In addition to Washington’s real estate excise tax (REET), which has been a subject of lengthy debate in legal circles, complexities have been introduced by the imposition of another tax layer. Transferors of ownership interests in entities that own real property in Washington must now also account for Washington’s capital gains tax in their financial planning and strategy. This adds a surprising twist to the landscape of real estate transfers in Washington state.
The Washington Supreme Court upheld the capital gains tax as a constitutional excise tax in the landmark decision of Quinn v. State, 1 Wn.3d 453, 526 P.3d 1 (2023) (JD Supra). This recent development confirms that the tax is here to stay, at least for the foreseeable future, adding an extra layer of complexity for corporations and other entities with real property investments.
The specifics of the capital gains tax bring to light certain significant considerations for future transactions. It is a flat tax of 7% imposed on all adjusted long-term capital gains above $250,000 that are allocated to the state. This tax, as stipulated by the Revised Code of Washington (RCW), adds an extra layer for companies making substantial real estate transactions.
This decision has considerable implications for the broader corporate legal landscape. The capital gains tax could influence decisions concerning the sale and acquisition of real estate property in Washington, especially within the sphere of larger corporations, who usually transfer high-value interests. The tax could potentially act as a deterrent or an encourager for future transactions, depending on the entity’s financial position and strategy.
In conclusion, the capital gains tax in Washington has added another consideration to the highly complex world of real estate transfers, with the potential to significantly impact the strategies of corporations and other entities involved in high-value transactions.