Washington Capital Gains Proposal Not Helped by Analogy to Real Estate Excise Tax

Proponents of a capital gains tax in Washington have long sought to argue that the tax can be designed as an excise tax rather than an income tax, to avoid constitutional constraints imposed on income and property taxation in the state. We’ve written in the past about how this is inconsistent with plain definitions as well as the way capital gains are taxed in other states and at the federal level (always under the individual income tax) and misstates what constitutes an excise tax. Most recently, however, proponents seem to be centering their argument on a notion advanced in a 2011 memo developed for them, which argues that precedent for such a tax exists in the form of the state’s real estate excise tax. But does it really? Washington’s real estate excise tax is a tax on the transfer of real property (called a real estate transfer tax in many states), levied at a state rate of 1.28 percent, plus local rates which vary by jurisdiction. The tax is imposed on…

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