Capital gains tax and wealth tax bills receive hearings

SB 5096 and HB 1406, sponsored by Sen. June Robinson (D–Everett) and Rep. Noel Frame (D–Seattle) respectively, attempt to reduce the regressivity of Washington’s tax code by imposing capital gains and wealth taxes on the state’s highest earners.

SB 5096 imposes a nine percent capital gains tax beginning January 1, 2022. Capital gains tax is a tax on the profit realized on the sale of stocks, bonds, mutual funds, boats, and real estate purchased at a lower price than the sales price. The additional tax rate, established by the bill, is applied to the capital gains amount reported on an individual’s federal income tax return.

The bill contains provisions to avoid double taxation: any sale or exchange that falls under the B&O tax and capital gains tax will receive a credit against the B&O tax for the capital gains tax owed on the sale/exchange. All revenue generated from the tax will be deposited into the state general fund.

HB 1406 establishes a state wealth tax for taxing extraordinary financial intangible assets. The one percent wealth tax only applies to individuals owning over $1 billion in intangible assets. All revenue collected from the wealth tax is deposited into the state general fund. Financial intangible assets include:

• Cash and cash equivalents;
• Financial instruments such as bonds, stocks, commodities contracts, pension funds, etc.;
• Units of ownership in a subchapter K entity; and
• Other similar intangible assets.

AWC has not taken a position on these proposals but is tracking them as part of the larger conversation about the state’s tax structure and budget development. SB 5096 was assumed as part of the Governor’s budget proposals.