Seattle Startup Leaders Push Back Against New Tax Proposal

A proposed change to Washington state’s tax laws is drawing strong opposition from startup founders, investors, and technology leaders, who warn it could make the state less attractive for building new companies.

The debate centers on Senate Bill 6229 (SB 6229) and House Bill 2292 (HB 2292), which would expand Washington’s capital gains tax by applying it to profits from the sale of Qualified Small Business Stock (QSBS)—even when those gains remain fully exempt under federal tax law.

Critics argue the proposal would place a heavier financial burden on startup founders, early employees, and investors, potentially discouraging entrepreneurship and investment across the state.

Startup Founders Warn of Long-Term Impact

Among those speaking out was Emily Choi-Greene, co-founder and CEO of Seattle cybersecurity startup Clearly AI.

Although she described herself as someone who generally supports tax increases, Choi-Greene said this proposal unfairly targets entrepreneurs willing to take significant financial risks to launch new businesses.

She explained that she and her husband left their jobs at Amazon in 2024 to start Clearly AI, accepting major pay cuts while relying on savings to grow the company.

According to Choi-Greene, the family planned around the federal QSBS incentive, including structuring employee equity to qualify for the exemption. She warned that the proposed state tax could undermine those plans and reduce the financial reward for taking startup risks.

Tech Industry Says Proposal Could Drive Companies Away

Startup leaders across the Seattle region argue the legislation could encourage founders and investors to establish companies in states with more favorable tax policies.

Amy Harris, director of government affairs for the Washington Technology Industry Association (WTIA), said entrepreneurs have flexibility in deciding where to build their businesses.

She argued that expanding the capital gains tax sends the wrong message to innovators considering Washington as a home for new startups and future hiring.

Seattle venture capitalist Aviel Ginzburg, a partner at Founders’ Co-op and leader of the startup community Foundations, delivered some of the strongest criticism during public testimony.

He described the proposal as both a “job destruction bill” and an “extinction-level event” for Washington’s startup ecosystem, warning it could reduce Seattle’s standing as a leading technology hub.

Entrepreneurs Say It’s About Encouraging Innovation

Nicole Doyle, a Seattle entrepreneur who leads the city’s Founder Institute accelerator, emphasized that startup founders are not asking to avoid paying taxes altogether.

Instead, she said the concern is preserving a federal incentive specifically designed to encourage long-term investment in young, high-risk companies.

QSBS allows founders, early employees, and investors to exclude up to 100% of eligible capital gains from federal taxes, provided they satisfy several requirements, including holding the shares for at least five years and meeting federal business qualification rules.

Most U.S. states follow the federal QSBS treatment. According to lawmakers, California, Pennsylvania, Alabama, and Mississippi are among the few exceptions.

Supporters Say the Change Improves Tax Fairness

Supporters of the proposal argue the legislation would create a fairer tax system rather than discourage entrepreneurship.

Mia Shigemura, senior analyst at the Washington State Budget and Policy Center, said research indicates the federal QSBS exemption primarily benefits multimillionaires and billionaire venture capitalists instead of the smaller businesses it was originally intended to support.

Meanwhile, Rep. April Berg, chair of the House Finance Committee and a co-sponsor of HB 2292, described the measure as a way to close what she considers a tax loophole.

She said the bill would simply treat gains from Qualified Small Business Stock in the same manner as other long-term capital gains.

When questioned about concerns that founders could relocate to states with lower taxes, Berg said she does not believe tax policy is typically the deciding factor when entrepreneurs choose where to live or build companies.

Revenue Impact and Strong Public Opposition

According to a recently published fiscal note, the proposal is expected to generate approximately $1.2 million in additional state revenue during fiscal year 2027 while affecting an estimated 260 taxpayers.

The state also expects implementation costs of about $398,400 during the same fiscal year.

Public response has been overwhelmingly negative among those participating in legislative hearings. Sign-in sheets showed more than 1,000 people registered in opposition, while fewer than 15 people signed in to support the legislation.

Washington currently imposes a 7% capital gains tax on gains exceeding $278,000 from the sale of stocks and bonds, excluding assets such as real estate and retirement accounts. Last year, lawmakers expanded the system by introducing a progressive structure that taxes gains above $1 million at 9.9%.

The debate comes as Washington faces a projected $2.3 billion budget shortfall through 2027, with lawmakers weighing additional revenue sources while balancing concerns about maintaining the state’s reputation as a leading destination for startups and technology innovation.

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