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Key Findings:
- The new Seattle income tax covers far more than just earnings from wages and salaries.
- As a tax on “total income,” it specifically taxes “capital gain” and “business income.”
- By far the largest capital gain the average taxpayer will realize during their lifetime is from the sale of a home or small business.
- If the income tax survives legal challenges, it will snare far more than just “the rich” and will also burden many middle-class Seattle families.
Introduction
In July, members of the Seattle city council, in defiance of state law, imposed the first-ever local income tax in Washington state. The tax would charge 2.25% on all income over $250,000 for individuals and $500,000 for married couples filing jointly.
Several lawsuits have already been filed challenging the new City of Seattle income tax. In an earlier study I showed why local income taxes are illegal in Washington State. In this paper I will explain why people who sell their home or small business in Seattle could be subject to the new income tax.
Download the full Policy Note.