Washington’s proposed income tax (AKA “millionaires’ income tax,” Senate Bill 6346) is being promoted as a measure aimed at the ultra-wealthy. But for many small and mid-sized construction contractors, it would function as something very different: a direct tax on the cash flow that keeps their businesses operating.
Most construction firms in Washington are not large, publicly traded corporations. They are locally owned LLCs, partnerships, and S corporations — pass-through entities where business income flows to the owner’s individual tax return. On paper, that income may appear to be personal wealth. In practice, it is often the company’s operating capital.
Construction is a cyclical, capital-intensive, and low-margin industry. Construction margins are significantly lower than those of the high-tech, financial, pharmaceutical, and other industries. And contractors routinely reinvest earnings into equipment, bonding capacity, payroll, insurance, and safety programs. Income is frequently recognized at the completion of a major project, which can create a temporary spike in reported income after years of reinvestment, borrowing, and risk.
That spike may push an owner’s reported income above $1 million in a single year. But that does not mean there is $1 million in idle cash sitting in a bank account. It often means the company finally closed out a large project and now must fund the next one.
Under this proposal, pass-through construction firms would be forced to either pay a 9.9% tax at the entity level or pass the liability through to the owner’s personal return (which also includes a spouse’s income). Either option removes cash from the business.
And timing matters.
Contractors front payroll every week for skilled workers and apprentices. They purchase materials months before they are reimbursed. They invest heavily in equipment that must be financed and maintained. They maintain bonding capacity that is directly tied to working capital and retained earnings.
At the same time, payment delays are routine. Contractors can wait weeks or months to be paid. Retainage is often held long after a project is complete. During that time, it is the contractor, not the project owner, financing the job.
Cash flow gaps are already a constant reality in construction. When the state layers an additional 9.9% tax on what is effectively operating capital, it shrinks the cushion companies rely on to meet payroll, secure bonding, and bid on the next project.
When working capital declines, bonding capacity declines. When bonding capacity declines, firms cannot compete for larger projects. Hiring slows. Expansion pauses. Risk tolerance narrows. The ripple effects are immediate.
Small and mid-sized firms feel this most acutely. Disadvantaged and minority-owned businesses, which often operate with tighter margins and more limited access to credit, are particularly vulnerable to cash flow disruptions. For these firms, losing working capital can mean losing opportunities.
This proposal is described as a tax on “millionaires.” But in the construction industry, it functions as a tax on the cash reserves that allow contractors to bridge payment delays, absorb cost increases, and keep people employed between billing cycles.
It does not distinguish between accumulated personal wealth and the operating capital required to run a job site.
Washington’s construction industry builds the schools, hospitals, roads, bridges, and infrastructure that support our communities and economy. Sound tax policy should recognize how these businesses actually operate. In construction, cash flow is survival. Taxing it as though it were idle wealth risks slowing projects, constraining growth, and undermining the very businesses that keep our state building.
For many small and mid-sized contractors, this proposal is not a tax on millionaires. It is a tax on the cash flow that keeps their doors open and their workers employed.
