2021 Tax Legislation

The following is a brief summary of the tax-related bills passed by the Legislature and signed into law by Gov. Inslee during the 2021 legislative session.

Behavioral health care B&O tax deductions

Behavioral health crisis hotline

Capital gains tax

Captive insurers

Carbon cap and trade program

Customized employment training program B&O tax credit

Emergency financial assistance grants

Farmworker housing sales and use tax exemption

Hydrogen fuel cell electric vehicle pilot sales and use tax exemption program

Liquor licensee privileges

Lodging special assessments

Low-income ratepayer assistance and weatherization

Main street tax credit program

Nonresident vessel permits

Ride sharing operations

Salmon recovery grants

Working families tax credit

Also, see the department’s complete Summary of 2021 Tax & Licensing Legislation

 

Behavioral health care B&O tax deductions

This bill:

  • Creates a B&O tax deduction for health or social welfare organizations, as defined under RCW 82.04.431, on amounts received as compensation for providing mental health services or substance use disorder treatment services under a government-funded program.
  • Provides a B&O tax deduction for behavioral health administrative services organizations, as defined under RCW 71.24.025, for amounts received from the state for distribution to a health or social welfare organization eligible for a deduction under this bill.

Effective April 26, 2021 (HB 1296, Chapter 124, Laws of 2021).

 

Behavioral health crisis hotline

This bill imposes a new tax to provide funding for the 988 crisis hotline. The tax applies to subscribers of phone lines and consumers of prepaid wireless services. From Oct. 1, 2021, through Dec. 31, 2022, the tax rate is 24 cents per month for each cell phone line, voice over internet protocol line, or landline, and 24 cents for each retail transaction involving the sale of prepaid wireless services. Beginning Jan. 1, 2023, the tax rate increases to 40 cents.

Effective Oct. 1, 2021 (E2SHB 1477, Chapter 302, Laws of 2021).

Special notice: New excise tax to fund statewide 988 behavioral health crisis response & suicide prevention line

 

Capital gains tax

This bill:

  • Imposes a 7% tax on the sale or exchange of certain long-term capital assets. The taxable amount is an individual's Washington capital gains. 
  • Creates the following deductions from the capital gains tax:
    • A standard deduction of $250,000 per year per individual, married couple, or domestic partnership. This amount is adjusted for inflation annually.
    • A deduction for the long-term capital gain from a taxpayer’s sale of a qualified family-owned small business.
    • A charitable donations deduction not to exceed $100,000 per year per taxpayer, for taxpayers making charitable donations in excess of $250,000 per year. These amounts are adjusted for inflation annually.
  • Exempts the sale or exchange of certain assets from the tax.
  • Creates a B&O tax credit for B&O taxes due on the same sale or exchange that is also subject to the Washington capital gains tax.

Effective July 25, 2021; however, the new tax is not imposed until Jan. 1, 2022 (ESSB 5096, Chapter 196, Laws of 2021).

Learn more about Capital Gains tax

 

Captive insurers

This bill amends RCW 82.04.320, which exempts insurers from the business and occupation (B&O) tax on their insurance business upon which they pay a premiums tax to the state, as follows:

  • Provides that for periods before May 12, 2021, the effective date of this bill, captive insurers are deemed to have paid the premiums tax with regard to their insurance business. 
  • Exempts from B&O tax eligible captive insurers affiliated with a public institution of higher education and that are exempt from premiums tax.

Effective May 12, 2021 (2SSB 5315, Chapter 281, Laws of 2021).

 

Carbon cap and trade program

This bill:

  • Allows the Department of Ecology to create a clean fuels program that caps the greenhouse gas emissions associated with transportation fuels. 
  • Creates a carbon intensity pollution credit system for covered fuels: 
    • Each credit is worth approximately one metric ton of carbon dioxide emissions. 
    • Entities may use, generate, buy, sell, or trade credits.  
  • Provides a B&O exemption for amounts received from the generation, purchase, sale, transfer, or retirement of credits.

Effective July 25, 2021 (E3SHB 1091, Chapter 317, Laws of 2021).

Special notice: Carbon cap and trade programs

 

Customized employment training program B&O tax credit

This bill extends the existing business and occupation (B&O) tax credit for participants in the Washington Customized Employment Training Program through June 30, 2026.   

Effective July 1, 2021 (2SHB 1033, Chapter 116, Laws of 2021).

Special notice: B&O tax credit for Washington Customized Training Program extended

 

Emergency financial assistance grants

This bill:

  • Exempts qualifying grants from B&O tax, public utility tax, and sales and use tax. A “qualifying grant” means government-funded financial assistance given to address the impacts of conditions giving rise to a national emergency or state of emergency, including the COVID-19 pandemic. 
  • Updates the definition of “retail sale” to clarify that purchases of tangible personal property or certain services made using qualifying grant funds are subject to sales tax.

Effective Feb. 19, 2021, and applies retroactively to Feb. 29, 2020 (SHB 1095, Chapter 4, Laws of 2021).

Learn more about emergency financial assistance grants

 

Farmworker housing sales and use tax exemption

This bill modifies the existing farmworker sales and use tax exemption by:

  • Providing that structures may qualify if 50% of the units in the development are used as farmworker housing.
  • Defining the terms “farm work” and “farmworker”.
  • Modifying the definition of “farmworker housing” to include housing in which at least one person is a farmworker, or that is used seasonally to house farmworkers.
  • Expanding the definition of “agricultural employer” to include employers engaged in aquaculture.
  • Providing that the exemption does not apply to housing built exclusively for workers in the United States on an H-2A visa.
  • Expiring the exemption effective Jan. 1, 2032.

Effective Oct. 1, 2021 (2SSB 5396, Chapter 250, Laws of 2021).

Special notice: Farmworker housing sales and use tax exemptions

 

Hydrogen fuel cell electric vehicle pilot sales and use tax exemption program

This bill: 

  • Creates a sales and use tax exemption for sales and leases of new and used hydrogen fuel cell powered passenger cars, light trucks, and medium-duty passenger vehicles. 
  • Exempts 50% of the state sales or use tax due on a qualifying new vehicle.
  • Exempts 100% of the state sales or use tax due on a qualifying used vehicle. However, if the sales price or fair market value of the vehicle exceeds $16,000, the exemption is limited to the amount of tax otherwise due on $16,000 of the sales price or fair market value.  
  • Requires the Department of Licensing to maintain a list of qualifying vehicles.
  • Provides that once 650 exemptions have been claimed, the exemption will expire at the end of the following month. 

Effective July 1, 2022 (2SSB 5000, Chapter 171, Laws of 2021).

 

Liquor licensee privileges

This bill:

  • Extends temporary privileges granted to certain liquor licensees in response to the COVID-19 pandemic, including, but not limited to, granting permission for eligible licensees to sell premixed cocktails and cocktail kits for takeout, curbside service, and delivery. These licensees must obtain an endorsement from the Liquor and Cannabis Board to maintain the temporary privileges. 
  • Provides a temporary exemption from the spirits sales and liter taxes for mini bottles of spirits when they are sold by a qualifying liquor licensee holding the proper endorsement. The exemption expires July 1, 2023.

Effective April 14, 2021 (E2SHB 1480, Chapter 48, Laws of 2021).

Special notice: New temporary spirits sales tax and spirits liter tax exemption

 

Lodging special assessments

This bill:

  • Authorizes lodging businesses to collect from their guests, as a separately-stated charge, parking and business improvement area special assessments. A lodging business that passes these assessments on to its guests as a separately-stated charge is deemed to be collecting such assessments as an agent for the jurisdiction levying the assessment.
  • Establishes that the separately-stated charge is not part of the selling price of the lodging for state and local sales tax purposes or part of the gross proceeds of sales for purposes of the state’s B&O tax.
  • Applies retroactively for any taxpayer who has been assessed taxes on any special assessment amounts collected by a lodging business prior to the effective date of the bill. No refunds may be made on taxes lawfully paid prior to the effective date of this legislation.

Effective May 10, 2021 (ESHB 1512, Chapter 225, Laws of 2021).

Special notice: Collection of parking and business improvement area special assessments by lodging businesses

 

Low-income ratepayer assistance and weatherization

This bill:

  • Provides a B&O exemption for funds provided by, or credits against power contracts with, the Bonneville Power Administration to utilities for purposes of implementing energy conservation programs or demand-side management programs.  
  • Requires that: 
    • The tax savings must be used for low-income ratepayer assistance or weatherization.
    • The funds generated for low-income ratepayer assistance and weatherization be additive and not supplant existing funds used for these purposes. 
  • Expires the credit as of Jan. 1, 2031.

Effective July 1, 2021 (SB 5008, Chapter 226, Laws of 2021).

 

Main street tax credit program

This bill makes changes to the Main Street Tax Credit Program by:

  • Increasing the allowable B&O tax credit and public utility tax (PUT) credit for contributions made to the Main Street Trust Fund from 50% to 75% of the contribution amount.
  • Increasing the combined total allowable statewide B&O tax and PUT credit amount from $2 million to $5 million per calendar year.
  • Increasing the combined total allowable B&O tax and PUT credits for each Main Street Program from $100,000 to $160,000 per calendar year.  
  • Allowing credits for contributions made in 2020 to be carried over an additional two years until Dec. 31, 2023.
  • Expiring the preference on Jan. 1, 2032.  

Effective Oct. 1, 2021 (SHB 1279, Chapter 112, Laws of 2021).

Special notice: Main Street Tax Credit Program

 

Nonresident vessel permits

This bill: 

  • Broadens eligibility for the nonresident vessel permit to include nonresident vessels chartered with a captain or crew, as long as the charter is three or more days in length, not including transit time to the starting point or from the end point of the charter. 
  • Subjects permitted vessels that operate as skippered charter vessels to use tax based on the reasonable bare boat rental value of the vessel while it is in Washington.
  • Increases the maximum length of vessels eligible for the permit from 164 feet to 200 feet. 
  • Removes the Dec. 31, 2025, date on which the Department of Revenue would no longer be authorized to approve nonresident vessel permits for entities that are not natural persons.
  • Removes the limit of two nonresident vessel permits per vessel within any 36-month period.
  • Requires that a vessel owner applying for a permit under RCW 82.32.865 must provide clear, cogent, and convincing evidence that the vessel owner is eligible for the permit, including proof that no Washington resident has an ownership interest in the vessel.

Effective July 25, 2021 (SHB 1107, Chapter 150, Laws of 2021).

Special notice: Nonresident vessel permits

 

Ride sharing operations

This bill:

  • Replaces the existing definition of “commuter ride sharing” and “flexible ride sharing” that are used for determining eligibility for various tax credits and exemptions available to ride sharing operations, with a new, broader definition of “ride sharing.” 
  • Adds “public transportation agencies” to the list of entities defined as ride sharing operators. 
  • Results in a broader application of the B&O tax, the public utility tax, sales and use tax, and the motor vehicle excise tax credits/exemptions available to ride sharing operations. 

Effective Sept. 1, 2021 (SHB 1514, Chapter 135, Laws of 2021).

Special notice: Ride-share vehicles

 

Salmon recovery grants

This bill:

  • Expands the existing B&O tax exemption for salmon restoration grants to include grants by tribal governments, and changes the phrase “salmon restoration” to “salmon recovery.”
  • Defines “salmon recovery grant.” 
  • Exempts the receipt of qualifying salmon recovery grants from retail sales tax. 
  • Updates the definition of “retail sale” to clarify that purchases of tangible personal property or certain services made using qualified grant funds are subject to sales tax.

Effective April 26, 2021 (ESB 5220, Chapter 143, Laws of 2021).

Special notice: Reporting salmon recovery grants

 

Working families tax credit

This bill modifies the existing Working Families Tax Credit under RCW 82.08.0206 by:

  • Expanding credit eligibility to individuals who would otherwise qualify for the federal Earned Income Tax Credit but filed their federal tax return using an Individual Taxpayer Identification Number instead of a social security number.
  • Changing how the amount of the credit is calculated and incorporating a reduced payment structure based on federal phase-out income levels.
  • Removing the requirement that the credit be funded in the state budget before individuals can claim the credit. 
  • Setting credit amounts based on the number of qualifying children, beginning in 2023.
  • Establishing percentage payout rate reductions based on the number of qualifying children, as income increases.
  • Requiring annual adjustments to the credit amounts to account for inflation based on the Consumer Price Index beginning in 2024.

Effective July 25, 2021 (ESHB 1297, Chapter 195, Laws of 2021).

Learn more about Washington's Working Families Tax Credit