According to the Tax Foundation’s 2026 State Tax Competitiveness Index, Washington’s tax climate ranks 45^th overall. (In the Tax Foundation’s index, one is the best rank and 50 is the worst.) This ranking reflects state tax systems as of July 1, 2025, so it does not yet incorporate many of the tax changes made by the Legislature this year. It does, however, include the changes made to the capital gains tax and estate tax.

In Washington, lawmakers implemented a new 9.9 percent rate on the capital gains tax, causing the state to slide two places on the individual income tax component of the Index. The state’s top estate tax rate—already tied for the nation’s highest—was also increased from 20 to 35 percent. Nevertheless, a host of tax increases in Maryland resulted in Washington swapping places with it and improving by one rank. Washington’s adoption of new sales taxes on business purchases of digital products, including digital advertising, went into effect on October 1, after the July 1, 2025, snapshot date of this Index, but will affect Washington’s rank in future editions.

Overall, the Tax Foundation notes, “The states in the bottom 10 tend to have a number of issues in common: complex, nonneutral taxes with comparatively high rates.”

The Tax Foundation index considers five broad tax categories: individual income taxes (weighted 31.8%); sales, use, and excise taxes (weighted 21.2%); corporate taxes (weighted 21.1%); property and wealth taxes (weighted 14.5%); and UI taxes (weighted 11.4%). Property tax is the best component for Washington, and sales and unemployment insurance taxes are the worst.

• Individual income tax: Washington ranks 31st. Because Washington “imposes a high-rate, progressive tax on the capital gains income of high earners, it scores below average on this component despite its lack of a broad-based individual income tax.” Another negative factor is Washington’s taxation of S corporation and LLC income through the B&O tax.
• Sales tax: Washington ranks 49th. Washington scores poorly because of its fourth-highest in the nation combined state and local sales tax rate, a sales tax base that includes “an unusual share of business inputs” and excludes many consumer goods and services, and high excise tax rates. The next edition of the index will penalize Washington for the new digital advertising tax.
• Corporate tax: Washington ranks 47th. The B&O tax “yields very high rates of taxation on low-margin businesses and leads to tax pyramiding.” Additionally, the B&O does not offer full deductions for the cost of goods sold or for employee compensation.
• Property tax: Washington ranks 25th. In addition to Washington’s regular property tax, we have an estate tax (and the nation’s highest estate tax rate) and a real estate transfer tax. On the other hand, our 101% growth limit is rewarded in the index.
• Unemployment Insurance tax: Washington ranks 49th. Washington has “high UI taxes and an uncompetitive UI tax structure,” including the nation’s highest taxable wage base and a social cost factor tax.

As the Tax Foundation argues, we should think of tax competitiveness in terms of the baseball statistic Wins Above Replacement (WAR):

a well-structured tax code won’t make the Wyoming Basin a metropolis, nor will poor tax structure make Manhattan a ghost town. But tax structure does play a role in a state’s economic successes or failures, and often a substantial one. Every state can benefit from a simple, neutral, transparent, pro-growth tax structure.

Thus, “States that rank better on the Index have better-structured tax codes, and states with better-structured tax codes get Wins Above Replacement.”