Home sellers and small business owners could pay Seattle’s new income tax

By JASON MERCIER  | 
POLICY NOTES
|
Oct 5, 2017

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Key Findings:

  1. The new Seattle income tax covers far more than just earnings from wages and salaries.
     
  2. As a tax on “total income,” it specifically taxes “capital gain” and “business income.”
     
  3. By far the largest capital gain the average taxpayer will realize during their lifetime is from the sale of a home or small business.
     
  4. 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. 

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