WA millionaires’ tax faces new lawsuit threat as Governor Ferguson signs bill

Washington’s proposed millionaires’ tax is heading toward a legal showdown after Governor Bob Ferguson signed the controversial income tax measure, prompting a lawsuit from a conservative advocacy group that argues the policy violates the state constitution.

The Citizen Action Defense Fund announced it is preparing to file a lawsuit within days challenging the legality of the new Washington income tax on high earners. The group has retained former Washington Attorney General Rob McKenna to lead the case, citing long-standing legal precedent, including a 1933 State Supreme Court case that classifies income as property under state law.

“The Constitution is really clear and has been clear as interpreted by case law for the last 100 years,” Jackson Maynard, the executive director of the Citizen Action Defense Fund, told KIRO Newsradio. “You can have an income tax in Washington state, but it has to meet certain requirements. It has to be uniform, and it has to be capped at 1%, and the problem with the income tax that was passed by the legislature is it does neither of those things.”

Ferguson signed the bill into law on Monday during a public ceremony inside the State Capitol, then declared

“Thank you, thank you, thank you. We did it, everybody,” Ferguson said during the bill’s signing. “It’s been a long journey to get here, but, because of the hard work of so many folks, it’s a historic day for Washingtonians.”

McKenna has been quick to speak out against the Governor-supported tax in recent weeks.

“This legislature has systematically dismantled Washington state’s competitive advantages that have brought great companies here or inspired people to start their companies here, and all of that is going away now,” McKenna told KIRO Newsradio.

Court battle to take place with lawsuit looming

The lawsuit is setting up a high-stakes court battle over whether Washington can impose a progressive income tax without a constitutional amendment.

Supporters of the 9.9% tax on any income above a $1 million threshold have long said the state needs the roughly $3.5 billion it would start generating in 2029 in order to cover growing costs for state support programs.

It expands the Working Families Tax Credit, increasing financial support for an estimated 460,000 households. Eligible families could receive payments ranging from $300 to $1,300 annually. Lawmakers also added tax relief for small businesses and eliminated sales taxes on essential items such as diapers, hygiene products, and over-the-counter medications. In addition, it directs 5% of projected revenue to the Fair Start for Kids account, which funds childcare and early learning programs while supporting free school meals and broader affordability initiatives.

The bill’s sponsor, Senate Majority Leader Jamie Pederson, D-Seattle, has argued the money is needed to tackle affordability issues across the state.

“This is a way of changing our direction, so that our tax system is adequate to the needs we face in the 21st century,” Pedersen explained on the Senate floor before the legislature passed the bill.

“I think it’s sad that the Governor and the legislature are using hungry kids as political pawns,” Maynard responded. “If they really wanted to help hungry kids and give them free lunches, they would make that the top of the budget priority in our multi-billion-dollar budget instead.”

Other supporters, like Andrew Villeneuve, the founder of the Northwest Progressive Institute, told “Seattle’s Morning News” that the bill also balances the financial playing field.

“We have just grown by leaps and bounds, and our public services don’t have enough money to provide the level of service that we’ve had in the past, so if we don’t want to have these continuing fiscal problems, then we need to right our upside-down tax code,” Villenueve explained. “The only way to fix that is to require the wealthy to pay what they owe.”

Public testimony before the bill’s passing

During public testimony as the bill was making its way through the State House of Representatives, Jabe Blumenthal, a lifelong Washingtonian who built his wealth in tech, said he has supported the state’s capital gains tax since its start and expects to pay the proposed state income tax every year.

“We need tax policy where all rich people, not just those who want to, are required to pay their fair share into a system that works so well for them,” Blumenthal testified. “And I’m very happy to do so.”

“This is just another tax that’s going to make us not able to generate wealth in our families,” Mike Sotelo, president of the Ethnic Chamber of Commerce Coalition (and another self-described millionaire), stated. “It limits access to capital. It makes a higher loan denial for us … You want to help minority businesses? Don’t pass this bill.”

Maynard told KIRO Newsradio that Democrats should concentrate more on budget cuts rather than adding to it.

“They have a spending problem, not a revenue problem, and so they have gone to the well so many times that this is now an effort to try to circumvent the clear requirements of the Constitution,” Maynard said. “The budgets have ballooned, and yet they won’t bring the spending under control. So, they’ve got a political problem that now has morphed into a legal problem, and so that’s why we have courts.”

Opponents, like Maynard, argued that the tax has already driven higher-earning residents and businesses out of the state and warned that it may lead to a lowering of the income threshold over time. Business leaders and critics also raised concerns during recent hearings about economic impacts and access to capital.

Last month, Zach Abraham, Chief Investment Officer at Bulwark Capital Management and a lifelong Washingtonian, told Seattle Red that the company is now packing up and leaving, while a coalition of 30 businesses in Snohomish County, led by Jason Bickford of Bickford Ford, has asked lawmakers to reconsider the millionaires tax, highlighting the negative impacts on local businesses.

“I don’t feel that I have a choice, and this new tax takes my effective tax rate to somewhere between 45 and 51% when you include everything — Excise Tax and the whole shooting match,” Abraham explained. “And with a 50% tax rate, so you even own your business?”

Republican lawmakers like Travis Couture have warned that the tax might also drive away top-earning athletes from moving to the state.

“What really matters to pro sports teams is ticket sales,” Couture said. “Cal Raleigh sells tickets, Sam Darnold tells tickets.”

The anticipated lawsuit could ultimately determine the future of income tax policy in Washington state and whether the state’s constitutional restrictions on graduated income taxes remain in place.

“I think people are shocked that a state that has not had an income tax and has 100 years of precedent saying you can’t have an income tax is now passing one over the face of that case law, over what everybody understood to be the law,” Maynard said. “And I think there’s a lot of fear that it’s not just going to be millionaires, quote, unquote, that are taxed. It’s going to be everybody, because all they have to do is remove a paragraph, and this is an income tax that can be applied to everybody, and there’s no guarantee a future legislature won’t do that.”

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