Washington & Oregon Tax Update

What’s in this article

• Washington Tax Changes:
  • The “Millionaires’ Tax”
  • Capital Gains Changes
  • Estate Tax Changes
  • Real Estate Taxes
  • New Luxury Taxes
• Oregon Tax Changes
  • SB 1507
  • QSBS Tax Changes
• Conclusion: A Structural Shift and Planning Moment

As the Washington and Oregon State Legislative Sessions come to a close, both states are looking at significant tax changes. Below, we break down what taxpayers can expect to see change, and how that might affect your planning process.

A Structural Shift in How High-Income Households Are Taxed

Washington and Oregon lawmakers took significant steps last week that signal a clear and accelerating shift in how high-income individuals, business owners, and investors will be taxed across the Pacific Northwest.

While several measures are still awaiting final signatures, they are far enough along that they should be treated as highly likely to take effect—and, more importantly, as a clear indicator of where policy is heading.

WASHINGTON TAX CHANGES

The Washington Legislature passed one of the most consequential tax packages in decades, anchored by Engrossed Substitute Senate Bill (ESSB) 6346, which passed on March 11, 2026 and has now been delivered to the governor for his signature.

ESSB 6346: The “Millionaires’ Tax”

ESSB 6346 includes a new 9.9% income tax on households earning over $1 million, which will go into effect on January 1, 2028 (with the first payments due in 2029).

Many have called this a “millionaires’ tax” bill, but at a high level, it represents something much more significant: the creation of a new income-tax framework for the state. Marking a seismic shift for a state that has historically avoided income taxes, the new tax may encounter a constitutional challenge, given a 1933 Washington Supreme Court decision that deemed income taxes unconstitutional.

Beyond the headline, the legislation establishes a tax base tied to federal Adjusted Gross Income (AGI) and introduces Washington-specific adjustments, credits, and sourcing rules. This creates the infrastructure for Washington to expand income taxation over time, even if today it is targeted only at ultra-high earners. It also enables local jurisdictions to impose income taxes, provided they include a $1 million standard deduction, creating a pathway for broader income-based taxation at both the state and local levels.

Income Tax Coordinates with the Capital Gains Tax

The new income tax does not replace Washington’s capital gains tax. Instead, it is designed to coordinate with it. Washington’s capital gains taxes of 7% up to $1 million and 9.9% above $1 million will remain in place. Taxpayers will be able to receive a credit for capital gains taxes paid so they won’t be double-taxed.

Washington Estate Tax: A Reversal of Last Year’s Increase

In addition to the new income-based proposals, the Legislature also advanced meaningful changes to the Washington estate tax—and notably, these changes move in the opposite direction of last year’s law.

In 2025, Washington significantly increased estate tax rates, with the top rate reaching as high as 35%, while also increasing the exemption to approximately $3 million and adding inflation adjustments. Last week’s legislation rolls back a portion of those increases, reducing the estate tax rate back to a graduated rate structure of 10-20% for estates of decedents who pass on or after July 1, 2026. The $3 million estate tax exemption (with inflation adjustments), one of the lowest in the country, remains in place.

This creates a unique dynamic from a planning perspective, with a short window of elevated estate tax rates then returning to lower but still meaningful rates after July 2026. Families should pay close attention to their trust planning, lifetime gifting strategies, and the timing of business successions.

This change also reinforces a broader theme: while Washington is expanding taxes on income and capital, it is simultaneously adjusting how it taxes wealth at death—adding complexity and planning sensitivity.

Real Estate: Still Taxed Differently

One of the most important distinctions remains how Washington treats real estate relative to other assets. Under current and newly passed rules, real estate sales remain excluded from Washington capital gains tax and the new “millionaires’ tax” framework, as it’s currently structured. However, real estate is still subject to Washington real estate excise tax (REET).

This creates a widening divide, in which financial assets are increasingly subject to layered taxation, while real estate is taxed through a transaction-based system. For many families, the tax structure positions real estate as a relatively tax-efficient asset class in Washington, at least under current law.

Washington’s Expanding “Luxury Tax” Framework

In addition to income and capital-based taxes, Washington has implemented a new set of targeted taxes on high-value assets, all scheduled to take effect beginning in 2026.

These include:

• Luxury motor vehicle tax:
  An additional 8% tax on the portion of a vehicle’s value above $100,000, applying to purchases, leases, and vehicles brought into Washington
• Luxury watercraft tax:
  A 0.5% tax on the value of recreational boats, layered on top of existing sales and watercraft excise taxes
• Luxury aircraft tax:
  A 10% tax on noncommercial aircraft value above $500,000, which has received the most public attention and is currently under legislative review

These taxes are notable not just individually, but collectively.  Rather than implementing a single, broad “wealth tax,” Washington is building a system of targeted taxes on high-value, discretionary assets, primarily applied at the time of purchase or use.

For Washington families, the timing, structuring, and location of purchases may become more relevant planning considerations, as the cost of acquiring and owning high-end assets is meaningfully increasing.

Washington: Moving Toward High-Income Tax Policy

The millionaire’s tax and luxury tax both reinforce the broader trend of Washington expanding its approach to taxation beyond income—toward visible wealth and high-value consumption. At the local level, Seattle has already moved in the same direction, implementing a 5% employer tax on compensation above $1 million. A broader statewide payroll-tax concept was also introduced this session. While it did not pass, it reflects continued interest in employer-based taxation tied to high earners.

OREGON TAX CHANGES

Qualified Small Business Stock (QSBS) Change Moves in the Opposite Direction

At the same time, Oregon is advancing a materially different approach. Oregon Senate Bill (SB) 1507, passed on February 16, 2026 and awaiting the Governor’s signature, has several key provisions, including:

• Increasing the Earned income Tax Credit
• Creating a tax credit for new jobs businesses create
• Severing Oregon tax code from several federal tax breaks

Importantly, Oregon will disconnect from the federal QSBS exclusion, meaning that effective beginning in 2026, any gains that are federally excluded would be taxed at the state level. Oregonians should be aware of their potential increased state tax liabilities on gains from the sale of qualified small business stock going forward, even for QSBS exits that are federally tax-free.

Conclusion: A Structural Shift

Taken together, these changes reflect some clear trends:

1. Washington is building an income tax framework

Even if initially limited to income above $1 million, the infrastructure is now in place. 

2. Taxes are layering—not replacing each other

• Capital gains tax
• Millionaires tax
• Local/employer taxes

3. Real estate remains advantaged—for now

Its exclusion from capital gains and income-based taxation increases its relative appeal.

4. State differences are becoming more meaningful

The divergence between Washington and Oregon—particularly around QSBS—is widening.

5. Legal challenges are likely

As with prior Washington tax changes, these measures are expected to face constitutional scrutiny.

Final Thoughts

We are seeing a meaningful shift in the Pacific Northwest, including a greater reliance on taxing income and capital, an increased focus on high earners and concentrated wealth, and growing complexity across state and local systems.

For clients, this is not just a tax update—it is a planning moment. Decisions around liquidity events, equity compensation, real estate, and residency are becoming increasingly sensitive to both timing and location.

As always, we are closely monitoring these developments and working with clients to ensure strategies remain aligned with both their long-term goals and the evolving tax landscape.

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®. CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This article is for informational and educational purposes only and does not constitute legal, tax, or financial advice. The information provided is general in nature and should not be relied upon as a basis for any specific tax planning decision.  Readers should consult with qualified legal, tax, and financial professionals regarding their specific circumstances. Coldstream Wealth Management is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.