SB 5096 — Concerning an excise tax on gains from the sale or exchange of certain capital assets.

(8)(9) "Long-term capital loss" means a loss from the sale or exchange of a long-term capital asset.

(9) "Real estate" has the same meaning as in RCW 82.45.032, except that real estate does not include an individual's ownership interest or beneficial interest in an entity which itself owns an interest in real property located in this state for the purposes of this chapter.

(i) Who is domiciled in this state during the taxable year, unless the individual (A) maintained no permanent place of abode in this state during the entire taxable year, (B) maintained a permanent p.

32 ESSBSB 5096 (i) Who is domiciled in this state during the taxable year, unless the individual (A) maintained no permanent place of abode in this state during the entire taxable year, (B) maintained a permanent place of abode outside of this state during the entire taxable year, and (C) spent in the aggregate not more than 30 days of the taxable year in this state;

(b) For purposes of this subsection, "day" meansincludes any portion of a calendarday, dayexcept orthat anya portioncontinuous period of a24 calendarhours or less may not constitute more than one day.

(13) "Washington capital gains" means an individual's adjusted capital gaingains, lessless: $250,000, as adjusted annually under section 115 of this act, for each return filed under this chapter.

(a) $25,000;

or (b) $50,000 for individuals filing joint returns under this chapter.

103.2.

Only individuals are subject to payment of the tax, which equals sevennine percent multiplied by an individual's Washington capital gains.

(2) If an individual's Washington capital gains are less than zero for a taxable year, no tax is due under this sectionsection. and no such amount is allowed as a carryover for use in the calculation of that individual's adjusted capital gain, as defined in section 102 (1) of this act, for any taxable year.

ToNo thesuch extentlosses thatmay abe losscarried carryforwardback 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 exchangescarried allocatedforward to thisanother statetaxable underyear. section 108 of this act, 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 includeadjust anyprior year Washington capital gains for losses carried back for federal income tax purposespurposes. in the p.

4(3)(a) ESSBThe 5096tax calculationimposed ofin thatthis individual'ssection adjustedapplies to the sale or exchange of long-term capital gainassets forowned anyby taxablethe year.taxpayer, whether the taxpayer was the legal or a beneficial owner of such assets at the time of the sale or exchange.

(3)(a) 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.

(b) For purposes of this chapter:chapter, an individual is considered to be a beneficial owner of long-term capital assets held by an entity p.

(i)3 AnSB individual5096 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.

(ii) 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.

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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 section 108 of this act.

104.3.

(1) AllAny realresidential estate;dwelling along with the land upon which the dwelling is located.

(2)For Athe controllingpurposes interestof inthis ansubsection entity(1), only"residential todwelling" themeans extentproperty thatconsisting anysolely long-termof capital(a) gaina orsingle-family lossresidence, froma suchresidential salecondominium unit, or exchangea isresidential directlycooperative attributableunit, toincluding theany entity'saccessory interestdwelling inunit realassociated propertywith andsuch theresidence sale or exchangeresidential wasunit; subject to tax under chapter 82.45 RCW.

The(b) departmenta ismultifamily notresidential boundbuilding byconsisting the parties' agreement as to the allocation of considerationone or fairmore marketcommon value,walls ifand suchfewer allocationthan orfour fairunits; market value does not reflect the fair market value of the real property.

Foror purposes(c) ofa thisfloating subsectionhome (2), "controlling interest" has the same meaning as defined in RCW 82.45.033;82.45.032;

p.(2) Assets held under a retirement savings account under Title 26 U.S.C.

5 ESSB 5096 (3) Assets held under a retirement savings account under Title 26 U.S.C.

(4)(3) Assets pursuant to, or under imminent threat of, condemnation proceedings by the United States, the state or any of its political subdivisions, or a municipal corporation;

(5)(4) Cattle, horses, or breeding livestock held for more than 12 months if for the taxable year of the sale or exchange, more than 50 percent of the taxpayer's gross income for the taxable year, including from the sale or exchange of capital assets, is from farming or ranching;

(6)(5) PropertyAgricultural depreciableland by an individual who has regular, continuous, and substantial involvement in the operation of the agriculture that meets the criteria for material participation in an activity under Title 26 U.S.C.

167(a)(1)469(h) of the internal revenue code,code orfor thatthe qualifies10 foryears expensingprior underto Titlethe 26date U.S.C.of the sale or exchange of the agricultural land;

p.

4 SB 5096 (6) Property used in a trade or business if the property is depreciable under Title 26 U.S.C.

167 of the internal revenue code, or qualifies for expensing under Title 26 U.S.C.

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and (7) Timber, timberland, or the receipt of Washington capital gains as dividends and distributions from real estate investment trusts derived from gains from the sale or exchange of timber and timberland.

631 (a) or (b) of the internal revenue code;code.

and (8) Goodwill received from the sale of an auto dealership licensed under chapter 46.70 RCW whose activities are subject to chapter 46.96 RCW.

105.4.

The tax imposed under this chapter is in addition to any other taxes imposed by the state or any of its political subdivisions, or a municipal corporation, with respect to the same sale or exchange, including the taxes imposed in,in or under the authority of,of chapter 82.04, 82.08, 82.12, 82.14, 82.45, or 82.46 RCW.

p.NEW SECTION.

6 ESSB 5096 NEW SECTION.

106.5.

107.6.

(1) InA computingsole taxproprietor under this chapter for a taxable year, a taxpayer may deduct from the measure of tax imposed under this chapter the amountamounts of adjusted capital gaingains derived in the taxable year from the sale of substantiallylong-term allcapital of the fair market value of the assets of,acquired orand theused transferonly offor substantiallypurposes all of the taxpayer'strade interestor in,business aof qualified family-owned small business, to the extentsole thatproprietor. such adjusted capital gain would otherwise be included in the taxpayer's Washington capital gains.

(2) ForThe purposesdeduction claimed under subsection (1) of this section,section themay followingnot definitionsreduce apply:a sole proprietor's Washington capital gains below zero.

(a)(3) "Assets"The meansamount realof propertythe andadjusted personalcapital property,gains includingdeducted tangibleunder personalsubsection property(1) andof intangiblethis property.section may not exceed the sole proprietor's net income reported for federal income tax purposes for the taxable year in which the adjusted capital gains are recognized.

(b) "Family" means the same as "member of the family" in RCW 83.100.046.

(c)(i) "Materially participated" means an individual was involved in the operation of a business on a basis that is regular, continuous, and substantial.

(ii) The term "materially participated" must be interpreted consistently with the applicable treasury regulations for Title 26 U.S.C.

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469 of the internal revenue code, to the extent that such interpretation does not conflict with any provision of this section.

(d) "Qualified family-owned small business" means a business:

(i) In which the taxpayer held a qualifying interest for at least eight years immediately preceding the sale or transfer described in subsection (1) of this section;

(ii) In which either the taxpayer or members of the taxpayer's family, or both, materially participated in operating the business for at least five of the eight years immediately preceding the sale or transfer described in subsection (1) of this section, unless such sale or transfer was to a qualified heir;

and (iii) That had worldwide gross revenue of $10,000,000 or less in the 12-month period immediately preceding the sale or transfer described in subsection (1) of this section.

The worldwide gross revenue amount under this subsection (2)(d)(iii) shall be adjusted annually as provided in section 115 of this act.

75 ESSBSB 5096 (e)NEW "QualifiedSECTION. heir" means a member of the taxpayer's family.

(f) "Qualifying interest" means:

(i) An interest as a proprietor in a business carried on as a sole proprietorship;

or (ii) An interest in a business if at least:

(A) Fifty percent of the business is owned, directly or indirectly, by any combination of the taxpayer or members of the taxpayer's family, or both;

(B) Thirty percent of the business is owned, directly or indirectly, by any combination of the taxpayer or members of the taxpayer's family, or both, and at least:

(I) Seventy percent of the business is owned, directly or indirectly, by members of two families;

or (II) Ninety percent of the business is owned, directly or indirectly, by members of three families.

(g) "Substantially all" means at least 90 percent.

NEW SECTION.

108.7.

(a) Long-term capital gains or losses from the sale or exchange of tangiblereal personal property are allocated to this state if the real property wasis located in this state ator a majority of the timefair market value of the salereal orproperty exchange.is located in this state.

(b) Long-term capital gains or losses from the sale or exchange of tangible personal property are also allocated to this state evenif though the property was not located in this state at the time of the sale or exchangeexchange. if:

Adjusted capital gains from the sale or exchange of tangible personal property are also allocated to this state even though the property was not located in this state at the time of the sale or exchange if:

and (iii) The taxpayer is not subject to the payment of an income or excise tax legally imposed on the long-termadjusted capital gains or losses by another taxing jurisdiction.

(b)(c) Long-term capital gains or losses derived from intangible personal property are allocated to this state if the taxpayer was domiciled in this state at the time the sale or exchange occurred.

(2)(a) A credit is allowed against the tax imposed in section 1032 of this act equal to the amount of any legally imposed income or p.excise tax paid by the taxpayer to another taxing jurisdiction on capital gains derived from capital assets within the other taxing jurisdiction to the extent such capital gains are included in the taxpayer's Washington capital gains.

8 ESSB 5096 excise tax paid by the taxpayer to another taxing jurisdiction on capital gains derived from capital assets within the other taxing jurisdiction to the extent such capital gains are included in the taxpayer's Washington capital gains.

NEWp. SECTION.

6 SB 5096 NEW SECTION.

109.8.

p.(4) The department may by rule require that certain individuals and other persons file, at times and on forms prescribed by the department, informational returns for any period.

9 ESSB 5096 (4) The department may by rule require that certain individuals and other persons file, at times and on forms prescribed by the department, informational returns for any period.

(6)(a) If any return due under subsection (1) of this section, along with a copy of the federal income tax return, is not filed with thep. department by the due date or any extension granted by the department, the department must assess a penalty in the amount of five percent of the tax due for the taxable year covered by the return for each month or portion of a month that the return remains unfiled.

7 SB 5096 the department by the due date or any extension granted by the department, the department must assess a penalty in the amount of five percent of the tax due for the taxable year covered by the return for each month or portion of a month that the return remains unfiled.

110.9.

State registered domestic partners may p.file a joint return under this chapter even if they filed separate federal returns for the taxable year.

10 ESSB 5096 file a joint return under this chapter even if they filed separate federal returns for the taxable year.

111.10.

ExceptTo as otherwise provided by law and to the extent not inconsistent with the provisions of this chapter, chapterthe 82.32following RCWstatutes appliesapply to the administration of taxes imposed under this chapter.chapter:

RCW 82.32.050, p.

8 SB 5096 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, 82.32.150, 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, 82.32.410, 82.32.655, 82.32.805, 82.32.808, and section 13 of this act.

112.11.

113.12.

The legislature intends that any provision of this chapter found to be ambiguous by any court of competent jurisdiction or administrative agency be construed in favor of application of the tax, notwithstanding any contrary common law rule of statutory construction.

NEW SECTION.

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13.

(1) To avoid taxing the same sale or exchange under both the business and occupation tax and capital gains tax, a credit is allowed against taxes due under this chapter on a sale or exchange that is also subject to the tax imposed under section 1032 of this act.

p.Unused credit may not be carried forward or backward to another tax reporting period.

11 ESSB 5096 Unused credit may not be carried forward or backward to another tax reporting period.

(4)p. The department must apply the credit first to taxes deposited into the general fund.

9 SB 5096 (4) The department must apply the credit first to taxes deposited into the general fund.

114.14.

(1)A Allnew taxes,section interest,is andadded penaltiesto collected under this chapter shall82.32 beRCW distributedto read as follows:

(a)(1) The firstdepartment $350,000,000may collectedenter eachinto fiscalreciprocal yeartax shallcollection beagreements depositedwith into the educationtaxing legacyofficials trustof accountany createdother instate RCWimposing 83.100.230;a specified tax.

(b)Agreements Theauthorized nextunder $100,000,000this collectedsection must require each fiscalstate yearto shalloffset bedelinquent depositedspecified intotaxes owed by a taxpayer to one party to the generalagreement, fund;including any associated penalties, interest, or other additions, against refunds of overpaid specified taxes owed to the taxpayer by the other party to the agreement.

andSuch (c)agreements Anymay remainderalso collectedinclude eachprovisions fiscalgoverning year shall be deposited into the taxpayersharing fairnessof accountinformation herebyrelevant createdto in the stateadministration treasury.of specified taxes.

(2)However, Thethe amountsdepartment specifiedmay undernot subsectionshare (1)(a)return andor (b)tax ofinformation thiswith sectionother shallstates beexcept adjusted annually as providedallowed under sectionRCW 11582.32.330. of this act.

NEWLikewise, SECTION.the department may not share federal tax information with other states without the express written consent of the internal revenue service.

(2) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.

(a) "Specified taxes" means generally applicable state and local sales taxes and use taxes, broad-based state gross receipts taxes, state income taxes, and stand-alone state taxes on capital gains or interest and dividends.

"Specified taxes" includes, but is not limited to, the taxes imposed in or under the authority of chapters 82.04, 82.08, 82.12, 82.14, 82.16, and 82.--- RCW (the new chapter created in section 17 of this act), and similar taxes imposed by another state.

For purposes of this subsection (2)(a), "gross receipts tax," "income tax," "sales tax," and "use tax" have the same meanings as provided in RCW 82.56.010.

(b) "State" has the same meaning as provided in RCW 82.56.010.

115.15.

(1)RCW Beginning82.32.655 December 2023 and each2010 December thereafter, the department must adjust the applicable amounts by multiplying the current applicable amounts by one plus the percentage by which the most current consumer price index available on December 1st ofsp.s. the current year exceeds the consumer price index for the prior 12-month period, and rounding the result to the nearest $1,000.

Ifc an23 adjustments under201 thisare subsectioneach (1)amended wouldto reduceread theas applicablefollows: amounts, the department must not adjust the applicable amounts for use in the following year.

The department must publish the adjusted applicable amounts on its public website by December 31st.

The adjusted applicable amounts calculated under this subsection (1) take effect for taxes due and distributions made, as the case may be, in the following calendar year.

(2) For purposes of this section, the following definitions apply:

1210 ESSBSB 5096 (a)(1) "ApplicableIt amounts"is means:the legislature's intent to require all taxpayers to pay their fair share of taxes.

(i)To Theaccomplish thresholdthis exclusionpurpose, underit sectionis 102(13)the oflegislature's thisintent act;to stop transactions or arrangements that are designed to unfairly avoid taxes.

(ii)(2) The worldwidedepartment grossmust revenuedisregard, amountfor undertax sectionpurposes, 107the tax avoidance transactions or arrangements that are described in subsection (3) of this act;section.

andThe (iii)department Themust distributiondeny amountsthe providedtax inbenefit sectionthat 114would ofotherwise thisresult act.from the tax avoidance transaction or arrangement.

(b)In "Consumerdetermining pricewhether index" means the consumerdepartment pricemust indexdisregard fora alltransaction urbanor consumers,arrangement alldescribed items,under forsubsection the(3) Seattleof areathis assection, calculated by the Uniteddepartment Statesmay bureauconsider: of labor statistics or its successor agency.

(c)(a) "SeattleWhether area"an meansarrangement or transaction changes in a meaningful way, apart from its tax effects, the geographiceconomic areapositions sampleof thatthe includesparticipants Seattlein andthe surroundingarrangement areas.when considered as a whole;

Part(b) IIWhether Miscellaneoussubstantial Provisionsnontax NEWreasons SECTION.exist for entering into an arrangement or transaction;

(c) Whether an arrangement or transaction is a reasonable means of accomplishing a substantial nontax purpose;

(d) An entities' relative contributions to the work that generates income;

(e) The location where work is performed;

and (f) Other relevant factors.

(3) This section applies only to the following transactions or arrangements:

(a) Arrangements that are, in form, a joint venture or similar arrangement between a construction contractor and the owner or developer of a construction project but that are, in substance, substantially guaranteed payments for the purchase of construction services characterized by a failure of the parties' agreement to provide for the contractor to share substantial profits and bear significant risk of loss in the venture;

(b) Arrangements through which a taxpayer attempts to avoid tax under chapter 82.04 RCW by disguising income received, or otherwise avoiding tax on income, from a person that is not affiliated with the taxpayer from business activities that would be taxable in Washington by moving that income to another entity that would not be taxable in Washington;

((and)) (c) Arrangements through which a taxpayer attempts to avoid tax under chapter 82.08 or 82.12 RCW by engaging in a transaction to disguise its purchase or use of tangible personal property by vesting p.

11 SB 5096 legal title or other ownership interest in another entity over which the taxpayer exercises control in such a manner as to effectively retain control of the tangible personal property;

and (d) Arrangements through which a taxpayer attempts to avoid tax imposed in section 2 of this act through misuse of the deduction in section 6 of this act.

(4) In determining whether a transaction or arrangement comes within the scope of subsection (3) of this section, the department is not required to prove a taxpayer's subjective intent in engaging in the transaction or arrangement.

(5) The department must adopt rules to assist in determining whether a transaction or arrangement is within the scope of subsection (3) of this section.

The adoption of a rule as required under this subsection is not a condition precedent for the department's exercise of the authority provided in this section.

Any rules adopted under this section must include examples of transactions that the department will disregard for tax purposes.

(6) This section does not affect the department's authority to apply any other remedies available under statutory or common law.

(7) For purposes of this section, "affiliated" means under common control.

"Control" means the possession, directly or indirectly, of more than fifty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.

NEW SECTION.

201.16.

202.17.

Sections 1011 through 112,12 114, and 115 of this act constitute a new chapter in Title 82 RCW.

203.18.

(1) If aany courtprovision of competentthis jurisdiction,act inor aits finalapplication judgmentto notany subjectperson toor appeal,circumstance adjudgesis sectionheld 103invalid, the remainder of thisthe act unconstitutional, or otherwisethe invalid,application inof itsthe entirety,provision sectionto 113other ofpersons thisor actcircumstances is nullnot andaffected. void in its entirety.

AnyNEW creditsSECTION. previously claimed under section 113 of this act must be repaid within 30 days of the department of revenue's notice to the taxpayer of the amount due.

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19.

(1) If a court of competent jurisdiction, in a final judgment not subject to appeal, adjudges section 2 of this act unconstitutional, or otherwise invalid, in its entirety, section 13 of this act is null and void in its entirety.

Any credits p.

12 SB 5096 previously claimed under section 13 of this act must be repaid within 30 days of the department of revenue's notice to the taxpayer of the amount due.

204.20.

IfThis any provision of this act or its application to any person or circumstance is heldnecessary invalid,for the remainderimmediate preservation of the actpublic peace, health, or thesafety, applicationor support of the provisionstate togovernment otherand personsits orexisting circumstancespublic isinstitutions, notand affected.takes effect immediately.

13 ESSBSB 5096