Washington State is considering a new capital gains tax, SB 5096, that would levy a 7 percent tax on profits from selling stocks, bonds, and other assets. If passed, Washington will be the only state without an income tax with a standalone capital gains tax. Washington State is also one of the few which have a constitution that prohibits an Income tax. According to long-standing IRS precedent, this proposed tax would flagrantly violate the state’s constitution. When many industries are struggling to survive, many have criticized the legislation as being a tax hike when few can afford it. SB 5096 passed in the Senate on March 6th and is now up for debate in the House of Representatives.
The proposed Capital gains tax in Washington is a total violation of the state’s constitution. The IRS has unequivocally stated that Capital gains taxes are an income tax. The Proposed tax is not levied on any specific sale, good, or service, such as the Washington real estate excise tax, it is instead imposed on net income from investment. Capital gains taxes are classified as income taxes both federally and in every other state in the country. The attempt to invent an “excise tax on capital gains” is unprecedented.
Representative Dan Newhouse spoke out against the bill, questioning its adherence to the state constitution, “In 2018 I asked the IRS about the treatment of capital gains and whether it is considered an excise or an income tax. Their answer was clear and concise. ‘It is an income tax. More specifically capital gains are treated as income under the tax code and taxed as such.”.
Despite healthy revenue streams, Washington politicians are still pushing to raise taxes. According to recent projections from the Washington State Economic and Revenue Forecast Council, Washington plans on bringing in an additional 3.2 billion through 2023 including a net 760 million dollar surplus. Senator Lynda Wilson used this news to criticize Washington’s plans to create new taxes “I think this is unprecedented news … that should quell the talk of the need for increasing taxes or creating new taxes”.
Business owners have spoken out against the tax, arguing that the new law will stifle growth in Washington’s booming technology industry. Randa Minkarah, cofounder and president of Resonance AI argued that the bill would slow down Washington’s dynamic start up scene “I strongly support continued investment in state programs to strengthen childcare and education. However, this newly proposed tax comes at a time when revenue is increasing. And a new tax is not necessary to fund these programs.”.