Washington State Laws Taking Effect July 1: Data Center Tax Breaks, Estate Taxes, Pension Boosts, and More

Existing sales and use tax exemptions for data centers will no longer apply to replacement server equipment at facilities that previously benefited from those breaks. New data centers can still apply for exemptions, but established ones will no longer receive tax relief on upgrading or replacing their server infrastructure. The change arrives amid growing scrutiny of AI data centers and their impact on local water supplies, noise levels, and energy grids. Seattle separately enacted a one-year ban on the construction of new AI data centers earlier this year.

Mortgage Interest Business and Occupation Tax Exemption

The existing B&O tax exemption for mortgage interest income currently allows lenders operating in ten or fewer states to deduct interest earned from first mortgages. From 1 July, that state-count requirement is replaced by a financial threshold, limiting the exemption to lenders with less than $10 billion in annual mortgage originations. Revenue generated by the change will be directed toward the state’s wildfire preparation and firefighting efforts.

State Tax Code Adjustments

A broader tax code update includes changes to rules around temporary staffing at hospital-based clinics, revised definitions for taxable activities, and new exemptions for retail services sold to schools and libraries. The same legislation also contains Washington’s so-called millionaires tax, which will not take effect until 2028. When it does, it will impose a 9.9% tax on income over $1 million. A related provision taking effect in 2029 will partially repeal sales taxes on specialized services and exempt diapers, over-the-counter drugs, and hygiene products from sales tax. The bill also expands eligibility for the Working Families Tax Credit, increases the B&O tax credit for small businesses, raises the B&O return filing threshold, and adds exemptions to B&O surcharges for high-grossing businesses.

Local Government Tax Powers

Local governments gain new flexibility under legislation taking effect 1 July, including the ability to issue property tax levies for public health clinics. The law also allows existing revenue streams to be used for new purposes, including Real Estate Excise Tax revenue for addressing nuisance properties, local rental car taxes for criminal justice purposes, and housing tax revenue for affordable housing rehabilitation, rental assistance, and operations. A separate provision allowing local taxes to assist children and families takes effect 1 January 2027.

Estate Tax Rates

Estate tax rates are restored to their pre-July 2025 levels, ranging from 10% to 20% depending on the value of the taxable estate. The law also modifies the filing threshold and updates maximum deductions for qualified family-owned business estates. The bill applies to the estates of individuals who die on or after 1 July 2026.

Pension Cost-of-Living Adjustment

Retirees in Plan 1 of the Public Employees’ Retirement System and the Teachers’ Retirement System will receive a one-time 3% cost-of-living adjustment, capped at $110 per month.

Ambulance Provider Fees

The annual ambulance provider quality assurance fee is locked to the rate in effect on 4 July 2025. The Health Care Authority has been directed to calculate provider add-on payments based on available fund balances.

Nurse Licensing Updates

Professional titles for advanced registered nurse practitioners are updated, and certain certified registered nurse anaesthetists without prior prescriptive authority are permitted to continue administering specific substances under the new licensing framework.