Washington Legislature passes multiple bills with significant tax changes

The Washington Legislature passed a series of bills containing significant tax changes during the last week of April and the bills currently sit with the Governor awaiting signature.

The bills contain measures to increase the capital gains tax on high income earners, modify the estate tax, expand the state sales tax, and increase the business and occupations tax on certain industries, among other changes.

Capital gains tax increase

Washington’s capital gains tax was approved in 2021 and effective Jan. 1, 2022. The tax has survived repeal efforts including legal challenges and a statewide ballot initiative this past November.

With the tax being upheld, the Legislature passed changes to the capital gains tax rate beginning Jan. 1, 2025. Specifically, SB 5813 adds a new tier to the state’s capital gains excise tax rate, placing an additional 2.9% tax on the sale or exchange of long-term assets such as stocks, bonds, business interests or other investments above $1 million. This would be on top of the already imposed 7% tax on gains over $270,000 per year, adjusted annually, making the total tax 9.9% on capital gains of over $1 million per year.

Estate tax modifications

Additionally, SB 5813 modifies the estate tax by allowing exclusions up to $3 million in value for estates of decedents dying on or after July 1, 2025, while also indexing the value for inflation in the future. The bill also increases the tax rate on estates, which currently range from 10% to 20% depending on the size of the estate, to 10% to 35% beginning July 1, 2025.