The Tax Foundation’s 2027 State Tax Competitiveness Index ranks Washington’s tax structure 47^th overall. (In the index, one is the best rank and 50 is the worst.) This edition of the index is based on state tax structures as of July 1, 2026. Thus, the index now reflects many (but not all) of the tax changes made by the Legislature in 2025. (See here for a timeline of recent tax changes.) The index does not yet reflect the income tax. The Tax Foundation notes that when the income tax goes into effect, it will “significantly” affect Washington’s scores on the index.

According to the report,

Although Washington’s overall rank fell one place, from 46th to 47th, the state improved five places on the property and wealth tax component after reverting the top estate tax rate from 35 percent to 20 percent. The inclusion of digital advertising in the sales tax base, part of a broader expansion of business-to-business taxation of digital products, dropped Washington’s sales and excise tax component rank from 49th to 50th.

The index encompasses five broad tax categories: individual income taxes (weighted 30.2%), sales taxes (weighted 21.7%), corporate taxes (weighted 21.3%), property taxes (weighted 15.2%), and unemployment insurance taxes (weighted 11.6%). Property tax is the best component for Washington and sales tax is the worst.

• Individual income tax: Washington ranks 36^th. Although Washington’s income tax is not yet reflected in the index, Washington has “a high-rate, progressive tax on the capital gains income of high earners.” Washington’s top capital gains tax rate is tied for fifth highest income tax rate in the country. Additionally, Washington taxes S corporation and LLC income through the business and occupation tax.
• Sales tax: Washington ranks 50^th. Washington has the third highest combined state and average local sales tax rate. Further, sales the tax rate is “imposed on a base that includes an unusual share of business inputs, particularly in the digital products space.” Washington also excludes many consumer goods and services from the sales tax base and has high excise tax rates.
• Corporate tax: Washington ranks 47^th. The business and occupation tax “yields very high rates of taxation on low-margin businesses and leads to tax pyramiding.” Washington is penalized for not offering full deductions for the cost of goods sold or employee compensation.
• Property tax: Washington ranks 18^th. Washington’s 101% property tax growth limit is rewarded in the index. On the negative side, Washington has a real estate transfer tax and an estate tax. The estate tax rate of 20% is tied for the highest in the country.
• Unemployment insurance tax: Washington ranks 49^th. Washington has the nation’s highest taxable wage base and low trust fund solvency. According to the index, Washington has “high UI taxes and an uncompetitive UI tax structure.”

The report includes a lot of information about technical aspects of income taxes that make them more competitive (or less competitive). As Washington’s income tax is implemented and refined (should it be upheld by the state Supreme Court), policymakers should consider technical changes that improve competitiveness.

Finally, we use the Tax Foundation’s index as a tax competitiveness component of our Fiscal Management Performance Review. I’ve updated the charts to reflect the 2027 edition of the index.