BILL REQ. #:  H-1460.5 

Read first time 06/29/13.   Referred to Committee on Finance.

     AN ACT Relating to authorizing a capital gains tax to fund early childhood investments, higher education, and the state's rainy day fund; amending RCW 82.45.090, 82.45.150, and 83.100.230; adding a new chapter to Title 82 RCW; creating a new section; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise. Any term used in this chapter has the same meaning as when used in a comparable context in the internal revenue code unless provided otherwise.
     (1) "Capital assets" has the same meaning as provided by section 1221 of the internal revenue code.
     (2) "Capital gains" means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges received by a person.
     (3) "Department" means the state department of revenue.
     (4) "Internal revenue code" means the United States internal revenue code of 1986 and amendments thereto, as existing and in effect as of the effective date of this section.
     (5) "Nonresident" means a person whose domicile is not in this state and who does not reside in this state for more than one hundred eighty-three days during the tax year.
     (6) "Person" means a natural person.
     (7)(a) "Resident" means a person whose domicile is in this state or whose domicile is not in this state but who resides in this state for more than one hundred eighty-three days during the tax year.
     (b) For purposes of this subsection, once a person is a resident, residency continues for three years, notwithstanding changes in domicile.
     (8) "Taxable year" means the taxpayer's taxable year as defined under the internal revenue code.
     (9) "Taxpayer" means a person receiving capital gains subject to tax under this chapter.

NEW SECTION.  Sec. 2   (1) Beginning January 1, 2014, a tax is imposed on every person for the privilege of selling or exchanging capital assets. The tax equals six and one-half percent multiplied by a person's capital gains for each taxable year.
     (2) For resident persons, all capital gains must be allocated to this state.
     (3) For nonresident persons, capital gains must be derived from sources within this state and allocated to this state.
     (4) The following threshold exemptions are allowed in determining the tax under subsection (1) of this section:
     (a) Fifty thousand dollars; or
     (b) One hundred thousand dollars for persons filing joint returns under section 9 of this act.
     (5) Capital gains must be reported in the taxable year they are received. Losses from the sale or exchange of capital assets may only be used to offset gains from other sales or exchanges of capital assets in the same taxable year.
     (6) Receipts from this tax must be deposited into the education legacy trust account created in RCW 83.100.230.

NEW SECTION.  Sec. 3    This chapter does not apply to gain from the sale of a principal residence.

NEW SECTION.  Sec. 4   This chapter does not apply to amounts received by any person for the sale or exchange of property as authorized under the condemnation proceedings as provided by law for the exercise of the power of eminent domain under Title 8 RCW, regardless of whether the parties have settled the matter prior to filing an action.

NEW SECTION.  Sec. 5   (1) The intent of this section is to prevent the multiple taxation of capital gains in both Washington and another taxing jurisdiction.
     (2) As used in this section, "taxing jurisdiction" means any of the states, the District of Columbia, or any territory or possession of the United States; any municipality, city, county, township, parish, transportation district, or assessment jurisdiction; or other political subdivision within the territorial limits of the United States with the authority to impose a tax, charge, or fee.
     (3) A resident person is allowed a credit against the tax imposed in section 2 of this act equal to the amount of tax paid to another taxing jurisdiction on capital gains derived from sources within the other taxing jurisdiction.
     (4) The amount of tax credits received by any resident person under this section may not exceed the total amount of tax due under this chapter, and there may be no carryback or carryforward of any unused credits.

NEW SECTION.  Sec. 6   (1) Any person who knowingly attempts to evade the tax imposed under this title or payment thereof is guilty of a class C felony as provided in chapter 9A.20 RCW.
     (2) Any person who knowingly fails to pay tax, make returns, keep records, or supply information, as required under this title, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.

NEW SECTION.  Sec. 7   (1) All taxpayers must file with the department, on forms prescribed by the department, a capital gains tax return for each taxable year. A person owing no tax for a taxable year is not required to file a return for that year. Each person required to file a return under this title must, without assessment, notice, or demand, pay any tax due thereon to the department on or before the date fixed for the filing of the return.
     (2) The department may by rule require that certain taxpayers file, on forms prescribed by the department, informational returns for any period.

NEW SECTION.  Sec. 8   The due date of a return required to be filed with the department must be the due date of the federal income tax return or informational return for federal income tax purposes, except as otherwise required by the department. The department may grant extensions of times by which returns required to be filed by this title may be submitted. The department may grant extensions of time to pay tax with regard to taxes imposed by this title. Interest at the rate as specified in RCW 82.32.050 must accrue during any extension period and the interest and penalty provisions of chapter 82.32 RCW apply to late payments and deficiencies.

NEW SECTION.  Sec. 9   (1) If the federal income tax liabilities of both spouses are determined on a joint federal return for the taxable year, they must file a joint return under this title.
     (2) If neither spouse is required to file a federal income tax return for the taxable year, a joint return is required to be filed under this title under the same conditions under which a joint return may be filed for purposes of the federal income tax.
     (3) Except as provided in subsection (5) of this section, if the federal income tax liability of either spouse is determined on a separate federal return for the taxable year, they must file separate returns under this title.
     (4) In any case in which a joint return is filed under this section, the liability of the husband and wife or partners is joint and several, unless the spouse or partner is relieved of liability under 26 U.S.C. Sec. 6013 of the internal revenue code.
     (5) Partners in a state registered domestic partnership or who have a marriage licensed under chapter 26.04 RCW may file a joint return under this title.

NEW SECTION.  Sec. 10   (1) Every person required to pay the tax imposed under this title must keep records, render statements, make returns, file reports, and perform other acts as the department requires by rule. Each return must be made under penalty of perjury and on forms prescribed by the department. The department may require other statements and reports be made under penalty of perjury and on forms prescribed by the department. The department may require any taxpayer to furnish to the department a correct copy of any return or document that the taxpayer has filed with the internal revenue service or received from the internal revenue service.
     (2) All books and records and other papers and documents required to be kept under this title are subject to inspection by the department at all times during business hours of the day.

NEW SECTION.  Sec. 11   (1) To the extent possible without being inconsistent with this chapter, all of the provisions of the internal revenue code relating to the time and manner of making returns, extensions of time for filing returns, verification of returns, and the time when a return is deemed filed apply to this chapter.
     (2) The department by rule may provide modifications and exceptions to requirements of subsection (1) of this section, if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this chapter.

NEW SECTION.  Sec. 12   (1) The department must refund all taxes improperly paid or collected.
     (2) The following sections apply to the administration of taxes imposed under this title: RCW 82.32.050, 82.32.055, 82.32.060, 82.32.070, 82.32.080, 82.32.085, 82.32.090, 82.32.100, 82.32.105, 82.32.110, 82.32.117, 82.32.120, 82.32.130, 82.32.135, 82.32.145, 82.32.150, 82.32.160, 82.32.170, 82.32.180, 82.32.190, 82.32.200, 82.32.210, 82.32.212, 82.32.220, 82.32.230, 82.32.235, 82.32.237, 82.32.240, 82.32.245, 82.32.265, 82.32.300, 82.32.310, 82.32.320, 82.32.330, 82.32.340, 82.32.350, 82.32.360, 82.32.380, and 82.32.410.

NEW SECTION.  Sec. 13   The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of this chapter. The rules, to the extent possible without being inconsistent with this chapter, must follow the internal revenue code and the regulations and rulings of the United States treasury department with respect to the federal income tax. The department may adopt as a part of these rules any portions of the internal revenue code and treasury department regulations and rulings, in whole or in part.

NEW SECTION.  Sec. 14   (1) An authorized agent providing closing and settlement services in a conveyance is required to withhold from consideration payable to a transferor an amount equal to the tax due imposed under section 2 of this act.
     (2) An authorized agent is not required to withhold amounts under this section if:
     (a) The conveyance is in lieu of foreclosure of a mortgage, trust deed, or other security instrument or a land sale contract with no additional monetary consideration;
     (b) The transferor is a personal representative, executor, conservator, bankruptcy trustee, or other person acting under judicial review;
     (c) The transferor delivers to the authorized agent a written assurance that the sale or exchange qualifies for exclusion of gain under section 3 or 4 of this act.
     (3)(a) An authorized agent must electronically report the tax withheld on forms prescribed by the department and remit electronic payment of the tax to the department under the methods provided in RCW 82.32.080. An authorized agent must electronically file and make payment under this subsection within twenty-five days after the end of the month in which the conveyance occurred.
     (b) The amount of tax due is a specific lien upon each parcel of real property located in this state that is sold by a transferor. The lien attached from the time of sale until the tax is withheld and paid as provided by this section. The lien may be enforced in the manner prescribed for the foreclosure of mortgages.
     (c) Amounts withheld pursuant to this section are held in trust for Washington. If an authorized agent fails to remit an amount withheld by the agent under this section by the time remittance is required, the department may recover from the authorized agent the amount withheld, plus interest and penalties as provided in chapter 82.32 RCW. The tax collection provisions of chapter 82.32 RCW apply to the collection of amounts withheld pursuant to this section but not remitted to the department as required under this section.
     (4) A transferor may claim the amount withheld by an authorized agent on the transferor's tax return.
     (5) An authorized agent may withhold funds under this section without written instructions to withhold from the transferor.
     (6) A written affidavit must be executed by the transferor or the transferor's tax advisor under penalty of perjury and must contain the transferor's taxpayer identification number. The authorized agent must retain for six years from the date of the closing of the conveyance any written affirmation obtained by the agent in connection with the conveyance. The department must prescribe by rule the form and content of the written affidavit.
     (7) It is a defense to any claim by the department or by a transferor against an agent that the agent has acted in reasonable reliance upon representations made by the transferor or the transferor's tax advisor.
     (8) For the purposes of this section, the following definitions apply unless the context clearly requires otherwise:
     (a) "Authorized agent" means an agent who is responsible for closing and settlement services in a conveyance;
     (b) "Closing and settlement services" means services that are provided by:
     (i) A licensed escrow agent in a real estate closing escrow; or
     (ii) An attorney for the benefit of a transferor or a transferee in a conveyance, if, simultaneously with the conveyance, the attorney deposits the unpaid purchase price into the attorney's client trust account for disbursal pursuant to the written instructions of, or the agreement between, the transferor and transferee;
     (c) "Consideration" includes the amount of cash paid for a conveyance and the amount of any lien, mortgage, contract, indebtedness or other encumbrance existing against the property conveyed to which the property remains subject or which the purchaser agrees to pay or assume;
     (d) "Conveyance" means a sale or exchange of any real estate located in Washington;
     (e) "Net proceeds" means the net amount to be disbursed to the transferor, prior to reduction for withholding, as shown on the transferor's settlement statement for the conveyance; and
     (f) "Transferor" means a person, as defined in section 1 of this act, on the closing date of the conveyance.

Sec. 15   RCW 82.45.090 and 2009 c 350 s 8 are each amended to read as follows:
     (1) Except for a sale of a beneficial interest in real property ((where)) when no instrument evidencing the sale is recorded in the official real property records of the county in which the property is located, the tax imposed by this chapter ((shall)) and the tax withheld under section 14 of this act must be paid to and collected by the treasurer of the county within which is located the real property which was sold.
     (2) In collecting the tax under this section the treasurer ((shall)) must act as agent for the state.
     (a) The county treasurer ((shall)) must cause a verification of payment evidencing satisfaction of the lien to be affixed to the instrument of sale or conveyance prior to its recording or to the real estate excise tax affidavit in the case of used mobile home sales and used floating home sales.
     (i) A receipt issued by the county treasurer for the payment of the tax imposed under this chapter ((shall be)) is evidence of the satisfaction of the lien imposed hereunder and may be recorded in the manner prescribed for recording satisfactions of mortgages.
     (ii) No instrument of sale or conveyance evidencing a sale subject to the tax ((shall)) may be accepted by the county auditor for filing or recording until the tax ((shall have)) has been paid and the verification of payment affixed thereto; in case the tax is not due on the transfer, the instrument ((shall)) may not be so accepted until suitable notation of such fact has been made on the instrument by the treasurer.
     (iii) Any time there is a sale of a used mobile home, used manufactured home, used park model, or used floating home that has not been title eliminated, property taxes must be current in order to complete the processing of the real estate excise tax affidavit or other documents transferring title.
     (iv) Verification that the property taxes are current must be noted on the mobile home real estate excise tax affidavit or on a form approved by the county treasurer.
     (b) For the purposes of this subsection (2), "mobile home," "manufactured home," and "park model" have the same meaning as provided in RCW 59.20.030.
     (((2))) (3) For a sale of a beneficial interest in real property ((where)) when a tax is due under this chapter and ((where)) when no instrument is recorded in the official real property records of the county in which the property is located, the sale ((shall)) must be reported to the department of revenue within five days from the date of the sale on such returns or forms and according to such procedures as the department may prescribe. Such forms or returns ((shall)) must be signed by both the transferor and the transferee and shall be accompanied by payment of the tax due.
     (((3))) (4) Any person who intentionally makes a false statement on any return or form required to be filed with the department under this chapter is guilty of perjury under chapter 9A.72 RCW.

Sec. 16   RCW 82.45.150 and 1996 c 149 s 6 are each amended to read as follows:
     (1) All of chapter 82.32 RCW, except RCW 82.32.030, 82.32.050, 82.32.140, 82.32.270, and 82.32.090 (1) and (((8))) (10), applies to the tax imposed by this chapter, in addition to any other provisions of law for the payment and enforcement of the tax imposed by this chapter. The department of revenue ((shall)) must provide by rule ((provide)) for the effective administration of this chapter. The rules ((shall)) must prescribe and furnish a real estate excise tax affidavit form verified by both the seller and the buyer, or agents of each, to be used by each county, or the department, as the case may be, in the collection of the tax imposed by this chapter, except that an affidavit given in connection with grant of an easement or right-of-way to a gas, electrical, or telecommunications company, as defined in RCW 80.04.010, or to a public utility district or cooperative that distributes electricity, need be verified only on behalf of the company, district, or cooperative. The department of revenue ((shall)) must annually conduct audits of transactions and affidavits filed under this chapter.
     (2) The department may combine the form required in section 7 of this act with the real estate excise tax affidavit form required in this section.

Sec. 17   RCW 83.100.230 and 2012 1st sp.s. c 10 s 7 are each amended to read as follows:
     (1) The education legacy trust account is created in the state treasury. Money in the account may be spent only after appropriation. Except as otherwise provided in this section, expenditures from the account may be used only for support of the common schools, and for expanding access to higher education through funding for new enrollments and financial aid, and other educational improvement efforts.
     (2) The first one hundred fifty million dollars per fiscal year of moneys deposited into this account from the tax imposed under section 2 of this act must be used for early learning purposes, as defined in RCW 43.215.010, and cannot supplant existing state funding for these purposes. The next one hundred million dollars deposited in the account each fiscal year must be used to fund the state need grant. By July 1, 2015, and by July 1st of every year thereafter, the state treasurer must transfer an amount, as provided in this subsection, into the budget stabilization account. The amount is equal to the tax revenue deposited into the account under section 2 of this act for the prior fiscal year in excess of two hundred fifty million dollars. However, if the balance in the budget stabilization account as of the date of transfer under this subsection (2) is in excess of ten percent of general state revenues, then the money must be transferred to the state general fund and used for the state need grant.

NEW SECTION.  Sec. 18   Sections 1 through 14 of this act constitute a new chapter in Title 82 RCW.

NEW SECTION.  Sec. 19   This act, being necessary for the welfare of the state and its inhabitants, must be liberally construed.

NEW SECTION.  Sec. 20   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.