Policy Blog – March 23, 2026 – 2026 Legislative Session Recap: Budget, Tax, and Life Science Industry Outcomes

The 2026 legislative session adjourned following one of the most contentious debates in recent years, driven by a projected budget shortfall and culminating in the passage of a new income tax on high earners alongside several other major fiscal changes. As lawmakers negotiated final spending decisions, Life Science Washington remained actively engaged to protect key priorities for the state’s life science ecosystem, including workforce development, research funding, and a balanced policy environment that supports innovation. While the final budget avoided some of the most significant proposed cuts, it also reflected ongoing fiscal constraints that limited progress in other areas. This report provides a full overview of the session’s outcomes, including major tax policy changes, budget decisions impacting research and workforce programs, and the status of key health and innovation policy proposals.

Millionaire’s Income Tax

After more than 24 consecutive hours of House floor debate followed by relatively quick final approval by the Senate, the legislature gave final approval for the Millionaire’s Tax, SB 6346. House Republicans, joined by several moderate Democrats, offered more than 80 amendments in an effort to slow the bill and force debate on its key provisions. The House debate stretched overnight as lawmakers argued over the scope of the tax, its potential impact on high-income residents, and how the revenue would be used in future state budgets. Governor Ferguson is expected to sign the legislation and legal challenges are expected.  

• Imposes a 9.90% income tax on individuals earning more than $1 million, effective calendar year 2028
• Directs 7% of revenue from the tax to support city and county public defense services
• Expands eligibility for the Working Families Tax Credit to include individuals age 18+ who meet program requirements
• Increases the Business & Occupation (B&O) tax credit for small businesses
• Raises the B&O tax filing threshold to $250,000 in gross income
• Creates a sales and use tax exemption for grooming and hygiene products
• Accelerates expiration of the B&O surcharge on businesses with over $250 million in gross income
• Repeals certain sales taxes on services enacted in 2025 under ESSB 5814, including IT training and services, custom website and software development, temporary staffing, and live presentations, among others
• Exempts the new individual income tax from the statutory prohibition on state and local income taxes

Estate Tax Changes

SB 6347 reduces Washington’s estate tax rates by restoring the prior, lower pre-2025 rate structure, including lowering the top marginal rate back to 20 percent and decreasing rates across most estate value brackets for estates of decedents dying beginning in mid-2026. The bill also sets the exclusion amount at $3 million. This represents a rollback from provisions passed in 2025, which increased rates across the schedule and raised the top rate to 35 percent (nation’s highest).

Additional Tax Legislation Defeated

• DEFEATED: HB 2292/SB6229 capital gains tax on small business stock. 
• DEFEATED: HB 2100/SB 6093: statewide payroll tax

CARE Fund

While the final state operating budget appropriates $10 million for the Andy Hill Cancer Research Endowment (CARE) Fund, that amount falls short of maintaining the program’s current level of support. SB 6129, the tobacco, nicotine, and vapor tax legislation, was designed to provide an additional $10 million to supplement the budget and sustain funding for cancer research grants. However, the bill ultimately died in the House Finance Committee due to disagreements about anti-smoking and vaping provisions. As a result, the failure of SB 6129 leaves the CARE Fund $10 million short for the biennium, reducing the total funding available for new research investments, and leaving the structural errors in place that direct all tobacco and nicotine taxes to the general fund without diverting some revenue to the public health and CARE Fund state match accounts.

CBIT

We are thrilled to report that the final operating budget approved by the Legislature includes $250,000 to support the Center for Biotechnology Innovation and Training (CBIT) at the University of Washington Bothell. CBIT was developed in partnership with life science employers to create an applied biotechnology pipeline aligned with high-demand industry needs. The program combines industry-informed curriculum, paid internships, and direct employer engagement to prepare students for lab and biomanufacturing roles. This investment will help strengthen Washington’s life science workforce pipeline and support the continued growth of our state’s innovation economy.

Budget Directs WEIA Oversight Board to Engage High-Tech Industry

The final budget also includes language directing the Workforce Education Investment Account (WEIA) Oversight Board to partner with Washington’s high-technology industry associations as part of its 2026 report to the Legislature. The report will examine how the state can better support investment in high-demand degree and advanced certificate programs, which were a core priority when the Workforce Education Investment Act was originally enacted. Strengthening alignment between industry workforce needs and WEIA investments will help ensure the program continues to support the sectors driving Washington’s innovation economy.

LSW Calls for Partial Veto of 340B Manufacturer Mandate Bill

Life Science Washington is also calling on Governor Ferguson to veto Section 3 of SB 5981, the bill addressing hospital contract pharmacy arrangements under the federal 340B program. Vetoing this section would preserve the bill’s transparency and reporting provisions while preventing the expansion of contract pharmacy mandates before the state has better data on how the program operates in Washington. Maintaining the transparency requirements will help policymakers determine whether the 340B program is truly lowering prescription drug costs and expanding care for patients, or simply generating additional revenue for hospital systems.

Health Technology Assessments

SB 5915, a priority bill for rare disease patients, aims to make it easier for treatments to receive state purchased health program coverage. The bill provides flexibility for the Health Technology Clinical Committee to consider all valid clinical trials and scientific data when evaluating technologies and making assessments, rather than only randomized and controlled trials.

Animal Testing

We were successful in defeating HB 2542, which would ban animal testing in drug development when alternative methods are available. LSW and BIO submitted a joint letter raising our grave concerns with the bill, emphasizing that while the industry supports continued development of alternatives, no current methods can fully replace animal testing for ensuring safety and efficacy before therapies reach patients. We noted that restricting these tools would not eliminate animal testing globally but could instead push innovation and investment out of Washington. Over the interim, will continue engaging with lawmakers to educate them about drug development.

Artificial Intelligence Regulation

HB 1170 passed the Legislature and has been delivered to the Governor for action. The final version narrows earlier provisions by requiring a provenance system only when a provider is otherwise obligated to do so, exempts state, local, and tribal governments from coverage, assigns enforcement to the Attorney General under the Consumer Protection Act, and excludes video games, interactive experiences, and systems used solely for upscaling, noise reduction, or compression from the AI content notice requirements. A few other AI bills were introduced this session, and we worked with AdvaMed to review them and determined that none required changes to support the continued use of AI in the life science industry.

Rare Disease Priorities

Rare disease priorities saw limited progress in 2026. Funding for expanded newborn screening was ultimately included in the final budget after being proposed by both chambers. However, policy proposals such as biomarker testing coverage did not pass.

After significant reductions in 2025, the 2026 legislative session ultimately avoided the most severe additional cuts to Washington’s higher education system, even as budget pressures remained high. Last year’s actions included across-the-board funding reductions for public institutions, elimination of key student support programs like the Washington Student Loan Program and bridge grants, and targeted cuts to workforce and access initiatives such as Career Connect Washington and the Regional Challenge Grant. Lawmakers also shifted nearly $500 million in General Fund support into the Workforce Education Investment Account (WEIA), breaking the original intent that new WEIA revenues would supplement, not replace, higher education funding.

Against that backdrop, initial 2026 budget proposals raised concerns about deeper reductions, but final agreements largely preserved core institutional funding for universities like UW and WSU and avoided many of the more substantial cuts under consideration. While this outcome provides short-term stability, many of the structural funding challenges created in 2025 remain unresolved, particularly for student financial aid, workforce development programs, and the long-term integrity of the WEIA funding model.