Microsoft is significantly escalating its fight against proposed tax increases in Washington state, pledging $1 million to a newly formed political action committee (PAC) called the Washington Coalition for Responsible Taxes and Spending. This move signifies the tech giant's intensifying opposition to the tax proposals being considered by state lawmakers to address a projected $16 billion budget shortfall.

The Redmond-based company has also contributed over $300,000 to another PAC, People for an Affordable Washington, which includes other major employers such as Alaska Airlines, Costco, Nordstrom, and T-Mobile. Madrona, a Seattle-based venture capital firm, has contributed $200,000 to that PAC. People for an Affordable Washington has already spent more than $1.7 million on various campaign activities.

These actions come in response to a series of tax proposals put forth by Democrats in Olympia. While an initial proposal for a 5% payroll tax on large employers was withdrawn, a new plan has emerged that includes an increase in a surcharge on tech companies, other taxes on large businesses, and increases to the state's capital gains tax. The payroll tax would have impacted companies with annual payrolls exceeding $7 million, requiring them to pay a 5% tax on employee wages above the Social Security wage limit, set at $176,100 in 2025. Critics argued that this tax would force tech companies and startups to reconsider their presence in the state. Other tax proposals include hiking the Business and Occupation (B&O) tax and lifting restrictions on property tax increases.

Microsoft President Brad Smith stated that the business community is "remarkably united" in urging lawmakers to abandon their tax proposals. Microsoft dispatched its chief lobbyist, DeLee Shoemaker, to the Washington Roundtable to direct the effort. The company is also signaling it will throw its weight behind an anti-tax ballot initiative, if necessary.

The proposed wealth tax in Washington would apply to a few thousand people with financial assets, such as stocks and bonds, worth more than $50 million. Democratic budget leaders estimate such a tax could generate $2 billion to $4 billion a year. The existing 7% capital gains tax applies to gains above $270,000 from the sale of stocks and bonds, excluding revenue from real estate and retirement accounts, among other exceptions. The new proposal adds an additional 2.9% surtax on any profits above $1 million.

Executives from major business organizations and 65 other business leaders across the state signed a letter to state House and Senate leaders, stating that the proposals, if approved, “would result in the largest tax increases in state history, perpetuating a dangerous trend of unsustainable spending growth".

Some argue that the state's fiscal numbers show a smaller budget shortfall of closer to $4-5 billion. They claim that Democrats are inflating the figure by including new programs and spending they wish to create. Republicans have offered a budget with no new taxes, but it has been rejected.

Several companies have already relocated or minimized their presence in Washington due to taxes and an unfavorable business climate. These include Fisher Investments, which moved its corporate headquarters to Texas, and Boeing, which moved the 787 Dreamliner plant to South Carolina and other operations out of state. Airline JetBlue is also considering moving more or all of its operations out of Washington. Nike closed its Washington flagship store in downtown Seattle, citing concerns over theft and safety.

The proposed tax increases have sparked a major lobbying effort from Microsoft and other major businesses who argue that the taxes will lead companies to relocate or slow job growth in Washington.