HOW JULY 1, 2025 TAX AND LAW UPDATES AFFECT POTATO GROWERS IN WASHINGTON

As we approach the halfway point of 2025, Washington’s legislative landscape is shifting—bringing in a suite of new taxes, modified exemptions, and compliance changes that could have real impacts on potato farmers across the state.

Sales & Use Tax Exemption Extended for Ag Products

For potato growers, the state’s sales and use tax exemption for fruit, vegetable (including potatoes), and dairy product sales has been extended from July 1, 2025, through July 1, 2035. This means that sales through farm stands, farmers markets, and direct-to-consumer CSA programs will remain tax-free for another decade—supporting both farm income and broader access to local food.

Gas Tax Increase Could Raise Input Costs

Beginning July 1, 2025 the Washington state gas tax increases by 6 cents per gallon, with annual inflation adjustments of up to 2%. For growers, this isn't just about higher costs at the pump—it means more expensive tractor operations, irrigation pumps, equipment transport, and crop deliveries. Fall harvest planning may now require a careful reevaluation of fuel budgets and supply chain contracts.

B&O Tax and Service-Based Expansions

While traditional farming operations remain exempt from Business & Occupation (B&O) tax, agricultural businesses offering side services—such as equipment rental, custom tilling, or value-added processing—may be impacted. New service-based classifications, surcharges on high-income brackets, and evolving definitions of taxable activities could pull larger or diversified operations into new tax reporting requirements. Now is the time to review your farm’s non-crop income streams and check for potential exposure.

Public Utility Tax (PUT) on Fuels

Though unchanged for now, the Public Utility Tax on fuels (like diesel) continues to apply at $1.48 per barrel. For operations that rely heavily on diesel-powered irrigation systems, long-haul trucks, or generator backup, this line item adds to the cumulative cost burden. Monitoring this tax is critical for those managing tight margins in remote or fuel-dependent areas.

Estate & Capital Gains Tax Updates

These changes won’t show up in your harvest ledger—but they matter for your farm’s long-term future:

• The estate tax exemption rises to $3 million (up from $2.193 million) as of July 1.
• At the same time, the marginal tax rate for larger estates increases, topping out at 35%.
• The QFOBI (Qualified Family-Owned Business Interests) deduction also expands to $3 million, offering some relief to family farms planning generational handoffs.

These updates make 2025 a pivotal year for revisiting your estate planning documents, especially if your operation includes valuable land, equipment, or diversified assets. Meanwhile, Washington’s capital gains tax continues to exclude crop income, since potatoes and most farm goods aren’t treated as long-term capital assets under the law.