OLYMPIA – A 7% tax on capital gains is now law after Gov. Jay Inslee signed the long-awaited bill on Tuesday, but there could still be a long way to go until it is implemented.
The tax has been a priority for Inslee and Democrats who say it will help improve the state’s regressive tax code. After much debate in the Legislature, the final version implements a 7% tax on the sale of stocks, bonds, some property, businesses and other investments, if the profits exceed $250,000 annually.
“It is a big stride to more justice by overturning the upside down tax system which has been so unfair to Washingtonians for so many decades,” Inslee said at the signing Tuesday.
There are some exceptions, including the sale of real estate, livestock and small-family owned businesses, if it is owned for at least five years and makes less than $10 million a year. Democrats’ final budget proposal accounts for $415 million in revenue from the tax, which would go toward child care priorities. Revenue from the tax would begin coming to the state in 2023.
Opponents of the bill say it is a tax on income, which would be considered unconstitutional in Washington state.
The final version of the bill passed with a clause making it “necessary for the support of the state government and its existing public institutions,” which could prevent voters from bringing a referendum to the ballot to repeal it.
Instead, opponents are looking to a court challenge. At least one lawsuit has been filed by the conservative Freedom Foundation to challenge the tax in court. Another group, the Opportunity for All Coalition, has said it plans to file a lawsuit to challenge it as well.
Inslee also signed an expansion of the working families tax exemption, a tax credit for low-income workers and families ranging from $300 to $1,200, depending on the number of children a taxpayer has. The exemption passed the Legislature in 2008, but it was never funded.
Inslee called both bills “the biggest steps forward in my lifetime” on tax fairness.
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