Why does WA have no income tax? That’s shaped class and the economy of Evergreen state
Washington is one of nine U.S. states that has no corporate or personal income tax. Although there have been several proposals to change that since 1932, that probably won’t change any time soon.
The News Tribune spoke with two local finance experts recently about why that is and how having no income tax has shaped business development, wealth and class in the Evergreen state.
Ania Kapalczynski is an assistant professor of finance in the University of Puget Sound’s Business and Leadership program. She has researched investments, pricing and financial markets at a national scale and worked in wealth management and corporate finance prior to receiving tenure at the university.
Garrett Milam is a professor of economics at the University of Puget Sound and teaches courses on game theory, behavioral economics, microeconomics and contemporary economics. Milam has researched how consumer and market behavior shapes economic outcomes and risk management.
How does WA make up tax revenue in other ways?
An income tax is what it sounds like: a tax levied by a government agency on your annual income. Though Washington does not have a personal or corporate income tax, people and businesses are subject to other taxes, such as a public-utility tax or a business-and-occupation tax, according to the state Department of Revenue.
Half of Washington’s tax revenue in 2022 was generated by retail sales-and-use taxes (about $14.9 billion). Business-and-occupation and public-utility taxes made up 21% of tax revenue (about $6.2 billion), state property taxes made up 15% of revenue (about $4.4 billion) and all other taxes made up about 14% of revenue (about $4 billion), according to a legislative guide to the state tax structure. Other sources of revenue included grants, license and permit fees, charges for services, and borrowing.
Local governments can impose sales and use taxes to raise money for services like affordable-housing development, behavioral health initiatives, public safety, transit, parks and infrastructure investments. Excise taxes on goods like alcohol (20.5%), tobacco ($3.03 for a 20-pack of cigarettes) and marijuana (a 37% tax) all raise revenue for the state, too.
Washington’s tax system ranked 45 overall in the 2025 State Tax Competitiveness Index due in part to its 6.5% sales tax rate, 0.76% property tax rate and average combined state and local sales tax rate of 9.38%, according to the Tax Foundation, a leading nonpartisan tax-policy nonprofit.
California has the country’s highest state-level sales tax rate of 7.25%, and Colorado has the lowest non-zero state-level sales tax rate at 2.9%, according to a 2024 article published by the Tax Foundation.
Seattle and Tacoma rank first and second for highest combined state and local sales tax rates among major U.S. cities, according to the Tax Foundation. As of 2024 Seattle had a rate of 10.35% and Tacoma had a rate of 10.3%.
In 1933 the Washington State Supreme Court ruled that a state income-tax initiative approved by voters was unconstitutional because it did not uniformly tax a class of property (in this case, income). Pennsylvania is the only other state besides Washington that deems income to be property, according to the state Department of Revenue as of 2022. Other states that don’t have an income tax include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.
“Due to [the Culliton vs. Chase] ruling it would require a constitutional amendment to enact an income tax, and to date that hasn’t happened,” DOR communications manager Mikhail Carpenter told The News Tribune. “The issue has been put before the voters several times since the 1933 ruling, but none have been successful.”
In 2023 the Washington State Supreme Court upheld the constitutionality of a 7% excise tax on individual capital gains income in excess of $250,000 a year from the sale or exchange of certain long-term assets like stocks, bonds, business interests and other investments. Real estate sales or exchanges are exempt from the tax, and the revenue collected from the tax funds education and school construction, according to the DOR.
Who benefits from no income tax?
High-income earners, retirees and the wealthy have the most to gain from no state income tax, local experts said. Low and middle class people feel more of the burden from sales and property taxes and would benefit the most from an income tax that targets the most wealthy, Milam said.
Kapalczynski said the lack of income tax in Washington is a draw for high-income earners and businesses to move and establish themselves here. Companies like T-Mobile, Amazon, Microsoft, Google and Apple have settled in Washington, which has encouraged more tech workers to move here and created more jobs in those industries, she said.
No income tax also makes Washington a more attractive place for retirees, Kapalczynski said.
“The largest amount of investable assets in the United States are pension funds. And baby boomers, because of no income tax, have been seeking states like Washington, Florida, Texas, to move,” she said. “Because Washington has lower property taxes than, for example, Florida or New York, we do see a lot of retirees moving there. So now they will not take jobs from the lower income earners who are in need of jobs, but they will be spending. So they create that cycle, … they buy purchases, they pay that sales tax. And thus, if businesses can sell their products, more people can have jobs.”
The high quality of life in Washington, in addition to the natural beauty, is a draw for people to move and operate their businesses here, Kapalczynski said. That coupled with no income tax means businesses can attract more high-income earners, something that often breeds competition and innovation, she said.
“Studies show over and over again that there’s better job creation and better productivity when your taxes are lower,” she said. “People basically feel rewarded for working more if they can keep more of that.”
Consumers are feeling the pressures of inflation on retail costs in the last couple of years, especially as cost-of-living expenses continue to rise in Western Washington. Milam said the cost of goods are going up, which means consumers are paying more in sales taxes, too.
Progressive taxation means that people who have higher incomes pay a higher percentage of their income as taxes. Regressive taxation takes a larger percentage of income from low-income groups.
Washington has a regressive tax structure, largely due to its focus on sales taxes, according to the state DOR. As of 2022, the lowest income households in Washington paid 15.7% of their income for total excise and property taxes, while the highest income households paid 4.4% of their income for the same taxes, according to the DOR.
Although property-tax payments typically fall more heavily on people who have higher value properties and higher incomes, Milam said, higher property-tax rates make it harder for lower and middle income households to get into owner-occupied housing.
“[For] most households, most of their wealth is in the home,” he said. “If you have to pay higher property taxes, then that’s impacting your cost of living adversely and would change people’s behavior in terms of their either willingness to live in a certain area or ability to purchase a home.”
Another issue states like Washington face when they rely on property- and sales-tax revenue is the cyclical nature of those revenues based on consumer spending habits and the state of the economy, Milam said. When there is high unemployment or people cut back on spending due to an economic recession, the state isn’t able to generate its expected tax base, which can lead to issues like budget deficits, he said.
“If you apply even a modest income tax and offset that with a decrease in sales taxes, then you’re still collecting the revenue, and yet you’re broadening the base from which you’re gathering it,” Milam said. “Especially for a progressive income tax, which is what all income taxes are, you’re placing more of that burden on high-income and high-wealth households. And by its nature, that’s going to decrease the burden of the percentage of income from poorer households, and it’s going to make the cost of living more affordable for them.”
Although Milam said the Washington economy is strong now, inflation has increased the price of goods and cost of living lately.
As for the feasibility of the Evergreen state overhauling its taxation structure? Milam said that would be a “huge political” prospect to make reality.
“We’re a blue state and have fairly more liberal leaning views, of course not universally, but in general. And yet, [with] our history with tax increases and taxation just in general, people tend to be very cranky, to be very sensitive [about the topic],” he said. “I do think that it is very politically fraught to try and suggest anything that could even be read as an increase in taxes or alteration in the way that our tax system is set up. And that’s unfortunate, because I do think that a more balanced tax system would be more in line with recommendations of experts and understanding that a more stable, balanced tax system — not higher overall taxes, but the way that we collect our taxes — would be beneficial in terms of our overall activity.”
This story was originally published February 3, 2025 at 5:15 AM.
