Washington lawmakers approve new luxury tax and rental car tax measures

On March 27, 2025, Washington State introduced Senate Bill 5801, a legislative proposal aimed at generating revenue through a series of new taxes targeting luxury motor vehicles, rental cars, tire disposal, and electric bicycles. This bill seeks to address funding gaps in transportation infrastructure and environmental initiatives while also responding to the growing demand for sustainable transportation options.

The bill proposes a 6.5% tax on the retail sale of tangible personal property, digital goods, and services, with specific provisions for rental cars. Notably, it introduces an additional tax on car rentals, which will increase from 5.9% to 11.9% for the year 2026, before settling at 9.9% in 2027. Revenue from these taxes is earmarked for the multimodal transportation account and the Move Ahead WA flexible account, which are designed to support various transportation projects across the state.

One of the more contentious aspects of Senate Bill 5801 is the proposed surcharge on electric bicycles, which has sparked debate among environmental advocates and cycling enthusiasts. Proponents argue that the surcharge is a necessary step to fund infrastructure improvements that accommodate the growing popularity of electric bikes, while opponents contend that it could deter potential users from adopting more sustainable transportation methods.

The bill has also faced scrutiny regarding its potential economic implications. Critics warn that increased taxes on rental cars and luxury vehicles could disproportionately affect low- and middle-income residents who rely on these services. Supporters, however, maintain that the revenue generated will ultimately benefit the broader community by enhancing public transportation options and reducing carbon emissions.

As discussions around Senate Bill 5801 continue, experts emphasize the importance of balancing revenue generation with equitable access to transportation. The outcome of this bill could set a precedent for how Washington State approaches funding for transportation and environmental initiatives in the future. Stakeholders are closely monitoring the legislative process, as the implications of this bill could resonate well beyond the immediate fiscal landscape, influencing the state's commitment to sustainable development and infrastructure resilience.