In March of 2022, the Douglas County Superior Court ruled in Quinn v. State of Washington that the capital gains excise tax (ESSB 5096) does not meet state constitutional requirements and, therefore, is unconstitutional and invalid. The State has appealed the ruling to the Washington Supreme Court. While the appeal is pending, the agency was granted a stay of the Douglas County ruling. The stay does not resolve the issues surrounding the constitutionality of the capital gains tax, but it does preserve the agency’s ability to effectively administer and implement the tax and meet statutory obligations, including accepting tax payments, pending a final decision from the Washington Supreme Court. As a result, the online system will be made available to taxpayers to report and pay the tax. The system is targeted to go live in February 2023. If the Court eventually finds the statute to be unconstitutional, any tax payments received will be promptly refunded with interest.
The Department will continue to provide guidance to the public regarding the tax as a courtesy. Any guidance provided herein will apply only if the tax is ruled constitutional and valid, in its entirety, by a court of final jurisdiction.
The 2021 Washington State Legislature recently passed ESSB 5096 (RCW 82.87) which creates a 7% tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets.
This tax only applies to individuals. However, individuals can be liable for the tax because of their ownership interest in a pass-through or disregarded entity that sells or exchanges long-term capital assets. The tax only applies to gains allocated to Washington state.
There are several deductions and exemptions available that may reduce the taxable amount of long-term gains, including an annual standard deduction of $250,000 per individual. In the case of spouses or domestic partners, the combined standard deduction is limited to $250,000 whether they file joint or separate returns.
The tax takes effect on Jan. 1, 2022, and the first payments are due on or before April 18, 2023.
The revenue collected from this tax will fund the education legacy trust account and common school construction account.
The sale or exchange of the following assets are exempt from the Washington capital gains tax:
The following deductions apply:
The following tax credits are available:
Only individuals owing capital gains tax are required to file a capital gains tax return, along with a copy of their federal tax return for the same taxable year. The capital gains tax return is due at the same time as the individual's federal income tax return is due. Individuals who receive a filing extension for their federal income tax return are entitled to the same filing extension for their capital gains tax return. However, a filing extension does not extend the due date for paying the capital gains tax due.
Penalties will apply to late returns. Additional penalties and interest will apply to late payments.
If you have general questions regarding Capital Gains or would like to request a binding ruling, please use our web page titled Request a tax ruling.