Washington Legislature Approves Capital Gains Tax

OLYMPIA, WA — Washington state is set to create a new capital gains excise tax.

Once implemented, Senate Bill 5096 will create 7 percent tax on all capital gains — like the sales of stocks, bonds and other high-value assets — above $250,000 a year. Real estate, retirement accounts, agricultural lands and family-owned small business are except from the tax.

The latest financial analysis of the bill estimates that only 7,000 Washingtonians (about 0.2 percent of taxpayers) will actually pay the tax, which lawmakers say is by design: the bill specifically crafted only to target the state's wealthiest residents.

“This important step to rebuild our unfair tax code was taken after years of work, years of dialogue, and thousands of voices calling for this policy,” said sponsor Sen. June Robinson (D-Everett). “We’ve heard that people from every part of our state are ready to move toward a healthier, stronger future together, and it’s time for the wealthiest among us to pay their fair share for that future.”

Washington State Democrats say low-income residents pay up to 18 percent of their income in taxes, while the highest income households pay under 3 percent — an imbalance they hope this new tax will help rectify.

“By asking the wealthiest among us to share in the responsibility of funding the needs of our communities and putting money back in the pockets of low-income families via a sales tax rebate, these policies are the first steps on the path to balancing our tax code," said Rep. Noel Frame (D-Seattle).

The first $500 million collected by the tax will go to the state's Education Legacy Trust Account. Any money raised above the half-billion mark will go to the Common School Construction Account. Analysis estimates the tax will raise around $500 million in its first year.

The road to this point has been a rocky one. The tax narrowly passed the state Senate on a vote of 25 - 24 back in early March. The House approved the bill 53 - 46 last week, but with several amendments, meaning it had to go back to the Senate, which refused to adopt the House's amendments. That sent the bill into a conference, but it ultimately proved successful: on Sunday, the last day of the legislative session, the Washington State Legislature approved Senate Bill 5096.

The bill is now headed to Gov. Jay Inslee's desk for his signature.

That signature is more of a formality at this point, as the governor himself is the one who first requested the tax as part of his budget proposal for the biennium. Though the final bill has been reduced from his original pitch of a 9 percent tax rate, all indications are that Inslee will give the tax the go-ahead.

Once it has the governor's final approval, the tax will go into effect Jan. 1, 2020 with the first payments due April 17, 2023.