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Do you owe capital gains tax?

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 is now available to report and pay the tax. 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.

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For each tax year (calendar year), these questions can be used to help you determine if you may owe Washington state capital gains tax. This questionnaire is for informational purposes only and is not binding upon the department.

Reporting to the IRS

  • Did you report long-term capital gains on your federal income tax return on Schedule D for this year?

If you answer Yes to the above question, please continue to the Assets and Domicile section.

Assets and Domicile

  • If the long-term capital gains were from selling intangible assets, were you domiciled in Washington state at the time of sale (was Washington your permanent home at the time)?
  • Did you report long-term capital gains from selling tangible personal property that was located in Washington when it was sold?
  • Did you live in Washington State for more than 183 days during the taxable year?

If you answered Yes to any of the above questions, continue to the Amount section.

Amount

  • Was your amount of Washington state long-term capital gains more than $250,000 after all exemptions, such as real estate or investments held in individual retirement accounts? See RCW 82.87.050.

If you answered Yes to the above question, you may owe Washington state capital gains tax.