HB 1778
In CommitteeHouse
State sales tax revenues
Sharing state sales tax revenues with local governments and not increasing the state or local sales tax rate.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
HB 1778 redirects 20% of monthly state sales tax revenue to local governments by depositing those funds into a dedicated account and distributing them monthly to local taxing districts. It does not raise tax rates but changes how state-collected sales tax is shared with local governments, starting in January 2026.
- Requires the state Department of Revenue to calculate total state sales tax revenues collected each month and notify the state treasurer.
- Mandates that the state treasurer transfer 20% of monthly state sales tax collections to the local sales and use tax account, beginning in 2026.
- Amends existing law to require monthly deposits into the local sales and use tax account (instead of annual or less frequent deposits) and to clarify that investment earnings on those funds must be credited to the account.
- Directs the state treasurer to distribute the newly transferred funds to local taxing districts monthly, based on each district’s share of prior-month sales tax collections.
- Maintains existing rules for administration and collection of local sales taxes by the state Department of Revenue, including a cap of 2% for administrative costs.
Who is affected
- Local governments (counties, cities, transportation authorities, public facilities districts, etc.) — Counties, cities, and transportation authorities that impose local sales and use taxes will receive a larger share of state-collected sales tax revenue starting in 2026, as 20% of monthly state sales tax collections will be transferred to a dedicated local fund and distributed to them monthly.
- State Department of Revenue — The state Department of Revenue will continue to collect and administer local sales and use taxes under existing contracts, but will now also be responsible for calculating and reporting monthly state sales tax totals used to fund local distributions.
- State Treasurer’s Office — The State Treasurer’s Office will begin transferring 20% of monthly state sales tax collections to the local sales and use tax account and distributing those funds to local taxing districts starting in 2026.
- Washington residents and businesses — Residents and businesses in Washington will see no change in sales tax rates, but local governments may have more predictable and increased funding for transportation, facilities, and other local services supported by local sales tax revenues.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
Local governments will receive a reliable, increased stream of monthly funding (≈$1.2B/year) based on actual sales tax collections, improving budget predictability and enabling more responsive local investment in infrastructure, public safety, and community services.
Local GovernmentPeopleRef: Sec. 1(2); Sec. 2(7)More stable local government funding can support economic development initiatives (e.g., transportation, facilities, business districts), potentially reducing local regulatory uncertainty and improving the business climate — especially for small businesses that rely on local infrastructure and services.
Business & EmploymentPeopleRef: Sec. 2(1), Sec. 2(4), Sec. 2(5)Investment earnings on the local sales and use tax account are credited to the account itself and distributed monthly to local taxing districts, enhancing the value of the transferred funds without requiring new taxpayer contributions.
Local GovernmentPeopleRef: Sec. 2(1) (investment earnings credited to local account)The bill explicitly states it does *not* raise sales tax rates — residents and businesses will see no increase in their tax burden, while local governments gain new revenue, improving affordability for low- and middle-income households.
FinancialPeopleRef: Overview; Sec. 1(1); Sec. 2(1)Monthly distributions to transportation authorities (e.g., Sound Transit, ferry districts) could accelerate project timelines for transit, road, and bridge improvements — directly benefiting commuters and freight-dependent businesses.
TransportationPeopleRef: Sec. 2(7)
Potential Concerns (3)
Local governments will receive more predictable monthly funding, but the bill does not increase total sales tax revenue — it only reallocates a fixed 20% of *state*-collected sales tax that would otherwise flow to the state general fund, potentially reducing state-level flexibility to fund statewide priorities like K-12 education, healthcare, or transportation infrastructure.
Local GovernmentPeopleRef: Sec. 1(2); Sec. 2(1); Sec. 2(7)The 2% administrative cost cap may be insufficient for smaller or less-resourced local governments that rely on the state to collect taxes, especially if they lack economies of scale — potentially forcing them to absorb additional costs or reduce service delivery.
Local GovernmentPeopleRef: Sec. 2(1) (administrative cost cap of 2%)If investment earnings fall short of projected levels, the state general fund must make up the difference — potentially diverting funds from other critical areas like law enforcement, emergency response, or corrections, which disproportionately affect low-income communities.
Public SafetyPeopleRef: Fiscal Impact section; Sec. 2(5) (state general fund shortfall coverage)
Who Is Most Affected
Counties and cities will gain significant new revenue (≈$1.2B total annually), improving ability to fund local services like roads, parks, and public safety — especially beneficial for smaller or under-resourced jurisdictions.
Transportation authorities (e.g., Sound Transit, ferry districts) will receive monthly funding based on regional sales tax activity, improving budget stability and enabling more reliable capital planning for transit and infrastructure projects.
Low- and middle-income residents benefit from improved local services (e.g., roads, parks, libraries) without paying higher taxes — though they may see less direct benefit if local governments prioritize capital projects over service expansion.
The state general fund may face pressure if investment returns underperform, potentially reducing funds available for K-12 education, healthcare, or social services — disproportionately affecting vulnerable populations who rely on those programs.
Large retailers and businesses may benefit indirectly from improved local infrastructure and economic development, but face no direct cost increase — though they may experience minor administrative complexity due to unchanged collection processes.