The Senate passed the income tax bill (ESSB 6346) on Feb. 16. (I wrote about the bill as passed here.) As passed by the Senate, the income tax would increase revenues by $2.706 billion in 2027–29 and $7.537 billion in 2029–31. It would use some of those revenues for local government public defense ($189.4 million in 2027–29 and $527.6 million in 2029–31) and tax relief ($219.3 million in 2027–29 and $1.635 billion in 2029–31).

The House Finance Committee approved a different version of the bill on Feb. 27. As approved by Finance, the income tax would increase revenues by $2.698 billion in 2027–29 and $7.515 billion in 2029–31. It would use $150.0 million a year for local government public defense. Additionally, this version would provide tax relief ($40.9 million in 2025–27, $385.2 million in 2027–29, and $1.494 billion in 2029–31).

Unlike the Senate, House Finance would not end the temporary B&O tax surcharge for businesses with income over $250 million a year early. Both the Senate and House Finance would make the same change to the Working Families Tax Credit (WFTC) age limit, both include the sales tax exemption for hygiene products, and both make the same changes to the B&O small business credit. House Finance would roll back the sales tax changes made in ESSB 5814 a year earlier than the Senate (effective Jan. 1, 2029 instead of Jan. 1, 2030). House Finance would exempt diapers from sales tax. Additionally, House Finance would exempt schools from and nonprofits from some provisions of ESSB 5814 beginning July 1, 2026. The temporary B&O surcharge would not apply to food wholesalers effective July 1, 2026.

Today, Finance Chair Berg proposed a striking amendment to the bill. There is no fiscal note yet, but Gov. Ferguson has said that he would sign it. Chair Berg’s striker would:

• Allow a deduction from Washington base income for 80% of net operating loss carryover that is deducted from federal adjusted gross income.
• Adjust the standard $1 million deduction for inflation every two years using the U.S. consumer price index for all urban wage earners. Both the Senate- and House Finance-passed versions would have adjusted it annually using the Seattle CPI. Adjusting the deduction only every two years means that there would be an erosion of the real incomes subject to tax over time.
• Deposit all revenues in the general fund–state. Beginning in FY 2030, 5% of the revenues collected in the prior fiscal year would be transferred annually to the fair start for kids account. The fair start for kids account is a fund subject to the outlook, but it does not currently have a revenue source. By statute, it may be used for child care and early learning. Nothing would keep the Legislature from supplanting current funding for child care with these new revenues.
• Specify that nonresidents who earn income in Washington for five or fewer days would not be subject to tax—unless they are professional athletes, student athletes, or entertainers.
• Add intent language that breakfast and lunch would be provided for free in schools. (There is nothing in the bill that would do that.)
• Add intent language that the Legislature would “create a city and county fiscal health account for future transfers from the general fund to mitigate a portion of the revenue loss to local government.” (Again, there is nothing in the bill that would do that.)

The tax relief provisions in Chair Berg’s striker are:

• The age limits for the WFTC would be removed.
• The maximum qualifying incomes for the WFTC would be increased to the need and payment standards the state uses for cash assistance programs. (For example, currently, a single individual with one child is eligible for a WFTC remittance if income is less than $50,434. Under the need standard, such a family of two would be eligible with income up to $72,528.)
• Sales and use tax exemptions for hygiene products, diapers, and over-the-counter drugs.
• Small business tax credits that exempt about $300,000 of business income, with a full phase out at about $600,000.
• The temporary B&O surcharge would not be ended early, but hospitals and income from the warehousing and reselling of drugs would be exempt from the temporary surcharge beginning Jan. 1, 2029 (for one year).
• The roll back of the ESSB 5814 sales tax on services would be effective Jan. 1, 2029.
• Live presentations are subject to sales tax under ESSB 5814. Beginning July 1, 2026, the definition of live presentation would not include before and after school care at schools; presentations by nonprofits; musical, dramatic, or comedic performances; or one-on-one instruction.
• Sales of certain services (added in ESSB 5814) to schools, school districts, and educational service districts would not be subject to sales and use tax, beginning July 1, 2026.
• The temporary B&O tax surcharge would not apply to wholesale sales of food, effective July 1, 2026.

The new tax relief in Chair Berg’s striker would increase the amount of income tax revenues devoted to tax relief, but some of the changes made to the structure of the income tax could reduce the amount of revenues to the state. Both the Senate- and House-passed operating budgets assume income tax revenue to help balance the budget over four years. It’s not clear how the changes in Chair Berg’s striker would affect that.