wa-law.org > bill > 2025-26 > SB 5813 > Substitute Bill
The legislature finds that it is the paramount duty of the state to amply provide every child in the state with an education, creating the opportunity for the child to succeed in school and thrive in life. The legislature further finds that high quality early learning and child care is critical to a child's success in school and life, as it supports the development of the child's social-emotional, physical, cognitive, and language skills. The legislature further finds that the state's higher education system ensures Washington residents have the opportunity to succeed in a competitive global economy.
The legislature further finds that in 2024, when given the opportunity to retain investments in the education legacy trust account for high quality early learning and child care, 64.11 percent of Washington voters in 32 of its 39 counties voted to uphold the excise tax on sales of long-term capital assets for this purpose.
Therefore, the legislature will fund ongoing support of public K-12 education, early learning and child care, and higher education, by dedicating revenues from this act to the education legacy trust account. The legislature further recognizes that a tax system that is fair, balanced, and works for everyone is essential to help all Washingtonians grow and thrive. Washington's tax system remains the second most regressive in the nation as it asks those with the least to pay the most as a percentage of their income. Low-income Washingtonians pay at least three times more in state and local taxes as a percentage of their income than the state's highest-income households.
To help increase funding to the education legacy trust account, the legislature intends to levy an additional excise tax on the sale or exchange of long-term capital assets, which equals 2.90 percent multiplied by the portion of an individual's Washington capital gains exceeding $1,000,000, and by creating a more progressive rate structure for the estate tax by increasing the top tier rates up to 35 percent. Further, the legislature intends to increase the exclusion amount to $3,000,000 for the estate tax. The legislature recognizes that levying these taxes with a more progressive rate structure, and increasing the exclusion amount for the estate tax, will have the additional effect of making material progress toward rebalancing the state's tax code.
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Beginning January 1, 2022, an excise tax is imposed on the sale or exchange of long-term capital assets. Only individuals are subject to payment of the tax, which equals seven percent multiplied by an individual's Washington capital gains.
Beginning January 1, 2025, an additional excise tax is imposed on the sale or exchange of long-term capital assets, which equals 2.90 percent multiplied by the portion of an individual's Washington capital gains exceeding $1,000,000.
The tax levied in subsection (1) of this section is necessary for the support of the state government and its existing public institutions.
If an individual's Washington capital gains are less than zero for a taxable year, no tax is due under this section and no such amount is allowed as a carryover for use in the calculation of that individual's adjusted capital gain, as defined in RCW 82.87.020(1), for any taxable year. To the extent that a loss carryforward is included in the calculation of an individual's federal net long-term capital gain and that loss carryforward is directly attributable to losses from sales or exchanges allocated to this state under RCW 82.87.100, the loss carryforward is included in the calculation of that individual's adjusted capital gain for the purposes of this chapter. An individual may not include any losses carried back for federal income tax purposes in the calculation of that individual's adjusted capital gain for any taxable year.
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The tax imposed in this section applies to the sale or exchange of long-term capital assets owned by the taxpayer, whether the taxpayer was the legal or beneficial owner of such assets at the time of the sale or exchange. The tax applies when the Washington capital gains are recognized by the taxpayer in accordance with this chapter.
For purposes of this chapter:
An individual is considered to be a beneficial owner of long-term capital assets held by an entity that is a pass-through or disregarded entity for federal tax purposes, such as a partnership, limited liability company, S corporation, or grantor trust, to the extent of the individual's ownership interest in the entity as reported for federal income tax purposes.
A nongrantor trust is deemed to be a grantor trust if the trust does not qualify as a grantor trust for federal tax purposes, and the grantor's transfer of assets to the trust is treated as an incomplete gift under Title 26 U.S.C. Sec. 2511 of the internal revenue code and its accompanying regulations. A grantor of such trust is considered the beneficial owner of the capital assets of the trust for purposes of the tax imposed in this section and must include any long-term capital gain or loss from the sale or exchange of a capital asset by the trust in the calculation of that individual's adjusted capital gain, if such gain or loss is allocated to this state under RCW 82.87.100.
The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
A tax in an amount computed as provided in this section is imposed on every transfer of property located in Washington. For the purposes of this section, any intangible property owned by a resident is located in Washington.
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If Washington Taxable
The amount of Tax Equals
Of Washington Taxable Estate Value Greater than
Estate is at least
But Less Than
Initial Tax Amount
Plus Tax Rate %
$0
$1,000,000
$0
10.00%
$0
$1,000,000
$2,000,000
$100,000
14.00%
$1,000,000
$2,000,000
$3,000,000
$240,000
15.00%
$2,000,000
$3,000,000
$4,000,000
$390,000
16.00%
$3,000,000
$4,000,000
$6,000,000
$550,000
18.00%
$4,000,000
$6,000,000
$7,000,000
$910,000
19.00%
$6,000,000
$7,000,000
$9,000,000
$1,100,000
19.50%
$7,000,000
$9,000,000
$1,490,000
20.00%
$9,000,000
ii. For estates of decedents dying on or after January 1, 2025, except as provided in (b) of this subsection, the amount of tax is the amount provided in the following table:
If Washington Taxable
The amount of Tax Equals
Of Washington Taxable Estate Value Greater than
Estate is at least
But Less Than
Initial Tax Amount
Plus Tax Rate %
$0
$1,000,000
$0
10.00%
$0
$1,000,000
$2,000,000
$100,000
15.00%
$1,000,000
$2,000,000
$3,000,000
$250,000
17.00%
$2,000,000
$3,000,000
$4,000,000
$420,000
19.00%
$3,000,000
$4,000,000
$6,000,000
$610,000
23.00%
$4,000,000
$6,000,000
$7,000,000
$1,070,000
26.00%
$6,000,000
$7,000,000
$9,000,000
$1,330,000
30.00%
$7,000,000
$9,000,000
$1,930,000
35.00%
$9,000,000
b. If any property in the decedent's estate is located outside of Washington, the amount of tax is the amount determined in (a) of this subsection multiplied by a fraction. The numerator of the fraction is the value of the property located in Washington. The denominator of the fraction is the value of the decedent's gross estate. Property qualifying for a deduction under RCW 83.100.046 must be excluded from the numerator and denominator of the fraction.
For the purposes of determining the tax due under this chapter, a deduction is allowed for the value of the decedent's qualified family-owned business interests, not to exceed the applicable deduction amount, if:
The value of the decedent's qualified family-owned business interests exceed 50 percent of the decedent's Washington taxable estate determined without regard to the deduction for the applicable exclusion amount;
During the eight-year period ending on the date of the decedent's death, there have been periods aggregating five years or more during which:
Such interests were owned by the decedent or a member of the decedent's family;
There was material participation, within the meaning of section 2032A(e)(6) of the internal revenue code, by the decedent or a member of the decedent's family in the operation of the trade or business to which such interests relate;
The qualified family-owned business interests are acquired by any qualified heir from, or passed to any qualified heir from, the decedent, within the meaning of RCW 83.100.046(2), and the decedent was at the time of his or her death a citizen or resident of the United States; and
The value of the decedent's qualified family-owned business interests is not more than $6,000,000.
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Only amounts included in the decedent's federal taxable estate may be deducted under this subsection.
Amounts deductible under RCW 83.100.046 may not be deducted under this section.
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There is imposed an additional estate tax on a qualified heir if, within three years of the decedent's death and before the date of the qualified heir's death:
The material participation requirements described in section 2032A(c)(6)(b)(ii) of the internal revenue code are not met with respect to the qualified family-owned business interest which was acquired or passed from the decedent;
The qualified heir disposes of any portion of a qualified family-owned business interest, other than by a disposition to a member of the qualified heir's family or a person with an ownership interest in the qualified family-owned business or through a qualified conservation contribution under section 170(h) of the internal revenue code;
The qualified heir loses United States citizenship within the meaning of section 877 of the internal revenue code or with respect to whom section 877(e)(1) applies, and such heir does not comply with the requirements of section 877(g) of the internal revenue code; or
The principal place of business of a trade or business of the qualified family-owned business interest ceases to be located in the United States.
The amount of the additional estate tax imposed under this subsection is equal to the amount of tax savings under this section with respect to the qualified family-owned business interest acquired or passed from the decedent.
Interest applies to the tax due under this subsection for the period beginning on the date that the estate tax liability was due under this chapter and ending on the date the additional estate tax due under this subsection is paid. Interest under this subsection must be computed as provided in RCW 83.100.070(2).
The tax imposed by this subsection is due the day that is six months after any taxable event described in (a) of this subsection occurred and must be reported on a return as provided by the department.
The qualified heir is personally liable for the additional tax imposed by this subsection unless he or she has furnished a bond in favor of the department for such amount and for such time as the department determines necessary to secure the payment of amounts due under this subsection. The qualified heir, on furnishing a bond satisfactory to the department, is discharged from personal liability for any additional tax and interest under this subsection and is entitled to a receipt or writing showing such discharge.
Amounts due under this subsection attributable to any qualified family-owned business interest are secured by a lien in favor of the state on the property in respect to which such interest relates. The lien under this subsection (3)(f) arises at the time the Washington return is filed on which a deduction under this section is taken and continues in effect until: (i) The tax liability under this subsection has been satisfied or has become unenforceable by reason of lapse of time; or (ii) the department is satisfied that no further tax liability will arise under this subsection.
Security acceptable to the department may be substituted for the lien imposed by (f) of this subsection.
For purposes of the assessment or correction of an assessment for additional taxes and interest imposed under this subsection, the limitations period in RCW 83.100.095 begins to run on the due date of the return required under (d) of this subsection.
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The department may require a taxpayer claiming a deduction under this section to provide the department with the names and contact information of all qualified heirs.
The department may also require any qualified heir to submit to the department on an ongoing basis such information as the department determines necessary or useful in determining whether the qualified heir is subject to the additional tax imposed in subsection (3) of this section. The department may not require such information more frequently than twice per year. The department may impose a penalty on a qualified heir who fails to provide the information requested within 30 days of the date the department's written request for the information was sent to the qualified heir. The amount of the penalty under this subsection is $500 and may be collected in the same manner as the tax imposed under subsection (3) of this section.
For purposes of this section, references to section 2057 of the internal revenue code refer to section 2057 of the internal revenue code, as existing on December 31, 2003.
For purposes of this section, the following definitions apply:
"Applicable deduction amount" means:
$2,500,000 for estates of decedents dying on or after January 1, 2014, but before January 1, 2025;
$3,000,000 for estates of decedents dying on or after January 1, 2025, but before January 1, 2026; and
For estates of decedents dying in calendar year 2026 and each calendar year thereafter, the amount in (a)(ii) of this subsection must be adjusted annually, except as otherwise provided in this subsection (6)(a)(iii). The annual adjustment is determined by multiplying $3,000,000 by the sum of one and the percentage by which the most recent October consumer price index exceeds the consumer price index for October 2024, and rounding the result to the nearest $1,000. No adjustment is made for a calendar year if the adjustment would result in the same or a lesser applicable exclusion amount than the applicable exclusion amount for the immediately preceding calendar year.
"Consumer price index" has the same meaning as in RCW 83.100.020.
"Member of the decedent's family" and "member of the qualified heir's family" have the same meaning as "member of the family" in RCW 83.100.046.
"Qualified family-owned business interest" has the same meaning as provided in section 2057(e) of the internal revenue code of 1986.
"Qualified heir" has the same meaning as provided in section 2057(i) of the internal revenue code of 1986.
This section applies to the estates of decedents dying on or after January 1, 2014.
Section 101 of this act applies to taxes imposed in calendar year 2025 for collection in calendar year 2026.
Sections 201 through 203 of this act apply prospectively as well as retroactively to estates of decedents dying on or after January 1, 2025.
This act does not affect any existing right acquired or liability or obligation incurred under the sections amended or repealed in this act or under any rule or order adopted under those sections, nor does it affect any proceeding instituted under those sections.
If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.
This act is necessary for the support of the state government and its existing public institutions, and takes effect immediately.