Washington has long been one of the few U.S. states without a personal income tax, meaning residents paid no state tax on what they earned, regardless of income. Now, the status quo is changing. In March 2026, Governor Bob Ferguson signed SB 6346 into law, creating Washington's first tax on personal income tax.
Effective January 1, 2028, adjusted gross income above $1 million will be taxed at a flat 9.9% rate, with first returns due in 2029. Commonly called the millionaires' tax, SB 6346 won't touch most Washington residents. But for owners of profitable businesses, and construction owners in particular, it's worth a closer look.
How This Law Applies to Your Construction Business
It all boils down to business structure. In Washington, most construction businesses are locally owned LLCs, S corporations, and partnerships that function as pass-through entities, which, unlike C corporations, don't pay income tax directly. Instead, business profits flow straight through to the owner and show up on their personal return. That means an owner's personal reported income will reflect not just their salary, but their share of the business's profits and any distributions taken from the company as well.
As a result, SB 6346 poses a unique challenge to construction owners. Because business profits appear on paper as personal income, an owner can cross the $1 million threshold even when much of that income stays in the business as working capital. When the 9.9% tax kicks in, owners will face a choice: pay the bill out of their own pocket or pull that cash from the business.
In particular, two scenarios are most likely to push construction owners past the threshold:
- A strong business year. Construction margins fluctuate, but the right mix of projects in a given year can produce substantially higher income than usual.
- A business sale. When a construction owner sells the business, the gain typically flows through to the owner's personal return as ordinary income or capital gain. Depending on the size and value of the business, a sale could produce millions of dollars in reportable income in a single year.
Fortunately, none of this is set in stone. With the law's effective date still nearly two years out, owners have time to plan ahead and meaningfully reduce the potential impact on their business.
Where to Focus Your Planning
For most construction owners, getting ahead of the millionaires' tax comes down to three areas.
Entity structure
How your business is organized has direct implications for your exposure under SB 6346. How and when income is recognized, how ownership is divided, and whether the current arrangement remains optimal given the new tax environment are worth reviewing with your tax advisor and attorney before the law takes effect. The right answer will look different for every business.
Pass-through entity tax (PTET) elections
Because SB 6346 creates a new Washington state income tax on certain high-income earners, it also introduces planning opportunities that may help mitigate some of the tax impact. One of those opportunities is a PTET election, which allows eligible partnerships and S corporations to pay the tax at the entity level. State taxes paid at the entity level can generally be deducted on the business's federal return, which lowers federal taxable income in a way that paying the tax on an owner's personal return may not. The details of how the election will work are still being finalized, but for owners who expect to be affected, it's worth understanding early and factoring into the broader plan.
Succession, retirement, and business sales
For owners already thinking about an ownership transition, the millionaires' tax adds a meaningful factor to the analysis. The structure of a sale matters for how much income lands on your personal return in any given year. An asset sale is taxed differently than a stock sale. An installment sale, where payments are spread over several years, can distribute the recognized income over time rather than concentrating it in a single year. The right answer depends on several factors, such as your goals and the buyer's preferences, but any of those conversations now need to include the new tax law as a variable.
What to Do Now
For construction owners, the best preparation starts with an early conversation. Structural changes, succession plans, and distribution strategies all take time to get right, and an early start means more options and less pressure down the road.
At Opsahl Dawson, our tax experts work with construction owners across the Pacific Northwest, helping them determine how entity structure, ownership transitions, and other key factors can impact their tax planning. Whether you're years from a transition or expecting a strong 2027, we're here to help you understand your exposure under SB6346, weigh your options, and build a plan that puts you ahead of the effective date.
Reach out to our team to start the conversation.
