Tax wise, with only source of income in CA, should I incorporate in WA or CA?
We would like to keep all people that work with this client as subcontractors but will need to talk to accountant to see if this is possible.
I understand your reluctance in registering your business in California, as it would be exposed to the high Franchise Tax this state levies on all registered businesses, however it is also important to correctly establish the domicile for your business. In other words, if a case can be made that your business has enough activity in California to require it to register there, then registering in Washington would not help much.
I invite you to read Mary's answer to a question "Georgia company doing business in Florida". She explains the definition of "transacting business" in a state, and you can use it to see if your business would fall under such definition in California or not, and make your decisions accordingly.