Education Legacy Trust Account. The Education Legacy Trust Account (ELTA) was created in 2005. The ELTA may be used only for the support of the common schools, expanding access to higher education through funding for new enrollments and financial aid, and other educational improvement efforts.
Capital Gains Tax. The state imposes a 7 percent excise tax on the sale or other voluntary exchange of long-term capital assets by individuals, less a standard deduction of $270,000 for all filers, whether filing as an individual or jointly. The standard deduction is adjusted annually for inflation.
Long-term capital gains or losses are gains or losses from assets held for more than one year. An individual computes the amount of Washington capital gains by making certain adjustments to their federal net long-term capital gains. The tax only applies to capital gains from selling or exchanging capital assets sourced in Washington. The state capital gains tax (CGT) does not apply to the sale or exchange of real estate or assets held in certain retirement savings vehicles, among other exemptions.
All taxpayers must file with the state Department of Revenue (DOR), a CGT return for each taxable year; however, a person with no tax liability is not required to file a tax return. The due date of the state CGT return is the due date for the federal income tax return, unless otherwise required by DOR. The first state CGT returns were due in 2023.
Revenues from the tax, and any associated interest and penalties, are distributed as follows: the first $525 million of state CGT revenues received each year are deposited into the ELTA and the remainder is deposited into the Common School Construction Account. The threshold is adjusted each year by inflation.
Estate Tax. The estate tax is a tax on the right to transfer property at the time of death. The tax is sometimes referred to as a transfer tax. Unlike an inheritance tax, which is tax on the beneficiaries of an estate, the estate tax is on the decedent's estate. A Washington decedent or a non-resident decedent who owns property in this state may owe estate tax depending on the value of their estate. A person living in Washington who inherits property or money does not owe Washington taxes on the inheritance.
The tax applies to all property owned by the decedent on the date of death. The term property includes real estate and other property located in this state, as well as intangible assets owned by a Washington resident, regardless of location. After subtracting certain allowable deductions and a set exclusion amount, the remaining taxable estate is subject to a graduated rate schedule ranging from 10 to 20 percent, depending on the taxable value of the estate.
The current exclusion amount is $2.193 million. The exclusion amount was adjusted annually based on the Consumer Price Index (CPI) for the Seattle-Tacoma-Bremerton metropolitan area as calculated by the United States Bureau of Labor Statistics (USBLS). The CPI for this statistical area is no longer calculated by the USBLS, and as a result, the exclusion amount for the estate tax has not changed since 2018.
The proceeds of the estate tax are deposited into ELTA.
Beginning with tax year 2025 and tax collection in calendar year 2026, the state CGT equals:
For estates of decedents dying on or after January 1, 2025, the exclusion amount is increased to $3 million and the language providing for annual adjustment is updated to reflect the change in the CPI for the Seattle metropolitan area.
The rates for Washington taxable estates are increased as follows for estates of decedents dying on or after January 1, 2025:
Washington Taxable Estate Value | Current Rate | New Rate |
$0 to $1,000,000 | 10% | 10% |
$1,000,000 to $2,000,000 | 14% | 15% |
$2,000,000 to $3,000,000 | 15% | 17% |
$3,000,000 to $4,000,000 | 16% | 19% |
$4,000,000 to $6,000,000 | 18% | 23% |
$6,000,000 to $7,000,000 | 19% | 26% |
$7,000,000 to $9,000,000 | 19.5% | 30% |
$9,000,000 and up | 20% | 35% |
PRO: This legislation fundamentally moves the state in the right direction of tax fairness. The state tax code remains one of the most regressive in the nation. The budget deficit problem can't be solved by dialing up aggressive taxes to balance the budget. The bill makes modest tweaks to make a more progressive tax structure and won't impact the life quality of wealthy people. The revenue allows the state to invest in common schools and unmet basic needs of Washingtonians.
The state needs progressive revenue to fund vital social services. Modifications of the capital gains tax and estate tax only impacts a small portion of wealthy people in the state. This ensures that there is not a greater burden on low and middle income families.
CON: Continuing raising tax rates is unsustainable. Higher income and death taxes drive more businesses and successful people moving out of the state. It negatively impacts the economy, leads to state revenue loss and eventually a downturn. The budget writers should focus on their spending plan and cut unnecessary programs, like diversity, equity, and inclusion, and transgender programs to better protect our kids. Raising estate rates also increases the burden on families dealing with the death of loved ones.
OTHER: The bill increases the exclusion amount and requires annual inflation adjustment for the estate tax to account for inflation. However, the same treatment should be made to the qualified family-owned business interests (QFOBI) deduction, which is not indexed to inflation. The QFOBI definition for the estate tax should align with that of the capital gains tax.
PRO: Andrew Villeneuve, Northwest Progressive Institute; Lizzy Sebring, Washington State PTA; Molly Gallagher, Washington Statewide Poverty Action Network; Eli Goss; Kyrian MacMichael; Gwen Goodfellow; Traci Underwood, Economic Opportunity Institute; Michael Cook; Elena Rumiantseva; Emma Scalzo; Aida Rodriguez; Kristin Ang; Amy Roark; Jacob Vigdor, University of Washington Faculty/Council of Faculty; Treasure Mackley, Invest in Washington Now; Matthew Lang, National Organization for Women Washington; Gayle Janzen; Anni-Michele Jean-Pierre, Children’s Alliance.