancing of Washington’s regressive tax structure, critics warn that it establishes the bureaucratic framework for a broader income tax and risks driving the state’s wealthiest residents, and the economic activity they generate, to more tax-friendly jurisdictions.

For many affluent Washington families, the cumulative weight of these changes—a new payroll tax, a capital gains tax that has nearly doubled, one of the highest state estate tax rates, and now what is poised to become the state’s first-ever income tax—has tipped the scales. What was once idle speculation about relocation has become serious planning.

Who Is Leaving—and Why

The decision to leave one’s home state is never purely financial. Families weigh community ties, proximity to aging parents, children’s school networks, and the intangible sense of belonging that comes from years spent in a place. Yet for certain categories of Washington residents, the financial calculus has become consequential enough to take on a greater weight than ever before.

Entrepreneurs and Business Founders

Washington’s technology corridor—stretching from Seattle through the Eastside communities of Bellevue, Kirkland, and Redmond—has long been a breeding ground for startups and innovation. Founders who once chose to build their companies here because of the absence of income tax now face a very different equation. An entrepreneur earning $2 million in annual income would owe approximately $99,000 under the new Millionaire Tax alone—before accounting for the capital gains implications of any future equity sale. For founders in the early stages of company formation, the decision to incorporate and build in a no-income-tax state has become an increasingly straightforward calculation, leaving Washington out of the equation completely.

Adding to the burden is Washington’s Business and Occupation (B&O) tax, a gross receipts tax that is levied on total revenue rather than net profit. Unlike a traditional corporate income tax, the B&O tax offers no deduction for expenses, payroll, or losses—meaning a startup burning through cash while scaling can owe meaningful tax on revenue it has not yet turned into earnings. The 2025 budget package raised the B&O rate for service businesses with annual gross income exceeding $5 million from 1.75% to 2.1%, and increased surcharges for financial institutions and advanced computing businesses. For founders building high-revenue, low-margin, or pre-profitability companies, the B&O tax represents a structural cost that simply does not exist in most competing states.

Those Approaching a Liquidity Event

Perhaps no group feels the urgency more acutely than individuals and families on the verge of a significant liquidity event—whether through a company acquisition, an IPO, or the sale of a major asset. Under Washington’s current tax framework, the sale of a business with $20 million in long-term capital gains (above the standard deduction) would generate approximately $1,951,000 in state capital gains tax—$70,000 at the 7% rate on the first $1 million and $1,881,000 at the 9.9% rate on the remaining $19 million. In states like Nevada, Texas, or Florida, that same transaction incurs zero state-level capital gains tax. The math is stark, and the window for planning is finite. Establishing domicile in a new state requires genuine relocation—not merely a forwarding address—and the earlier a taxpayer makes the move, the cleaner the transition.

Retirees and Those Planning for Wealth Transfer

Washington rolled back the previous top estate tax rate of 35%, reverting to its previous maximum of 20% while retaining the $3 million exemption. Despite the rollback, Washington’s estate tax still applies at lower thresholds than federal law. For retirees whose wealth is concentrated in illiquid assets such as real estate, private business interests, or retirement accounts, the prospect of a 20% marginal state estate tax rate can force painful decisions about asset liquidation and family legacy. Moving to a state with no estate tax eliminates this burden entirely and can represent the single largest wealth-preservation decision a family makes.

Where They’re Going: State-by-State Profiles

Not all destinations are created equal. Each state offers a unique blend of tax advantages, cost-of-living considerations, and lifestyle factors. Below, we examine the eight states most frequently chosen by Washington families making the move (in order of their geographical proximity to Washington). Unless otherwise noted, state income tax rates, sales tax rates, estate and inheritance tax data, and effective property tax rates[1] referenced throughout this section are sourced from the Tax Foundation and AARP.

Idaho

Tax Advantages: Idaho has aggressively lowered its income tax rate in recent years, moving to a flat 5.3% rate as of 2025. While not zero, this rate is approximately half of Washington’s new 9.9% Millionaire Tax and substantially lower than California. Idaho imposes no state estate or inheritance tax, and its overall tax competitiveness has been recognized by the Tax Foundation, which ranked the state 9th nationally in its 2026 State Tax Competitiveness Index. For families willing to accept a modest state income tax in exchange for geographic proximity to the Pacific Northwest, Idaho offers a compelling middle ground.

Cost of Living: Idaho’s cost of living remains well below western Washington levels, though the Boise metropolitan area has experienced rapid appreciation in recent years as transplants from Washington, Oregon, and California have driven demand. Rural areas and smaller cities like Coeur d’Alene and Sun Valley offer varying price points. Overall, housing, groceries, and general expenses are meaningfully lower than in the Puget Sound region.

Lifestyle Considerations: Idaho is perhaps the most natural cultural fit for Pacific Northwest families. The state offers stunning mountain landscapes; abundant outdoor recreation including skiing, fly fishing, hiking, and mountain biking; and a pace of life that appeals to those who value the natural environment of Washington. Boise has emerged as a vibrant small city with a growing food and arts scene. The trade-offs include more limited healthcare infrastructure compared to major metropolitan areas, fewer direct flight options, and a less diverse cultural landscape. Winters in northern Idaho and the Sun Valley area can be severe.

Montana

Tax Advantages: Montana occupies a unique position in the tax landscape. While it does levy a state income tax with a top rate of 5.65% (declining to 5.4% in 2027), Montana is one of only five states with no sales tax whatsoever. This combination can be advantageous for families with high consumption spending. Montana also imposes no estate or inheritance tax, and the state has been ranked among the top ten nationally for overall tax competitiveness. The capital gains tax rate, while present, is partially offset by a state-level exclusion for certain gains. For families whose primary concern is estate tax avoidance and who can tolerate a modest income tax, Montana offers an attractive package.

Cost of Living: Montana’s cost of living has historically been very affordable, but resort communities such as Big Sky, Whitefish, and the greater Bozeman area have experienced extraordinary price appreciation, driven in part by an influx of wealthy transplants from the West Coast. In these desirable pockets, housing costs can rival or exceed Seattle-area prices. Smaller communities and the eastern part of the state remain quite affordable. The absence of sales tax provides ongoing savings on everyday purchases.

Lifestyle Considerations: Montana may be the most compelling lifestyle destination on this list for families who love the outdoors. Glacier National Park, Yellowstone, world-class fly fishing, skiing, and vast open landscapes define daily life. The state offers a genuine sense of space and solitude that appeals to those seeking an escape from urban congestion. However, Montana’s remoteness is also its limitation—major metropolitan areas are absent; healthcare options can be limited; cultural amenities are sparse compared to larger cities; and winters are long, cold, and dark. Access to commercial air travel is improving but remains limited.

California

Tax Advantages: At first glance, California may seem like an unlikely destination for tax-motivated relocators. The state’s top marginal income tax rate of 13.3% is the highest in the nation, and capital gains are taxed as ordinary income. However, California has no state estate or inheritance tax, which is a meaningful advantage over Washington for families whose primary concern is wealth transfer. Proposition 13 also caps property tax increases at 2% per year, creating a significant long-term benefit for homeowners. For families who value California’s lifestyle above all else and whose primary tax concern is estate planning rather than income tax, the math can still work—though the income tax burden is objectively heavier than in Washington’s emerging regime.

Cost of Living: California’s cost of living, particularly in the Bay Area and coastal Southern California, is among the highest in the nation. Housing costs in desirable areas frequently exceed even Seattle’s elevated market. However, inland areas and certain Southern California communities offer more moderate pricing. Overall, families should expect higher day-to-day expenses across virtually every category.

Lifestyle Considerations: California’s appeal is undeniable: year-round temperate climate in many coastal areas, unparalleled cultural and culinary offerings, world-class universities, and diverse geography ranging from beaches to mountains to wine country. For families with ties to the technology, entertainment, or venture capital industries, California offers professional networks that are difficult to replicate elsewhere. The state’s challenges are equally well known: traffic congestion, wildfire risk, periodic drought, and a regulatory environment that many business owners find burdensome.

Nevada

Tax Advantages: Nevada is one of the most tax-friendly states in the country for high-net-worth individuals. There is no personal income tax, no capital gains tax, and no estate or inheritance tax. For entrepreneurs, business sellers, and retirees alike, Nevada offers effectively zero state-level taxation on income, investment gains, and wealth transfers. The trade-off comes in the form of higher sales taxes and reliance on gaming and tourism revenue to fund state services.

Cost of Living: The Las Vegas metropolitan area remains one of the more affordable major metro areas in the western United States, with median home prices well below those in the Seattle region. Reno, increasingly popular among tech workers and entrepreneurs, offers a smaller-city feel with proximity to Lake Tahoe and the Sierra Nevada mountains, though housing costs there have risen significantly in recent years. Overall, day-to-day living expenses in Nevada are moderately lower than in western Washington.

Lifestyle Considerations: Nevada’s appeal extends well beyond the Las Vegas Strip. The Reno-Tahoe corridor offers world-class skiing, hiking, and outdoor recreation in a setting that feels more akin to the Pacific Northwest. Las Vegas has matured as a city with excellent dining, arts, and professional sports, including the NFL’s Raiders and NHL’s Golden Knights. The desert climate presents similar challenges to Arizona—extreme summer heat in Las Vegas, though Reno’s higher elevation offers four distinct seasons. Water scarcity remains a long-term concern for the region.

Arizona

Tax Advantages: Arizona’s flat 2.5% income tax rate is among the lowest in the nation for states that levy an income tax, and it applies uniformly to capital gains. There is no state estate or inheritance tax. For a Washington family earning well above $1 million, the shift from a 9.9% marginal income tax rate to 2.5% is substantial, though not zero.

Cost of Living: The Phoenix metropolitan area offers significantly lower housing costs than the Puget Sound region. Median home prices in the broader Phoenix area generally run well below comparable Seattle-area properties, though premium desert communities can rival Washington prices. Everyday expenses such as groceries, utilities, and transportation tend to be moderately lower.

Lifestyle Considerations: Arizona is a natural fit for those who value outdoor recreation, golf, and warm-weather living. The state’s desert climate offers more than 300 days of sunshine per year, but summer temperatures regularly exceed 110°F in the Phoenix area, which can be a significant lifestyle adjustment for Pacific Northwest transplants accustomed to temperate summers. Access to major-league professional sports, cultural institutions, and a growing culinary scene round out the appeal. Healthcare infrastructure in the Phoenix and Scottsdale areas is robust, an important consideration for retirees.

Wyoming

Tax Advantages: Wyoming ranks first in the nation on the Tax Foundation’s 2026 State Tax Competitiveness Index—and for good reason. The state levies no personal income tax, no corporate income tax, no capital gains tax, and no estate or inheritance tax. Its sales tax rate is among the lowest in the western United States, and property taxes remain modest, with a recently enacted 25% exemption on the first $1 million of value for single-family homes. For families seeking the most tax-efficient environment in the Mountain West, Wyoming is effectively unmatched. The state also offers exceptionally favorable trust laws, making it one of the premier jurisdictions in the country for dynasty trusts and long-term wealth transfer planning.

Cost of Living: Wyoming’s cost of living presents a tale of two markets. Jackson Hole and Teton County have become one of the most expensive real estate markets in the nation, with median home prices that rival or exceed those of Seattle, San Francisco, and Manhattan. This concentration of wealth has created a premium lifestyle enclave, but it is not representative of the broader state. Communities like Sheridan, Cody, and Cheyenne offer significantly more affordable housing and everyday expenses. Outside of Jackson, Wyoming’s cost of living is well below the national average.

Lifestyle Considerations: Wyoming shares much of Montana’s appeal for Pacific Northwest transplants—dramatic mountain scenery, world-class skiing and fly fishing, Yellowstone and Grand Teton National Parks, and a deep culture of outdoor living. Jackson Hole in particular has evolved into a sophisticated community with fine dining, art galleries, and a social scene shaped by the concentration of wealth the area has attracted. The trade-offs mirror those of Montana: severe winters, geographic isolation, limited healthcare infrastructure outside of Jackson, and very few direct commercial flight options (though Jackson Hole Airport offers seasonal service to many major cities). The state’s small population—roughly 580,000 residents—means that cultural amenities, dining variety, and professional networking opportunities are inherently limited compared to metropolitan alternatives. For families who prioritize tax optimization alongside a rugged, outdoor-oriented lifestyle, Wyoming represents the strongest combination available.

Texas

Tax Advantages: Texas mirrors Florida and Nevada in offering no personal income tax, no capital gains tax, and no estate or inheritance tax. The state funds its operations primarily through sales and property taxes, the latter of which are notably higher than most other states on this list. Recent legislation has expanded the homestead exemption, now excluding the first $140,000 in appraised value (with an additional $60,000 for seniors 65 and older), which helps offset the higher rates. For high earners and business owners, the absence of income and capital gains taxes makes Texas one of the most favorable states for wealth accumulation.

Cost of Living: Texas offers some of the most affordable major metropolitan areas in the country. Houston, Dallas-Fort Worth, San Antonio, and Austin all offer housing costs well below the Seattle area, though Austin’s rapid growth has pushed prices higher in recent years. Property taxes are the primary cost consideration; a high-value home in a desirable Texas school district can carry a substantial annual tax bill. Overall living expenses including food, transportation, and utilities are generally lower than in western Washington.

Lifestyle Considerations: Texas offers enormous geographic and cultural diversity. Austin has become a major technology hub, attracting many of the same companies and workers that once anchored in Seattle. Dallas and Houston offer world-class dining, arts, and professional sports. The state’s business-friendly regulatory environment is a significant draw for entrepreneurs. Challenges include extreme summer heat across much of the state, occasional severe weather events, and a landscape and climate that differs markedly from the Pacific Northwest. Healthcare access is strong in major metros but more limited in rural areas.

Florida

Tax Advantages: Florida has long been the premier destination for tax-conscious relocators. The state levies no personal income tax, no capital gains tax, and no estate or inheritance tax. Florida’s homestead exemption provides additional protection, shielding up to $50,000 of a primary residence’s assessed value from property tax and offering robust asset protection from creditors. For families concerned about both income taxation and estate planning, Florida offers the most comprehensive tax-free environment of any major destination state.

Cost of Living: Florida’s cost of living varies enormously by region. The Miami, Naples, and Palm Beach corridors can rival or exceed Seattle-area pricing for luxury real estate, while the Tampa Bay area, Jacksonville, and much of the Gulf Coast remain significantly more affordable. Property insurance costs have risen dramatically in recent years due to hurricane exposure, and this is an important factor that can offset some of the tax savings. Groceries, utilities, and healthcare costs are broadly comparable to national averages.

Lifestyle Considerations: Florida offers warm weather year-round, extensive coastline, and a mature infrastructure for retirees and families. The state’s lack of a personal income tax has attracted a critical mass of wealth, creating a robust social and professional ecosystem for business owners and investors. However, Florida presents unique challenges: hurricane risk is a genuine lifestyle and financial consideration, summer humidity can be oppressive, and the state’s rapid population growth has created congestion and infrastructure strain in many metropolitan areas. For Pacific Northwest transplants, the flat topography and absence of mountains can feel like a significant cultural shift.

Striking the Balance

The decision to leave Washington State is rarely reducible to a tax spreadsheet. It is a deeply personal decision that must balance financial optimization against the things that make a place feel like home: the friends whose children grew up with yours, the Saturday morning farmers’ market, the view of Mount Rainier from your kitchen window, the professional network built over decades.

Yet the financial stakes are increasingly difficult to dismiss. A Washington resident earning $3 million annually now faces a state income tax bill of nearly $200,000 under the Millionaire Tax—money that would remain entirely in the family’s pocket in Nevada, Florida, Texas, or Wyoming. A business owner contemplating a $20 million exit could save nearly $2 million in state capital gains tax by completing the sale as a resident of a no-tax state. And a couple with a $20 million estate could avoid approximately $2 million in state estate tax simply by establishing domicile in any of the 33 states that impose no estate or inheritance tax.

That said, the calculus is not uniformly one-directional. At income levels closer to the $1 million threshold, Washington’s standard deduction significantly reduces the effective tax rate — in some cases below what a family would pay in states like Idaho or Montana that levy income tax on substantially all earnings. The savings case for relocation strengthens as income rises, but it is not automatic at every level.

What is clear is that Washington’s tax trajectory has fundamentally altered the equation. A state that once competed with Nevada and Texas for tax-conscious residents now sits on the other side of the ledger, alongside states known for their tax burden. For wealthy families, the question is no longer whether Washington’s tax environment has changed—it has, dramatically—but whether the life they have built here is worth the growing cost of staying.

For those who decide the answer is no, the path forward demands careful planning. Establishing genuine domicile in a new state requires more than a change of address; it involves relocating one’s center of life, including primary residence, voter registration, driver’s license, estate planning documents, professional ties, and social connections. The process benefits enormously from coordination among tax advisors, estate planning attorneys, and financial planners well in advance of any taxable event.

The exodus from Washington may still be in its early stages, but the trend is unmistakable. As the state continues to expand its tax footprint, the families who once called it home will increasingly be found building new lives—and new legacies—elsewhere.

This article is for informational and educational purposes only and does not constitute tax, legal, or financial advice. All income figures, tax estimates, and financial scenarios presented herein are hypothetical in nature, are not based on any actual individual or family, and are intended solely for general illustrative purposes. These examples should not be relied upon for personalized tax, legal, or financial planning. Individual circumstances vary significantly based on filing status, deductions, credits, and other factors. Consult with qualified professionals before making relocation or tax planning decisions. Tax laws for each state referenced herein are subject to change, and Coldstream does not guarantee the accuracy, timeliness, or completeness of the information presented. Coldstream Wealth Management is a SEC-registered investment adviser. Registration does not imply a certain level of skill or training.

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