June 7, 23

NEWS / Washington Supreme Court upholds State Capital Gains tax

The Supreme Court of the State of Washington has upheld the legality of the state’s controversial capital gains tax. The tax was originally adopted in 2021, but was challenged by Republicans arguing that it was an income tax, which is prohibited by the state constitution. The Supreme Court argued that the capital gains tax was in fact an excise tax as it was being imposed on the transaction of selling long-term investment property. Only an estimated 7,000 households would be affected by the capital gains tax, as it only applies to the sale or disposal of certain types of intangible and tangible property held for over 1 year. The sale or disposal of real estate is exempted from the capital gains tax. The tax applies only to capital gains exceeding $250,000 per person or household. The tax applies to tax year 2022 and onward. Individuals owing the tax must file an online tax return with the Washington Department of Revenue. The City of Seattle previously tried to implement a city-level income tax, but that tax was struck down as unconstitutional, as it applied to a broader definition of income, rather than a particular transaction. Washington has historically been one of the few states that did not impose any income tax. Businesses have been required to pay a Business & Occupation tax imposed on gross receipts, but individuals have been exempted. The implementation of the Capital Gains tax changes this reality. Apart from Washington, states that do not have an income tax include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, while New Hampshire only taxes interests and dividends in excess of $2,400 per individual ($4,800 per couple).