And Soon, There May Only Be Eight…States Without an Income Tax
Washington State is on the verge of joining Oregon, California, and 40 other states by implementing a Capital Gains Tax. Washington State Income Tax proposals have been floated around for many years and have consistently been either rebuked in the legislature or shot down by the voters.
Today, we live in different times. The implications of perceived tax injustices with the belief that the wealthy do not pay their fair share and the never satiated U.S. Government determined on spending anything they could receive thus devouring all that is within their range.
Of course, this isn’t law yet. It narrowly passed the more conservative Washington State Senate 25 to 24 and moves to the Washington State House where it is anticipated to be approved with little debate. Governor Jay Inslee is expected to sign the Tax meaning Washington State would begin receiving the tax revenue in 2023. Of course, there is still time for a voter referendum to overturn, modify, or redirect, and more likely, for court challenges to proceed (Washington has had a constitutional prohibition against income taxes since 1933). Of course, Capital Gains Tax proponents desire to term the Tax as “Not an Income Tax” however these proponents seem to misunderstand much about the “Economics of Taxation”. I will address this more in the near future.
The tax is scheduled to be a flat 7% above a $250,000 annual exclusion and excludes gains from Home Sales, Timber, some Real Estate, Retirement Plans, and the sale of certain qualifying Small Businesses.
Washington SB 5096:
Concerning an Excise Tax on Gains from the Sale or Exchange of Certain Capital Assets
- Lowers the tax rate from 9 percent to 7 percent
- Increases threshold exclusion to $250,000
- Exempts all sales or exchanges of real estate – however, there is an amendment to include back real-estate
- Replaces sole proprietor deduction with a family-owned small business deduction
- Exempts the value of goodwill received when a car dealership is sold
- Deposits the first $350 million in revenues collected each year into the Education Legacy Trust Account and deposits the remainder into a new Taxpayer Relief Account
- Makes other technical clarifications and corrections
While this tax appears to be targeted at the Seattle/Redmond’s profitable tech sector employees (think Microsoft and Amazon); the application goes across the board and like all taxation schemes, only opens the door for further taxation in the future, as the revenue “hunger” of state and local governments never seems to cease.
Ultimately, all will end up paying and the wealthy who would pay more tax might invest less to create the jobs and opportunities that the legislature and progressives desire. Again, I will address this more on the “Economics of Taxation” in another article.
Meanwhile, if you are a target for this tax in Washington State, contact your financial partners and plan accordingly to avoid the 2023 tax haircut. If you are thinking of moving from a high tax state to Washington State, because of your tax situation, maybe you’d better rethink your options. If you are a business that was thinking the State of Washington to be a great location, again you might want to reconsider your options.
Bottom-Line: If you want to retain more of what you make while remaining tax compliant, contact us at Morris + D’Angelo. This is our Expertise!
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