From groceries and childcare to restaurants and home repairs, Washington families are feeling the effects of rising costs across the state. A new report from the Washington Roundtable and Kinetic West examines a key reason: seven converging cost pressures are squeezing Washington’s businesses, forcing difficult tradeoffs and contributing to higher prices for the goods and services people rely on every day. Prices We Pay: The Cost of Doing Business in Washington is the second report in the Prices We Pay series. The first documented what Washington families are paying. This report helps explain why.
Washington is home to more than 160,000 small businesses, employing nearly half of the state’s workforce. They include the restaurants, childcare centers, hardware stores and retail shops Washingtonians rely on every day. When the cost of running these businesses rises rapidly, owners face tough choices about prices, hiring, wages, investment and whether they can keep serving their communities.
The report traces those pressures from business balance sheets to household budgets. Six small business case studies, each based on five to 10 years of financial records, show how rising costs are playing out across industries and regions, and how affordability impacts Washington families. While this report focuses on small businesses, the underlying pressures extend across the economy. Larger employers face similar cost drivers, often at even greater scale and compounded by industry-specific taxes and regulations; passing on costs is not unique to small businesses.
Key findings:
- Cascading labor costs add approximately 43% on top of already high base wages. Additional costs from unemployment insurance, workers’ compensation, paid family and medical leave, and payroll taxes layer on top of wages. Because Washington’s base wages are already among the highest in the nation, that additional burden lands harder than in other states.
- Occupancy costs are rising even when headline rents are not. Most small businesses operate under triple-net leases, meaning they also pay their landlord’s property taxes, building insurance, and maintenance costs. In Washington, commercial insurance premiums grew 69% between 2019 and 2024.
- Washington’s inflation outpaces the nation, and tariffs are compounding the pressure. For the 12 months ending June 2026, the Seattle area posted a headline inflation rate of 4.5%, a full point above the 3.5% national rate. Tariff costs paid by mid-sized U.S. businesses tripled over the course of 2025, with about 90% falling on U.S. consumers and companies.
- Businesses are shrinking margins, raising prices, and cutting hours in response. In a spring 2026 survey of Washington small businesses, 77% reported decreasing margins, 75% raised prices, and 50% slowed hiring in response to tax and cost increases.
- Washington’s tax code creates a structural disadvantage. Washington is one of only seven states that taxes businesses on gross revenue rather than profit, and the state’s tax competitiveness ranking has fallen from 33rd to 45th in six years. Significant shifts in the tax code over the past 10 years — new surcharges, new business taxes, extending taxes to new categories of business activities, changes in existing tax categories, and local tax policy changes — increase unpredictability and make long-term planning harder.
“Washington businesses — small and large — are increasingly squeezed by a rising cost environment that has shifted faster than many can adapt. Those rising costs show up in the prices families pay every day. My message to policymakers is this: if your affordability agenda includes raising business taxes, it runs a real risk of making things more expensive, not less, for businesses and families. I urge you to dive into this research to understand how increased business costs contribute to the affordability crisis Washington families are facing,” said Rachel Smith, Washington Roundtable president.
From Washington small business owners:
“For nearly 40 years, we’ve had the privilege of caring for generations of families in downtown Seattle and building a childcare center our community depends on. But the cost of providing that care has become increasingly difficult to sustain. Nearly three-quarters of every dollar families pay in tuition now goes directly to labor costs, even after we were forced to scale back benefits we once fully covered for our employees. We care deeply about our teachers, our families, and the children we serve, but we haven’t taken a salary ourselves since 2020. After nearly four decades in business, we want nothing more than to keep our doors open and continue serving Seattle families, but it’s becoming harder every year to make the numbers work,” said Mick Fleming, owner, KidsCenter in Seattle.
“For over 25 years, Maryhill Winery has focused on bringing the best local wines to consumers statewide at an affordable price. Thanks to the hard work of our team, our revenue grew 80% over the last decade. Yet despite that growth, significant increases in Washington’s B&O tax and licensing fees, compounded by disproportionate increases in the state minimum wage and minimum annual salary, have made it increasingly difficult to keep up. We’ve absorbed these costs rather than pass them on to our customers, but we’ve reached a breaking point. Our net profit is now negative, putting the business we’ve spent decades building and our ability to support the employees who helped build it at risk,” said Craig Leuthold, Owner of Maryhill Winery in Goldendale.
Report Methodology
Prices We Pay: The Cost of Doing Business in Washington draws on three inputs: interviews with 18 consumer-facing small businesses across Washington representing industries closely tied to household spending; secondary research from state agencies, industry associations, and academic studies; and current and past profit and loss statements and pricing data from participating businesses. The report also draws on the Association of Washington Business Spring 2026 Washington Employer Survey.
