Max Nelsen, Director of Labor Policy with the Freedom Foundation, joined CEOtoCEO today to talk about the new Capital Gains Income Tax in Washington State.

The Capital Gains Tax - Senate Bill 5096, is the first of its kind in Washington State, and in the nation. Until this year, Washington State was one of only 9 states that did not tax personal income. In the past, the Washington State Department of Commerce consistently promoted Washington State's competitive advantages including no taxes on capital gains, personal or corporate income. In 2021, it's clear that the Department of Commerce will not be able to promote this to businesses looking to relocate to the State.

Max discussed the historical aspects of income tax in Washington State including 12 previous attempts to impose an income tax in Washington going back to 1932. His discussion included what the tax applies to, and the exemptions to the tax. The tax takes effect on January 1, 2022.

The State Constitution prohibits income tax on personal property and the State Supreme Court has repeatedly reaffirmed income tax as personal property. The new Capital Gains Tax has already resulted in two lawsuits being filed in Douglas County Superior Court on behalf of groups of Washington residents. Both cases are in the preliminary stages of litigation.

One of the controversial aspects of this bill is the inclusion of an emergency clause, putting this legislation into effect immediately, upon the Governor's signature. This clause denied citizens the typical 90 day period needed to gather signatures for a referendum to give voters a chance to put the bill up for a vote.

Adding to the frustrations, there's no real "budget emergency" as the state continues to collect higher tax revenues, each quarter above projected levels, and additional COVID relief funding from the federal government.

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Click to View New Capital Gains Tax (House Bill 5096)