New Special Report: Proposals For A State Capital Gains Tax

We're out today with a Special Report looking at proposals in the Legislature for a state capital gains tax. You can read it here.

Here are some highlights:

  • Both Gov. Inslee and the House Democratic Caucus have proposed capital gains taxes.
  • Washington residents would have to pay tax on federally-defined gains. 
  • Nonresidents would pay capital gains on real estate located in the state, or on personal property when the sale takes place in the state. 
  • A major exemption would be gains from single-family residential real estate, regardless of whether it is owner occupied or a rental, a departure from past proposals. 
  • Some agricultural, forestry and other activities would also be exempt in both plans. 
  • Every state that currently taxes capital gains does so through its income tax. 
  • Framing the proposals as an excise tax may prevent a federal tax deduction. 
  • The governor’s plan calls for a rate of 7.9 percent, the House’s for 7 percent. 
  • Both proposals have exemptions of $25,000 for individuals and $50,000 for couples. 
  • Revenue projections for the governor’s capital gains tax proposal foresee $821 million new funds in 2019 and $1.848 billion in the 2019–21 biennium. 
  • The House’s plan assumes $715 million in revenues in the first year, but a fiscal note has not been issued.  
  • Tax revenues from capital gains fluctuate significantly with the state of the economy. 
  • The governor’s proposal includes a reserve fund to mitigate revenue volatility; the House Democratic Caucus’s proposal does not include a reserve fund. 
  • Capital gains tax exposure causes large investors to move assets or hold gains, both of which prevent investment in job-creating businesses. 
  • Investors in some fields will be exempt while others must pay, raising fairness issues. 
  • Start-up companies which rely on grants of stock or stock options to recruit employees will find the state less attractive. 
  • Several other tax proposals are on the table, raising the question of what the cumulative impact would be.

Click here to read the full report.

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