Washington’s overall ranking in the Tax Foundation’s State Business Tax Climate Index is 35^th this year. (The 2024 index reflects state tax climates on July 1, 2023.) Our ranking has dropped quite a bit over the past few years—Washington ranked 29^th in 2023 and 15^th in 2022.

The overall ranking is composed of five broad tax categories: individual income tax (weighted 29.8%), sales tax (weighted 23.3%), corporate tax (weighted 20.9%), property tax (weighted 14.9%), and unemployment insurance tax (weighted 11.1%).

• Individual income tax: Washington ranks 8^th (it was 6^th in 2021). Not only does Washington now tax capital gains, Washington taxes S corporation income and LLC income through the business and occupation (B&O) tax.
• Sales tax: Washington ranks 49^th. Washington scores poorly because of its high combined state and local sales tax rate, a sales tax base that includes many business inputs and excludes many consumer goods and services, and high excise tax rates.
• Corporate tax: Washington ranks 37^th, as it has the past few years. (In 2018, Washington ranked 46^th.) Washington scores poorly because the B&O applies to the gross receipts from S corporations and LLCs, as noted above. Additionally, Washington does not offer full deductions for the cost of goods sold or employee compensation.
• Property tax: Washington ranks 25^th, down from 21^st last year. The property tax component includes taxes on capital stock, tangible and intangible property, inventory, real estate transfers, estates, inheritance, and gifts. In addition to Washington’s regular property tax, we have an estate tax and a real estate transfer tax.
• Unemployment insurance tax: Washington ranks 19^th, up from 25^th last year. Negatives for Washington include the nation’s highest taxable wage base and the social cost factor tax.

That Washington’s tax climate is 15^th worst in the nation (at least by the Tax Foundation’s standards) does not mean that companies won’t locate here. Taxes are only one part of a state’s overall competitiveness. As the Tax Foundation’s Jared Walczak explains, the best way to think about tax competition is in terms of the baseball statistic Wins Above Replacement (WAR):

The term comes from baseball, where it is intended as a sabermetric statistic to measure how many more wins a team can claim due to a specific player above the amount that would be generated by a replacement-level player. It’s much the same way in public finance: 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.

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