Department of Revenue Publishes Preliminary Draft Rules for Capital Gains Tax

Jul 10, 2023

The Washington State Department of Revenue released its preliminary rule draft for a new section of the Excise Tax WACs for the upcoming public hearing on July 12th, 2023 at 10:00 am. 

The proposed WAC-20-301 provides definitions, deductions, exemptions, and allocation of gains and losses for those filing with the state. 

An initial review with the Tax Foundation found that most of the rules and definitions align with other state rules for capital gains income taxes, not excise taxes. Washington State’s capital gains tax is written as an excise tax but definitions and rules seem to treat it as an income tax.

The definitions around domicile and residency are of concern as well as how the state is capturing an “excise tax” on transactions that happen outside the state. The new WACs provide extensive examples of taxable scenarios. The draft does specifically ask for “Feedback requested concerning whether the term "federal net long-term capital gain" contemplates further adjustment under statute and existing case law.” (page 5 of draft rules) Of additional note is the exclusion of losses carried forward or backward for tax filing purposes.

Public engagement and comment will be critical as the department rolls out and further implements the Washington State Capital Gains Excise Tax on Income. You can find the preproposal statement of inquiry here. Emails on rulemaking can be sent here.  The meeting link can be accessed here.

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