A proposed income tax in Washington, known as the “millionaires’ income tax” or Senate Bill 6346, is raising concerns among small and mid-sized construction contractors. While the tax is marketed as a measure targeting the ultra-wealthy, it could instead impose a significant burden on the cash flow that keeps many construction businesses operational.
Most construction firms in Washington are not large, publicly traded entities. Instead, they are typically locally owned LLCs, partnerships, and S corporations—pass-through entities where business income is reported on the owner’s individual tax return. Although this income may appear substantial on paper, it often represents operating capital necessary for day-to-day business functions.
The construction sector is characterized by its cyclical nature, capital intensity, and low profit margins. In fact, construction margins are considerably lower than those found in sectors such as technology, finance, and pharmaceuticals. Contractors often reinvest earnings into critical areas such as equipment, bonding capacity, payroll, insurance, and safety programs. Income is generally recognized upon the completion of major projects, which can lead to fluctuations in reported earnings. A contractor may see their income spike above $1 million in a single year when a large project is finalized, but this does not reflect cash readily available for business operations.
Under the proposed tax, pass-through construction firms would face a 9.9% tax at the entity level or be required to pass the liability through to the owners’ personal returns. Either scenario would drain cash from the business, which is especially concerning given the financial dynamics of the industry. Construction contractors typically pay skilled workers and apprentices weekly and purchase materials well in advance of receiving reimbursement. Delays in payment are common, with retainage often withheld long after project completion. During these periods, it is the contractor who finances the job, not the project owner.
Adding a 9.9% tax on what is essentially operating capital exacerbates existing cash flow challenges. This reduction in working capital can diminish bonding capacity, making it difficult for firms to compete for larger projects. The consequences can be immediate: hiring may slow, expansion efforts may stall, and risk tolerance could diminish.
Small and mid-sized firms, particularly disadvantaged and minority-owned businesses, are particularly susceptible to these cash flow disruptions. For them, the loss of working capital can translate into lost opportunities and contracts. This proposed tax is framed as a levy on “millionaires,” yet in reality, it functions as a tax on the financial reserves that enable contractors to navigate payment delays, absorb cost increases, and maintain employment levels between billing cycles.
The construction industry plays a vital role in building essential infrastructure such as schools, hospitals, roads, and bridges. Effective tax policy should reflect the operational realities of these businesses. In the construction sector, cash flow is synonymous with survival. Taxing it as though it were idle wealth risks stalling projects, constraining growth, and undermining the enterprises that contribute to community development.
As the president of the Associated General Contractors of Washington, Jeff Tiegs emphasizes, for many small and mid-sized contractors, this proposal is not merely a tax on millionaires. It is a tax on the cash flow that keeps their businesses alive and their workforce employed.
