Capital gains tax collections in Washington state have surpassed expectations, with revenues totaling $849 million for fiscal year 2023 (ending on June 30) compared to the initial forecast of $248 million. This figure, collected through May 9, represents a new tax that faced constitutional uncertainties before being approved by the Supreme Court in March.
This higher-than-anticipated amount resulted from a 7% tax on the sale or exchange of assets, such as stocks and bonds above $250,000, implemented in 2021. However, caution is warranted due to the volatility of this new tax, as the state’s ability to maintain these high collections remains to be seen.
Per existing statute, the first $500 million from capital gains tax collections annually funds the Education Legacy Trust Account (ELTA), supporting public schools. An excess above this amount is allocated to the state’s construction budget, focusing on school construction projects. Consequently, the unexpectedly high revenue may significantly enhance educational funding and infrastructure development.
Despite this revenue boost, lawmakers remain hesitant about over-reliance on this potentially fluctuating tax source. Any surplus is therefore spent on one-time construction projects. The surplus from the current fiscal year, if sustained, could lead to an increased budget for schools, particularly in areas with lower property values.
The final tax figures could yet change, given that about 2,500 taxpayers who requested extensions still need to file their returns by October 16. If the higher revenues are confirmed, new spending would require approval during the 2024 legislative session.
While Washington currently lacks an income tax, legislators have explored other taxation methods, including a wealth tax and increased tax on multimillion-dollar properties sales, to address the burden on low-income residents.