S-0593.4
SENATE BILL 5486
State of Washington 68th Legislature 2023 Regular Session
By Senators Frame, Nguyen, Robinson, Wellman, Hunt, Dhingra, Saldaña,
Van De Wege, C. Wilson, Kuderer, Trudeau, Keiser, Stanford, Conway,
Lovelett, Lovick, Hasegawa, Valdez, and Cleveland
1 AN ACT Relating to investing in Washington families and creating
2 a more fair tax system by enacting a narrowly tailored property tax
3 on extreme wealth derived from the ownership of stocks, bonds, and
4 other financial intangible property; amending RCW 82.32.160,
5 43.135.034, and 82.32.655; adding a new title to the Revised Code of
6 Washington to be codified as Title 84A RCW; creating new sections;
7 and prescribing penalties.
8 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
9 NEW SECTION. Sec. 1. (1) Washington has long led the way with
10 innovative and bold ideas that have changed the world. Many of the
11 world's greatest innovators and artists, engineers and entrepreneurs,
12 and scientists and social activists have called Washington home. But
13 Washington's status as an economic and social leader is threatened by
14 growing wealth inequality and a tax structure that perpetuates it.
15 Asking the state's poorest residents to pay six times more in taxes,
16 as a share of their income, than the state's highest income
17 households, including some of the wealthiest individuals in the
18 world, is unconscionable.
19 (2) The legislature recognizes Washington's tax system is the
20 most upside down and regressive in the nation. As a percentage of
21 household income, low-income families pay nearly 18 percent in taxes,
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 1 middle-income families pay 11 percent, and the state's highest income
2 households pay three percent or less. Washington's overreliance on
3 low-income and middle-income families to pay for education – our
4 state's paramount duty - as well as housing, supports for our
5 neighbors with disabilities, and other vital government programs and
6 functions is simply not sustainable. The legislature finds that
7 building a tax system that is fair, balanced, and works for everyone
8 is imperative for the long-term economic growth of our state.
9 Washington's wealthiest residents can and should share more equitably
10 in the responsibility of funding these key community programs
11 alongside their neighbors.
12 (3) Washington's upside down and regressive tax code is
13 particularly egregious when you consider the size of the wealth gap
14 in the United States, and the number of Washington state residents
15 whose extraordinary wealth contributes to this gap being so
16 significant. According to the "2022 Forbes 400 List of Richest
17 Americans," eight of the country's wealthiest people reside in
18 Washington state, and their individual wealth ranges from
19 $3,300,000,000 to $151,000,000,000. By comparison, a 2020 report from
20 the board of governors of the federal reserve system reports that
21 median household wealth, or net worth, in the United States is
22 $121,700.
23 (4) The legislature further finds that homeownership has long
24 been a key tool of wealth building for the middle class in the United
25 States and Washington, and these assets – real property - have long
26 been subject to a property tax on ownership. Furthermore, tangible
27 assets of businesses – personal property – have long been subject to
28 a property tax on ownership. Therefore, the legislature finds that in
29 order to modernize Washington's tax code and make it more fair and
30 balanced, a property tax on ownership should be extended to a class
31 of assets – financial intangible property – that is exempted from the
32 Washington tax code today.
33 (5) Therefore, the legislature intends to create the Washington
34 state wealth tax by narrowing the existing tax preference that
35 exempts all intangible property and assess a modest one percent tax
36 only on financial intangible assets, such as stocks and bonds,
37 publicly traded options, and futures contracts. This property tax
38 will be narrowly tailored to tax extreme wealth and avoid taxing
39 ordinary household wealth by exempting the first $250,000,000 of
40 assessed value from the Washington state wealth tax.
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 1 (6) Finally, to ensure Washington's wealthiest residents are
2 sharing more equitably in the responsibility of funding key community
3 programs, including education, housing, and supports for Washington
4 residents with disabilities, including our students entitled to
5 receive special education services, revenues generated from the
6 Washington state wealth tax will be equally divided among the
7 education legacy trust account, the Washington housing trust fund, a
8 new disabilities care trust account, as well as a new taxpayer
9 justice account that is intended to offer credits against taxes paid
10 disproportionately by low-income and middle-income families. Funding
11 these key community programs will ensure Washington state continues
12 its role as a global leader that can attract, retain, and grow the
13 most innovative, creative, and talented residents in the world, and
14 that our state is a place where every resident has a fair chance to
15 not only survive, but thrive.
16 NEW SECTION. Sec. 2. DEFINITIONS. The definitions in this
17 section apply throughout this chapter unless the context clearly
18 requires otherwise.
19 (1) "Artificial person" means a corporation; limited liability
20 company; limited liability partnership, limited partnership, joint
21 venture, or any other kind of partnership; association; business
22 trust or any other trust; estate; association; or any other
23 organization.
24 (2) "Cash and cash equivalents" means currency and short-term,
25 highly liquid investments that are readily convertible to known
26 amounts of cash. "Cash and cash equivalents" includes money on hand,
27 certificates of deposit, checking account deposits, savings account
28 deposits, money market funds, cryptocurrency, and similar assets.
29 (3) "Day" means a calendar day or any portion of a calendar day.
30 (4) "Department" means the department of revenue.
31 (5) "Domicile" means:
32 (a) The same as in RCW 72.36.035, for purposes of a natural
33 person; and
34 (b) For purposes of an artificial person:
35 (i) For a business, the principal place from which the business
36 is directed or managed; and
37 (ii) For artificial persons other than businesses, the place
38 where the entity was organized.
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 1 (6) "Fair market value" means the amount of money that a willing
2 buyer would pay to a willing seller for property in an arms-length
3 transaction if both parties were fully informed about all advantages
4 and disadvantages of the property and neither party is acting under a
5 compulsion to enter into the transaction.
6 (7) "Financial intangible assets" means the following assets:
7 (a) Cash and cash equivalents;
8 (b) Financial investments such as annuities, bonds, treasury
9 bills, mutual funds or index funds, stocks, publicly traded options,
10 futures contracts, commodities contracts, put and call options,
11 certificates of interest in gold and other precious metals or gems,
12 and other similar investments;
13 (c) Units of ownership in a subchapter K entity;
14 (d) Units of ownership and stock in a subchapter S entity; and
15 (e) Similar intangible assets.
16 (8) "Intangible assets" means both financial intangible assets
17 and nonfinancial intangible assets.
18 (9) "Nonfinancial intangible assets" means all intangible
19 property other than financial intangible assets, such as trademarks,
20 trade names, brand names, patents, copyrights, trade secrets,
21 licenses, permits, core deposits of financial institutions,
22 noncompete agreements, customer lists, patient lists, favorable
23 contracts, favorable financing agreements, reputation, exceptional
24 management, prestige, good name, integrity of a business, private
25 nongovernmental personal service contracts, and private
26 nongovernmental athletic or sports franchises or agreements.
27 (10) "Person" means any natural person or artificial person.
28 (11) "Subchapter K entity" means a partnership, including a
29 limited partnership, limited liability partnership, limited liability
30 limited partnership, limited liability company, joint venture, or any
31 other entity subject to subchapter K of the internal revenue code, 26
32 U.S.C. Secs. 701 through 761, including a single member limited
33 liability company.
34 (12) "Subchapter S entity" means any entity subject to the
35 internal revenue code, 26 U.S.C. Secs. 1361 through 1379.
36 (13) "Tax year" means the calendar year immediately preceding the
37 year in which the tax under this chapter is due and payable to the
38 department.
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 1 (14) "Taxable worldwide wealth" means a person's worldwide
2 wealth, excluding the fair market value of any intangible property
3 exempt from the tax imposed under this chapter.
4 (15) "Washington resident" or "resident" means the following:
5 (a) Any artificial person domiciled in this state at any time
6 during the tax year; or
7 (b) A natural person:
8 (i) Who is domiciled in this state at any time during the tax
9 year; or
10 (ii) Who is not domiciled in this state during the tax year, but
11 maintained a place of abode and was physically present in this state
12 for more than 183 days during the tax year.
13 (16)(a) "Worldwide wealth" means the fair market value of all
14 intangible assets, or portion thereof, owned or controlled by a
15 resident.
16 (b) For purposes of this subsection:
17 (i) "Control" means a person possesses, directly or indirectly,
18 alone or with one or more close associates, more than 50 percent of
19 the power to sell or otherwise dispose of intangible assets.
20 (ii) "Close associates" means natural persons who are in close
21 association with another natural person by reason of a family,
22 marital, personal, or business relationship.
23 (iii) "Own" includes both legal and beneficial ownership.
24 NEW SECTION. Sec. 3. TAX IMPOSED. (1) Beginning January 1,
25 2025, for taxes due in 2026, a wealth tax is imposed on each
26 Washington resident. The wealth tax equals one percent multiplied by
27 a resident's taxable worldwide wealth.
28 (2) Except as provided in subsection (3) of this section, the tax
29 imposed under this section applies to a resident's taxable worldwide
30 wealth as of December 31st of the tax year.
31 (3) In the case of any individual who dies during a tax year and
32 who is not married or in a state registered domestic partnership on
33 the date of such individual's death:
34 (a) The tax imposed under this section applies to the
35 individual's taxable worldwide wealth as of the date of the
36 individual's death; and
37 (b) The amount of the tax otherwise due under this section must
38 be reduced by an amount determined by:
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 1 (i) Dividing the amount of tax otherwise due for the entire tax
2 year by the total number of days in the tax year; and
3 (ii) Multiplying the amount determined in (b)(i) of this
4 subsection (3) by the number of days remaining in the tax year after
5 the date of the individual's death.
6 (4) The tax imposed in this section does not apply to a resident
7 based on that person's status as a trustee of a trust, unless that
8 person is also a beneficiary of the trust or holds a general power of
9 appointment over the assets of the trust.
10 (5)(a) If an individual is treated as the owner of any portion of
11 a trust that qualifies as a grantor trust for federal income tax
12 purposes, that individual must be treated as the owner of that
13 property for purposes of the tax imposed in this section to the
14 extent such property includes intangible assets.
15 (b) A grantor of a trust that does not qualify as a grantor trust
16 for federal income tax purposes must nevertheless be treated as the
17 owner of the intangible assets of the trust for purposes of the tax
18 imposed in this section if the grantor's transfer of assets to the
19 trust is treated as an incomplete gift under Title 26 U.S.C. Sec.
20 2511 of the internal revenue code and its accompanying regulations.
21 (6) Intangible assets transferred after the effective date of
22 this section by a resident to an individual who is a member of the
23 family of the resident and has not attained the age of 18 must be
24 treated as property of the resident for any calendar year before the
25 year in which such individual attains the age of 18. For purposes of
26 this subsection, "member of the family" has the same meaning as in
27 RCW 83.100.046.
28 (7) All moneys collected from the wealth tax must be deposited
29 pursuant to section 12 of this act.
30 NEW SECTION. Sec. 4. WHEN TAXES AND TAX RETURNS ARE DUE. (1)(a)
31 Except as otherwise provided in this section or RCW 82.32.080, each
32 resident owing tax under this chapter must file, on forms prescribed
33 by the department, a return with the department on or before April
34 15th each year reporting that person's taxable worldwide wealth for
35 the immediate preceding calendar year, and such other information the
36 department determines necessary to administer the tax imposed under
37 this chapter.
38 (b)(i) Except as provided in (b)(ii) of this subsection (1),
39 returns and all supporting documents must be filed electronically
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 1 using the department's online tax filing service or other method of
2 electronic reporting as the department may authorize.
3 (ii) The department may waive the electronic filing requirement
4 in this subsection for good cause as provided in RCW 82.32.080.
5 (2)(a) Except as otherwise provided in this subsection (2),
6 spouses and state registered domestic partners must jointly file
7 returns required under this section.
8 (b)(i) A spouse or state registered domestic partner may petition
9 the department, on a form and in a format as required by the
10 department, for permission to file a separate return. The department
11 must grant the petition only if it finds that good cause exists for
12 allowing the petitioner to file a separate return.
13 (ii) For purposes of this subsection (2)(b), "good cause" means:
14 (A) The petitioner reasonably believes that the nonpetitioning
15 spouse or state registered domestic partner will not cooperate in the
16 filing of a complete and accurate joint return; or
17 (B) Any other circumstance that, in the department's judgment,
18 renders the filing of a joint return manifestly unreasonable.
19 (3) Each resident required to file a return under this section
20 must, without assessment, notice, or demand, pay any tax due under
21 this chapter to the department on or before the due date of the
22 return, regardless of any filing extension granted by the department.
23 The tax must be paid by electronic funds transfer as defined in RCW
24 82.32.085 or by other forms of electronic payment as may be
25 authorized by the department. The department may waive the electronic
26 payment requirement for good cause as provided in RCW 82.32.080. If
27 any tax due under this chapter is not paid by the due date, interest
28 and penalties as provided in chapter 82.32 RCW apply to the
29 deficiency.
30 (4)(a) If any return due under subsection (1) of this section is
31 not filed with the department by the due date or any extension
32 granted by the department, the department must assess a penalty in
33 the amount of five percent of the tax due for the tax year covered by
34 the return for each month or portion of a month that the return
35 remains unfiled. The total penalty assessed under this subsection may
36 not exceed 25 percent of the tax due for the tax year covered by the
37 delinquent return. The penalty under this subsection is in addition
38 to any penalties assessed for the late payment of any tax due on the
39 return.
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1 (b) The department must waive the penalty imposed under this
2 subsection if:
3 (i) The department is persuaded that the person's failure to file
4 the return by the due date was due to circumstances beyond the
5 person's control; or
6 (ii) The person has not been delinquent in filing any return due
7 under this section during the preceding five calendar years.
8 NEW SECTION. Sec. 5. ADMINISTRATIVE PROVISIONS. (1) Except as
9 otherwise provided by law and to the extent not inconsistent with the
10 provisions of this chapter, chapter 82.32 RCW applies to the
11 administration of taxes imposed under this chapter.
12 (2) The department may adopt any rules it considers useful in
13 administering the tax under this chapter.
14 NEW SECTION. Sec. 6. EXEMPTIONS. Exemptions from the tax
15 imposed under section 3 of this act are provided for:
16 (1) Up to $250,000,000 of a taxpayer's financial intangible
17 assets.