Capital gains tax in Washington (state) explained

In the U.S. state of Washington, a capital gains tax of 7% is levied on profits from the sale or exchange of personal long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets over $262,000.[1] Several types of assets are exempt from the tax including real estate, assets held in retirement accounts, livestock, timberlands, commercial fishing privileges, and goodwill from the sale of an auto dealership. The tax differs from capital gains taxes at the federal level and many states which tax broadly tax both tangible assets such as property as well as intangible assets such as stocks and bonds.[2] [3]

Revenue from the tax goes toward education, childcare, early learning, and school construction.[4]

History

Prior to the passage of the capital gains tax, Washington State had the most regressive tax system of any state in the US.[5] The wealthiest 1% paid just 3% of their income in state taxes, while the poorest 20% paid 17.8%.[6] Advocates had long proposed a capital gains tax in order to help reduce this gap.[7] [8] During the 2021 legislative session, legislators introduced SB 5096 enacting a 7% capital gains tax on profits from the sale of assets such as stocks and bonds over $250,000, adjust for inflation.[9] Polling showed that the proposal had broad support with 59% in favor and 30% opposed.[10] Small business owners,[11] [12] economic policy experts,[13] and people who would pay a capital gains tax supported the legislation.[14] [15] Adrienne Stuart, a wealthy Pierce county resident, wrote in The Tacoma News Tribune, "Legislators: Tax me!”

On May 4, 2021, Governor Jay Inslee signed SB 5096 into law. Two days later,[16] Inslee signed the Fair Start for Kids Act, which provides childcare subsidies for working families in Washington State.[17] The subsidies are funded in part by revenues from the capital gains tax.[18]

The tax collected more than $890 million in revenue in its first year,[19] significantly exceeding the approximately $500 million in revenue initially projected.[20] The Department of Revenue projects the tax will bring in over $5 billion over the next 6 years.[21] Fewer than 4000 people pay the tax, and 85% of the revenue comes from King County.[22]

Attempts to repeal

Following the tax's passage, the Freedom Foundation, a right-wing think tank,[23] filed a lawsuit against Washington State challenging the tax's constitutionality on behalf of five plaintiffs subject to the tax, including Chris Quinn, the owner of the investment firm Cherry Hill Investments.[24] Parents, teachers, and the Edmonds School District joined the case as interveners to defend the law.[25] [26]

In March 2022, a Douglas County Superior Court judge sided with the plaintiffs ruling that the tax was an income tax[27] and therefore unconstitutional in Washington State. This ruling was overturned by the Washington State Supreme Court in March 2023, which ruled that the tax was an excise tax, rather than an income tax. The Supreme Court of the United States declined to hear an appeal by the plaintiffs.

Opponents of the tax filed an initiative in 2022 to repeal it in 2022 but failed to gather the required number of signatures to make it onto the ballot.[28]

In 2024, hedge fund manager Brian Heywood launched a campaign entitled Let's Go Washington to promote six initiatives including Initiative 2109, which would repeal the capital gains tax.[29] I-2109 would " decrease funding for K-12 education, higher education, school construction, early learning, and childcare."[30] Heywood spent $6 million of his own money gathering signatures for the initiatives. Parents, teachers, and children's groups, have endorsed the No on 2109 campaign opposing the initiative's passage.[31]

I-2109 sponsor, State GOP Chair Jim Walsh lost a lawsuit to hide I-2109's fiscal impacts from voters.[32]

Notes and References

  1. Web site: Capital gains tax Washington Department of Revenue . May 26, 2024 . dor.wa.gov.
  2. Web site: Topic no. 409, Capital gains and losses Internal Revenue Service . May 26, 2024 . www.irs.gov . en.
  3. Web site: Capital Gains Excise Tax generates $896 million for education, school construction . June 24, 2024 . dor.wa.gov.
  4. Web site: Deng . Grace . May 6, 2024 . WA decides: Initiative 2109 to repeal the state's capital gains tax . June 24, 2024 . Washington State Standard . en-US.
  5. Web site: January 20, 2024 . Finally, WA no longer has the nation's most unfair tax system . June 24, 2024 . The Seattle Times . en-US.
  6. Web site: ITEP .
  7. Web site: March 14, 2019 . Higher burden on lower income taxpayers in Washington . king5.com . en-US.
  8. Web site: Washington Democrats push for capital gains tax amid pandemic . opb . en.
  9. Web site: SB 5096 - 2021-22 . Washington State Legislature.
  10. Web site: February 17, 2021 . Washington capital gains tax proposal gains traction . June 24, 2024 . king5.com . en-US.
  11. Web site: February 13, 2021 . Paying their fair share of taxes: Ad features Auburn business owner . Auburn Reporter . en-US.
  12. Web site: WARREN . MARY ANN . April 9, 2023 . Guest Commentary: Washington's new capital gains tax does not apply to farmland, real estate, IRAs or pensions . Yakima Herald-Republic . en.
  13. Web site: June 17, 2020 . Letter from economic & policy experts to Washington State budget leaders . Washington State Wire . en-US.
  14. News: I’m part of the top 3-percent earners - so tax me higher, says Pierce County resident . thenewstribune.com.
  15. Web site: February 16, 2021 . Tax On Ultra-Rich Could Soon Fund Early Learning For Kids . en-US.
  16. Web site: Office . WA Governor's . May 7, 2021 . Inslee signs Fair Start for Kids Act to expand access to child care . Washington State Governor's Office . en.
  17. Web site: Department of Children, Youth & Families . DCYF . en.
  18. Web site: April 6, 2023 . Washington Supreme Court Greenlights Capital Gains Tax on Wealthy to Pay for Early Education, Child Care . South Seattle Emerald . en-US.
  19. Web site: Cornfield . Jerry . State hauls in nearly $900M from the first year of capital gains tax . June 25, 2024 . Washington State Standard . en-US.
  20. Web site: March 24, 2023 . WA Supreme Court upholds capital gains tax . The Seattle Times . en-US.
  21. Web site: Multiple Agency Fiscal Note Summary .
  22. Web site: March 13, 2024 . Advice for Eastern WA: Take the money from King County millionaires and run . June 25, 2024 . The Seattle Times . en-US.
  23. Web site: This Right-Wing Think Tank Is Hell-Bent on Defunding Public-Sector Unions. Is It Working? . The New Republic.
  24. Web site: April 28, 2021 . Lawsuit filed to overturn Washington capital gains tax . June 25, 2024 . Northwest News Network . en.
  25. Web site: July 6, 2021 . WA Parents, Teachers, And A School District Asking To Join In Defending Education Funding . June 25, 2024 . en-US.
  26. Web site: Quinn v. State, Dep't of Revenue, 526 P.3d 1 . June 25, 2024.
  27. Web site: Controversial capital gains tax struck down by Douglas County Superior Court judge .
  28. Web site: June 10, 2022 . Foes of state’s capital gains tax drop plans for initiative . June 25, 2024 . Herald . en-US.
  29. Web site: January 28, 2024 . Meet the hedge fund manager upending WA politics with 6 voter initiatives . The Seattle Times . en-US.
  30. Web site: Gonick . Peter . July 23, 2024 . Attorney General of Washington Letter to Washington Secretary of State . live . July 26, 2024 . Washington Secretary of State.
  31. Web site: Zucco . Erica . May 22, 2024 . Childcare centers, parents and advocates launch 'No on I-2109' campaign . live . July 24, 2024 . King 5 News . en-US.
  32. Web site: Washington judge denies GOP attempt to keep financial impact of initiatives off November ballots . AP News . June 26, 2024 . June 7, 2024.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Capital gains tax in Washington (state)".

Except where otherwise indicated, Everything.Explained.Today is © Copyright 2009-2024, A B Cryer, All Rights Reserved. Cookie policy.