June 9, 2021
Effective July 2, 2021, the Washington Department of Revenue has adopted Wash. Admin. Code § 458-20-282, to provide guidance on the taxation of marketplace facilitators. The rule provides applicable definitions, examples of persons who are considered marketplace facilitators and discusses the tax collection responsibilities of facilitators. Liability relief, the provision of information to marketplace facilitators and audits are also discussed. For more information, please visit the Washington Department of Revenue website.
May 13, 2021
Washington State Governor Jay Inslee has signed legislation that imposes a tax on the sale or exchange of certain long-term capital assets by individuals at a rate of 7.0%. The first $250,000 of capital gains are excluded from the tax, which is adjusted annually for inflation. To avoid taxing the same sale or exchange under both the business and occupation tax (B&O) and capital gains tax, a credit is allowed against the B&O tax for any capital gains tax owed on the sale or exchange of the capital asset. There are several defined items that the capital gains tax does not apply to, including: real estate transferred by deed, real estate contract, judgment, or other lawful instruments that transfer title to real property; an interest in a privately held entity only to the extent that any long-term capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity; assets held under a specified retirement/deferred compensation accounts; and more. For further information, please see L. 2021, S5096 (effective 07/25/2021 and operative beginning 01/01/2022).
May 7, 2021
On May 4, 2021, a new law in Washington State was enacted that will institute a Capital Gains tax from the sale or exchange of stocks, bonds, and other assets. This new tax levy is effective beginning January 1, 2022.
A single tax rate of 7% would apply to all levels of such income that exceed the standard deduction of $250,000. The standard deduction of $250,000 is available for each individual and married couple, and spouses who file joint returns for federal purposes are required file the same for purposes of the Washington Capital Gains tax. There are some limited exceptions to the tax, which includes real estate, as well as interests in certain qualifying entities owning real estate. Also, a credit would be allowed against taxes due under the Washington Business and Occupation (“B&O”) tax if such transaction is subject to both tax regimes.
The tax not only applies to individuals who are considered domiciled tax residents, but also to individual owners of pass-through entities in which capital gains are allocated. The state’s Department of Revenue estimates the tax would apply to about 7,000 state residents a year and would raise about $445 million starting in fiscal year 2023. The new legislation is expected to face stiff legal challenges as the state constitution prohibits a graduated tax on income. Governor Inslee reportedly said, “Yes, I am confident that it is constitutional.”
As we have previously written about, as states and localities continue to face significant budget shortfalls, it is expected legislatures will continue putting forth new tax measures in order to balance budgets. Taxpayers may want to consider accelerating capital gains in 2021 to reduce potential state tax in 2022. If you would like to discuss how this tax may impact you, then contact Withum’s State and Local Tax Group for a deeper discussion.
March 29, 2021
The State of Washington has imposed sales tax reporting and collection obligations on marketplace facilitators since October 1, 2018. The Washington DOR recently issued a draft, proposed regulation explaining marketplace facilitators’ tax collection and reporting requirements. It also includes guidance on sales information provided to marketplace sellers, liability relief, and audits. A public hearing on the draft regulation is scheduled to be held virtually on April 28, 2021. The DOR is also accepting written comments. The intended date of adopting the proposed regulation is May 24, 2021. See the draft proposed rule for additional details.
March 3, 2021
The State of Washington is exempting the value of pandemic relief loans or grants received by businesses since February 29, 2020 from the business and occupation tax, public utility tax, and sales and use tax. Federal Paycheck Protection Program loans and Economic Injury Disaster Loans are among the types of assistance that qualify for the exemption if the loans are forgiven.
The State of Washington has expanded their Voluntary Disclosure Program through November 30, 2020. Unregistered businesses that have not collected or remitted prior sales or use tax liabilities are encouraged to comply with Washington laws and voluntarily register to pay prior tax obligations and become compliant. The process requires a online application on the state department website.
To qualify for the full voluntary disclosure benefits businesses are required to meet all three of the following qualifications:
If a business is discovered through the departments normal investigation such as examination or audit procedures, the tax liabilities discovered can be subject to interest, penalties of 39% of the tax due, and a “look back” period of seven years plus the current year. Benefits to the voluntary disclosure program include up to 39% of potential penalties being waived, limited lookback period of four years, and summarized unreported liability in single tax assessment.
Washington State on a provisional basis has expanded the eligibly for its Voluntary Disclosure Agreement (VDA) program. The program is expanded to businesses whose most recent enforcement contact was prior to July 1, 2019. Further, the program is expanded for businesses that previously registered, as long it had closed its department registration account or was placed on “Active Non-Reporting” status prior to Jan. 1, 2020, including those that previously filed tax returns. This expanded eligibility is effective July 15 through November 30, 2020. Refer to the Department of Revenue’s guidance for additional details on the expanded program.
To provide relief to small business owners and community stakeholders impacted by COVID-19, Mayor Durkan announced provisions to provide immediate relief. The provisions are as follows:
New Small Business Recovery Task Force: The Mayor has appointed former Governor Gary Locke and former Council President Bruce Harrell to lead the COVID-19 Small Business Recovery Task Force, which will advise on long-term policy recommendations and provide technical assistance and outreach.
More on Taxes and the Coronavirus Pandemic.
The Governor of Washington State announced that the Department of Revenue is implementing tax penalty relief measures for businesses affected by COVID-19. Emergency provisions have been put in place providing for a waiver of financial penalties, which a business may have incurred for filing their tax reports late or cannot pay their taxes on time due to the outbreak. Businesses can request an extension or penalty waiver by sending an email through their My DOR account or by calling the Department of Revenue’s customer service line. In addition, businesses can request to reschedule planned audits, extension of time to file a business license or registration renewal, or obtain an extension of an expiring resellers permit.
Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.