Don't Mess With Taxes

After legislative and court fights, Washington State's capital gains tax took effect on Jan. 1, 2022.

The Evergreen State's 7 percent tax applies to the sale of stocks, bonds, and other financial assets exceeding $250,000.

And its collection, with the tax's first payments due this past April, has been a boon for the state's treasury.

Initial estimates predicted the capital gains tax might provide Washington State around $248 million in this fiscal year, which ends on July 1. The actual amount the state has collected as of May 9 was more than three times that: $849 million.

Education boost: Washington State's pile of new money will go to early childhood education, K-12 education, and K-12 capital improvement projects.

The unexpected capital gains revenue from some of the country's richest individuals who call the Pacific Northwest home has, for now, made the tax look like a good idea for the state and its schools.

It also emboldened some Evergreen State lawmakers to try to expand tax on the wealthy. Bills were introduced policies that would have created a tax on wealth and increased the tax on sales of multimillion-dollar properties, but neither passed.

Shouting out added tax collection: But Washington's capital gains tax success so far is enough to earn it attention this weekend as the subject of several Saturday Shout Outs.

• Washington's New Capital Gains Tax Brings in Far More Than Expected, by Claire Withycombe for the Seattle Times.
• Washington state capital gains tax a windfall for schools, from KIRO News Radio's Gee Scott and Ursula Reutin Show.
• Lessons from Washington State's New Capital Gains Tax, by Kamau Chege for The Urbanist.
• WA's capital gains tax will have unintended consequences, by Victor Menaldo for the Seattle Times.

Washington State income tax queries: I hear all y'all tax savvy blog readers who are asking what the heck is the deal? Isn't Washington one of the nine no-income-tax states?

Yes, it is. But the tax needle was deftly threaded by Evergreen State lawmakers, and the state's highest court sewed it up on March 23.

That day, the Washington Supreme Court agreed with the levy's supporters that the collection of revenue from the sale of financial assets is constitutional because the capital gains tax is not an income tax, but an excise tax on a good or service.

Ah, lawyers, especially tax attorneys.

Capital gains taxes in other states: Once you take Washington State out of the mix, that means eight states that have no income tax also have no capital gains tax.

They are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming.

But what about the other jurisdictions? This weekend's final Saturday Shout Out answers that question.

In her article States With Low and No Capital Gains Tax for Kiplinger, Kelley R. Taylor notes that low-tax states, including states with no capital gains tax, are selling points for many people lately.

I know most folks hate paying any and all types of taxes. But if you're paying tax on your money because it's making money, then you're doing something right.

Every time someone complains about owing tax on capital gains, I always hear the words of a veteran tax professional in my head.

"I hope to one day owe a million dollars in capital gains. Just imagine how much investing success it took to owe that much," he said.

You also might find these items of interest:

• Tax-smart capital loss or gain moves
• 2023 inflation adjustments widen capital gains tax brackets
• Washington state group says 'no' to no-capital-gains-tax vote

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