Why Washington's New Millionaire Tax Faces a Serious Constitutional Problem
In 2021, Washington State passed ESSB 5096, a capital gains excise tax upheld by the Washington Supreme Court in Quinn v. State (March 24, 2023). In 2026, the state legislature went further and passed ESSB 6346 — a 9.9% income tax on income above $1 million, effective January 1, 2028.
For a complete overview of how ESSB 6346 works — including the QSBS implications, marriage penalty, and athlete provisions — see Washington's New Income Tax: What Founders, Investors, Athletes, and High Earners Need to Know.
The capital gains tax survived a state Supreme Court challenge (barely), but the new millionaire tax is a different animal. It faces significant constitutional headwinds under Washington's unique tax uniformity requirement. This post explains the constitutional landscape, the arguments on both sides, and what taxpayers should do while this plays out in the courts.
The Constitutional Framework: Washington's Article VII Uniformity Requirement
Washington State has one of the strongest tax uniformity provisions in the country. Article VII, Section 1 of the Washington Constitution provides: "All taxes shall be uniform upon the same class of property within the territorial limits of the state."
This isn't language Washington courts have softened over time or read narrowly. It's blunt: all taxes must be uniform. And that bluntness has created a constitutional obstacle to income taxation in Washington that's unique among the states.
In other states, income taxes are routine. Federal income tax, the tax code itself, is constitutional. But Washington has consistently held that income is property, and therefore income taxes must meet the uniformity test — meaning everyone in the same income class must pay the same tax rate. You can't have progressive rates where a millionaire pays 10% and a hundred-millionaire pays 15%. That violates uniformity.
This is the foundational constitutional problem facing ESSB 6346.
The Historical Precedent: Culliton v. Chase and the 1933 Graduated Income Tax
The leading case is Culliton v. Chase, decided in 1933. Washington enacted a graduated income tax — the rates varied based on income level, similar to the federal tax. The Washington Supreme Court struck it down as violating the uniformity requirement.
The court reasoned that if income is property (which it is), then a tax on income is a tax on property, and under Article VII §1, all property must be taxed uniformly. You can't have a 2% rate on income under $50,000 and an 8% rate on income over $1 million — that's not uniform.
That precedent has haunted Washington tax law for 90 years. It's the reason Washington has no state income tax — because any income tax with progressive rates would be unconstitutional under the Culliton holding.
The Capital Gains Tax and the "Excise Tax" Gambit
Fast forward to 2021. Washington legislators wanted revenue from high earners, and they wanted to avoid the Culliton problem. So they structured the capital gains tax (on long-term capital gains of $250,000 or more) as an "excise tax" on the transaction of selling capital assets, not a tax on income or property.
The argument was clever: yes, it's levied on transactions that generate income, but it's technically a tax on the sale (a transaction), not on the income or the property itself. If you characterize it as an excise tax, it doesn't have to meet the uniformity requirement — excise taxes don't fall under Article VII §1.
In 2022, the Washington Supreme Court upheld the capital gains tax in Quinn v. State, accepting the state's excise tax characterization. The court found that the tax was structured as an excise tax on the privilege of selling capital assets, not a tax on income or property. Accordingly, it didn't have to be uniform, and the fact that it only applied to high-value transactions was fine.
The court's reasoning was narrow and grudging. The justices made clear they were relying on the specific structure of the capital gains tax — a transaction-based excise — and they weren't blessing all capital gains taxes or all high-earner taxes. But they upheld it.
ESSB 6346: Why It's Different (and Riskier) Than the Capital Gains Tax
ESSB 6346 is a different beast. It's a tax on income earned by high-income residents and businesses. It applies to certain business and investment income exceeding specified thresholds ($250,000 for individuals, $1 million for families).
Crucially, it's not structured as an excise tax on a transaction. It's structured as an income tax — you owe it based on your income level. And it has progressive elements: the rates can vary based on income. The state calls it a "capital gains tax," but that's misleading. The statute covers business income, partnership income, S-corp distributions, and other forms of income beyond just realized capital gains.
This distinction matters enormously under the Quinn precedent. If ESSB 6346 is characterized as an income tax (which it appears to be), it potentially violates the uniformity requirement unless the rates are truly uniform across all taxpayers in the same income class. If different taxpayers with the same level of business income pay different rates, it's unconstitutional.
The state will argue that ESSB 6346 is still an excise tax, just like the capital gains tax. The response from opponents is: "No, it's not. The capital gains tax was a tax on the transaction of selling capital assets. This is a tax on income — on the privilege of earning money. Those are different things."
The Legal Arguments on Both Sides
The State's Argument (in favor of constitutionality):
Washington has authority to tax certain transactions as excises. If the state characterizes ESSB 6346 as an excise on the privilege of receiving or retaining income above a certain threshold, it can escape the uniformity requirement. The Quinn precedent supports this reading. Yes, it's an income tax in a practical sense, but in form it's an excise on a privilege, and privileges can be taxed differentially.
Additionally, the state might argue that even if ESSB 6346 is an income tax, the uniformity requirement only applies to "the same class of property." If the legislature has defined the taxable class narrowly (e.g., "business income and capital gains exceeding $250,000"), then all property in that class pays the same rate, and the requirement is satisfied.
The Opposition's Argument (in favor of unconstitutionality):
ESSB 6346 is an income tax. Income is property. Therefore, it must meet the uniformity requirement — all income must be taxed at the same rate within the state. The statute creates progressive rates (higher earners pay more), which violates uniformity. The Culliton precedent directly applies.
Additionally, the opposition will argue that the "excise tax" characterization was a narrow carveout for the specific transaction-based capital gains tax, not a blanket license for income taxes. If the state could call any income tax an "excise," the uniformity requirement would be meaningless.
Furthermore, ESSB 6346 has definitional ambiguities. It applies to "certain business and investment income," which is broader than a clean transaction tax. This breadth makes it harder to characterize as an excise on a single privilege and easier to characterize as a direct income tax.
What the Courts Will Likely Consider
If ESSB 6346 is challenged (and it will be), the courts will focus on several factors:
Form vs. Substance: Is the tax, in substance, an income tax? Or is it truly an excise on a defined privilege? If it looks like an income tax and quacks like an income tax, the courts will likely treat it as one.
Comparability to the Capital Gains Tax: How similar is ESSB 6346 to the capital gains tax that was upheld in Quinn? If it's substantially similar, the court might uphold it. If it's meaningfully different (and opponents will argue it is), the court might distinguish Quinn and apply Culliton instead.
Legislative History: Did the legislature explicitly characterize ESSB 6346 as an excise tax? If so, that carries some weight. If the legislature was sloppy or inconsistent, the courts will look past the label to the substance.
Scope of the Tax Base: How broad is the definition of taxable income? The narrower the definition, the easier it is to characterize the tax as an excise on a specific privilege. The broader the definition, the harder it is.
Rate Structure: Are the rates truly uniform within the defined class? If the statute applies a single rate to all income above the threshold, that's more defensible than having multiple rate brackets.
The Political Dynamics and Timeline
ESSB 6346 became effective in 2024, but it faces immediate legal challenge. Wealthy taxpayers, business groups, and conservative organizations are funding litigation to strike it down. The case will likely reach the Washington Supreme Court within 1-2 years.
The political stakes are high. If the court strikes down ESSB 6346, it won't affect the capital gains tax (which was separately upheld), but it will close off the state's ability to use income taxes to fund services. Washington will remain dependent on sales taxes and capital gains taxes. If the court upholds ESSB 6346, it will represent a significant narrowing of the Culliton precedent and will likely encourage other states to adopt similar taxes.
My prediction: the court will face genuine constitutional tension and will split. One faction will say the Quinn precedent controls and ESSB 6346 is an acceptable excise. The other faction will say Quinn was a narrow carveout and ESSB 6346 crosses the line into a direct income tax that violates uniformity. It could go either way.
What Taxpayers Should Do in the Meantime
If you're subject to ESSB 6346 — a high-income earner or business owner in Washington — here's what you should do:
Assume you owe the tax. Don't assume the tax will be struck down and avoid paying it. The tax is effective law right now, and the IRS will treat collections as valid unless and until the courts say otherwise. Failing to pay could result in penalties and interest, even if the tax is ultimately unconstitutional.
Keep detailed records of ESSB 6346 payments. If the tax is struck down, you may be entitled to a refund. The statute of limitations for refund claims is typically 3-4 years, so keep documentation of what you paid and when.
Consider a refund claim strategy. Some taxpayers are proactively filing refund claims arguing that ESSB 6346 is unconstitutional. This creates a record and can preserve refund rights even if the underlying litigation takes years to resolve. Talk to a Washington tax attorney about whether this makes sense for your situation.
Watch the litigation. Monitor the case as it progresses through the courts. Once a judgment is entered, you'll know whether to expect a refund or whether the tax is here to stay.
Plan accordingly. If you have discretion over when to realize income (through entity choice, timing of distributions, etc.), consider planning to minimize ESSB 6346 exposure while the constitutional question is pending. Once the courts rule, your planning calculus may change.
The Bigger Constitutional Lesson
Washington's uniformity requirement is a relic of 19th-century constitutional design. It's unusual, it's strict, and it's created genuine fiscal challenges for the state. But it's also a limit on government power that some view as valuable.
ESSB 6346 tests whether that limit survives in the 21st century. The state tried to thread the needle by calling the tax an excise, but the case for constitutionality is not airtight. The Washington Supreme Court will have to decide whether the Quinn excise tax precedent is elastic enough to cover ESSB 6346, or whether Culliton's income tax prohibition still stands.
This is a genuine constitutional issue, not a partisan dispute about tax policy. Reasonable people disagree. But the outcome matters profoundly for Washington's fiscal future and for how courts in other states interpret their own tax provisions.
Keep Reading
- The Washington Supreme Court Just Fast-Tracked the Income Tax Referendum Case. Here's What It Means.
- Why the Lawsuit Against Washington's Income Tax Has a Real Chance
- The First Lawsuit Against Washington's Income Tax Is Being Filed Today
- Washington's New Income Tax: The Complete Guide for Founders, Investors, and High Earners
