Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction and overview.
Beginning January 1, 2022, Washington law imposes an excise tax on individuals
with sales or exchanges of long-term capital assets (capital gains excise tax).
See RCW
82.87.040. This rule provides information
regarding the administration of the capital gains excise tax and is divided
into six subsections as follows: Introduction and overview; returns;
extensions; payment of tax; penalties and interest; and general administration.
(a)
Imposition. The capital
gains excise tax is imposed on the sale or exchange of long-term capital
assets. The capital gains excise tax is not imposed on any sale or exchange
occurring prior to January 1, 2022. A "long-term capital asset" is a capital
asset that is held for more than one year. A "capital asset" has the same
meaning as provided by section 1221 of the federal Internal Revenue Code and
includes any other property if the sale or exchange of the property results in
a gain that is treated as a long-term capital gain under section 1231 or any
other provision of the federal Internal Revenue Code.
(b)
Who is taxable? Only
individual natural persons (referred to in this rule as "taxpayer," "you," or
"your") are subject to the capital gains excise tax.
(c)
What is the tax rate? The
tax rate is seven percent. The tax is calculated by multiplying a taxpayer's
Washington capital gains by the seven percent tax rate.
(d)
Washington capital gains.
Washington capital gains is your federal net long-term capital gain with
certain adjustments made under
RCW
82.87.020(1)(a) through (e)
and further modified by the deductions in
RCW
82.87.060. The adjustments are primarily
aimed at removing capital gains and losses allocated to places outside of
Washington from your Washington capital gains figure.
(i) "Federal net long-term capital gain"
means the net long-term capital gain reportable for federal income tax
purposes, determined as if Title
26 U.S.C. Secs.
55 through
59 and
1400Z-1 and
1400Z-2 of the federal Internal
Revenue Code did not exist. Title
26 U.S.C. Secs.
55 through
59 relate to the alternative
minimum tax and Title 26
U.S.C. Secs. 1400Z-1 and
1400Z-2 relate to
opportunity zones.
(ii) The
deductions in
RCW
82.87.060 are as follows:
(A) A standard deduction. If you are married
or a state-registered domestic partner, the total combined standard deduction
for both you and your spouse or domestic partner is $250,000, regardless of
whether you and your spouse or domestic partner file a joint or separate
return. In all other cases, the standard deduction is $250,000 per individual
natural person. The $250,000 deduction amount may be adjusted for inflation
every December, beginning in December 2023. See
RCW
82.87.150 for additional
information.
(B) Amounts that the
state is prohibited from taxing under the Constitution of this state or the
Constitution or laws of the United States.
(C) Adjusted capital gain derived from the
sale or transfer of your interest in a qualified family-owned small business
pursuant to
RCW
82.87.070.
(D) Charitable donations deductible under
RCW
82.87.080. The charitable donation deduction
cannot exceed $100,000. The $100,000 deduction cap may be adjusted for
inflation every December, beginning in December 2023. See
RCW
82.87.150 for additional
information.
(e)
Exemptions. Certain sales or
exchanges, such as sales of real estate, are exempt from the capital gains
excise tax. See
RCW
82.87.050 for additional
information.
(f)
Examples. This rule contains examples. These examples identify a
number of facts and then state a conclusion. They are provided only as a
general guide. The tax results of other situations must be determined after a
review of all the facts and circumstances.
(2)
Returns.
(a)
Filing obligation and due
date. Only taxpayers owing Washington's capital gains excise tax in a
taxable year are required to file a capital gains excise tax return with the
department.
(i) If you are required to file a
capital gains excise tax return, you must file the return with the department
on or before the date your federal income tax return is required to be filed
for the same taxable year.
(ii) If
you owe capital gains excise tax, you are required to file a capital gains
excise tax return whether or not you filed a federal income tax
return.
(iii) If you did not file a
federal income tax return, the due date for your capital gains excise tax
return is the date your federal income tax return would have been due.
Example 1 - Return due date
Facts: The due date for Michael's federal income
tax return is April 18, 2023. Michael has a Washington capital gains excise tax
liability.
Result: The capital gains excise tax return due
date is April 18, 2023, which is the date Michael's federal income tax return
is due. Michael must file his capital gains excise tax return on or before
April 18, 2023, or the return will be late and penalties will apply.
(b)
Separate and
joint filers, single filers. If you are required to file a capital gains
excise tax return, your federal income tax filing status may affect how you
must file your capital gains excise tax return as follows:
(i) Spouses filing jointly. Spouses who file
a joint federal income tax return for the taxable year must file a joint
capital gains excise tax return for the same taxable year. Accordingly, if you
are married and file a joint federal income tax return with your spouse, you
must file a joint capital gains excise tax return with your spouse.
(ii) Spouses filing separately. If a spouse
files a separate federal income tax return for the taxable year, each spouse
that owes capital gains excise tax must file a separate capital gains excise
tax return for the same taxable year. Accordingly, if you are married and file
a separate federal income tax return from your spouse, you must file a separate
capital gains excise tax return.
(iii) State-registered domestic partners.
State-registered domestic partners may file a joint capital gains excise tax
return even if they filed separate federal income tax returns for the taxable
year. Accordingly, if you are a state-registered domestic partner and file a
separate federal income tax return from your partner, you and your partner may
file either a joint capital gains excise tax return or separate capital gains
excise tax returns.
(iv) Single
filers. Any individual that is not married and is not a state-registered
domestic partner must file their capital gains excise tax return as a single
individual.
(c)
Required documentation with the capital gains excise tax return.
All taxpayers required to file a capital gains excise tax return for a taxable
year must submit, along with the capital gains excise tax return form, all of
the following:
(i) A copy of the complete,
filed federal individual income tax return, including all supporting schedules
and documentation filed with the Internal Revenue Service (IRS), for the
taxable year.
(ii) For any claim
for exemption under
RCW
82.87.050(2), which may
exempt the sale or exchange of an interest in a privately held entity directly
owning real estate, documentation that substantiates the following:
(A) The fair market value and basis of the
real estate held directly by the privately held entity;
(B) The percentage of the ownership interest
sold or exchanged in the privately held entity that owns the real estate;
and
(C) The methodology established
by the privately held entity for allocating gains or losses from the sale of
real estate among the owners, partners, or shareholders of the
entity.
(d)
Incomplete returns. A capital gains excise tax return is
considered complete only if the return is filed in accordance with the filing
requirements described in
RCW
82.87.110 and subsection (2) of this rule. If
a complete capital gains excise tax return is not filed on or before the due
date for the capital gains excise tax return, the return will be late and the
late filing penalty may apply. See subsection (5) of this rule for more
information.
Example 2 - Incomplete return
Facts: Jane filed her federal income tax return on
April 18, 2023. Jane owes capital gains excise tax and is required to file a
capital gains excise tax return. She filed the return on April 18, 2023, but
did not provide the department with a copy of her federal income tax return
until April 30, 2023.
Result: Jane was required to file a complete
return by April 18, 2023. Jane did not file a complete return on April 18,
2023, because she failed to include a copy of her federal individual income tax
return along with the capital gains excise tax return. Jane's return is late.
See subsection (5) of this rule for additional information on the late filing
penalty.
(e)
Electronic filing. All taxpayers must electronically file their
capital gains excise tax returns and all required documentation identified in
subsection (2)(c) of this rule. Electronic filings must be submitted to the
department via the "My DOR" portal at secure.dor.wa.gov. The department may
waive the electronic filing requirement for good cause as provided in
RCW
82.32.080. See
RCW
82.32.080 and WAC
458-20-22802 for additional
information regarding electronic filing and the good cause waiver.
(f)
Amended returns.
(i)
Amended return required. If
you or the IRS make any changes to your federal income tax return for any
reason, and the changes affect the reported capital gains or the capital gains
excise tax liability, you must file an amended capital gains excise tax return
reflecting all changes made to the federal income tax return. You must also
file an amended capital gains excise tax return if the original capital gains
excise tax return needs to be corrected for errors identified after the due
date for the original capital gains excise tax return, including, for example,
situations where the statute of limitations for assessment of federal tax for a
particular tax year is closed but the Washington nonclaim period remains
open.
(ii)
Assessments and
penalties. The amendment of a capital gains excise tax return is not
subject to a specific deadline. However, if the department finds that your
failure to file an amended capital gains excise tax return shows evasion or
misrepresentation of a material fact, the department can make assessments or
corrections of assessments outside of the usual nonclaim period and impose
penalties and interest at any time. See subsection (6) of this rule for more
information.
(iii)
Filing and
payment requirements for amended returns. The documentation requirements
described in subsection (2) of this rule apply to amended returns. This means,
for instance, a copy of the complete, filed amended federal individual income
tax return and all supporting amended schedules and documentation must be filed
along with the amended return. If an amended capital gains excise tax return is
filed and there is no amendment made to the federal tax return, other
documentation supporting the changes must be submitted with the amended capital
gains excise tax return. You must file your amended capital gains excise tax
return electronically and electronically pay any additional tax due unless
granted a waiver from the electronic filing/payment requirements by the
department.
(3)
Extensions.
(a)
Extension
period; timely payment still required. If a taxpayer obtains an
extension of time for filing the federal income tax return for the taxable year
and provides the department proof of the extension, the capital gains excise
tax return is considered due on or before the extended due date for the federal
income tax return. However, an extension for filing the capital gains excise
tax return does not extend the due date for paying the capital gains excise
tax.
(b)
Extension filing;
certification. You must submit an extension request electronically with
the department on or before the original due date via the My DOR portal at
secure.dor.wa.gov. During the submission process, you will certify that federal
Form 4868, Application for Automatic Extension of Time to File U.S.
Individual Income Tax Return or Form 2350, Application for
Extension of Time to File U.S. Income Tax Return, was properly filed
for the tax year. You must attach a copy of the properly filed federal Form
4868 or Form 2350 when filing the capital gains excise tax return.
(4)
Payment of tax.
(a)
Due date. If you owe the
capital gains excise tax, you must remit the tax to the department on or before
the date your federal income tax return is required to be filed without regard
to any extension granted to you for the filing of your federal income tax
return. The extension of time for filing the federal income tax return or
capital gains excise tax return does not extend the due date for paying your
capital gains excise tax. If you pay your capital gains excise tax late, the
late payment penalty and interest may apply. See subsection (5) of this rule
for more information.
Example 3 - Late payment - No federal
extension
Facts: Jeannette filed her federal income tax
return on April 18, 2023. Jeannette files a capital gains excise tax return on
April 18, 2023. She later remits her capital gains excise tax to the department
on April 20, 2023.
Result: Jeannette was required to pay the capital
gains excise tax on April 18, 2023, when her federal income tax return was due.
Jeannette paid the capital gains excise tax late and is subject to penalties
and interest.
Example 4 - Late payment - Federal income tax return
extension Facts: Gil requested a federal income tax return extension on
April 12, 2023, and received an automatic extension of time to file his federal
tax return to October 16, 2023. Gil properly submits an extension request
certification to the department before April 18, 2023, the original due date
for the federal tax return and capital gains excise tax return. Gil files a
capital gains excise tax return and pays his capital gains excise tax on
October 13, 2023.
Result: Gil paid his capital gains excise tax late
and is subject to penalties and interest with respect to the late payment.
While Gil extended the date for filing the capital gains excise tax return, the
due date for the payment of the capital gains excise tax remained April 18,
2023.
(b)
Electronic
payment. Capital gains excise tax must be paid by electronic funds
transfer or other form of department authorized electronic payment, such as by
credit card. The department may waive the electronic payment requirement for
good cause. See
RCW
82.32.080 and WAC
458-20-22802 for additional
information regarding electronic payment requirements and the good cause
waiver.
(c)
Joint and several
liability. The capital gains excise tax liability of each spouse or
state-registered domestic partner filing a capital gains excise tax return is
joint and several unless one of the spouses is relieved of liability for
federal tax purposes as provided under section 6015 of the federal Internal
Revenue Code or the department determines that the domestic partner would
qualify for relief under the same parameters provided in section
6015.
(5)
Penalties
and interest
(a)
Late filing
penalty. If you do not file a complete capital gains excise tax return
by the due date, the department will assess a late filing penalty in the amount
of five percent of the tax due for the taxable year covered by the return for
each month or portion of a month that the return remains unfiled. See
RCW
82.87.110. The total late filing penalty may
not exceed 25 percent of the tax due for the taxable year covered by the late
return.
(b)
Late payment
penalty. If you do not remit your capital gains excise tax on or before
the due date for payment of the capital gains excise tax, you are subject to
the late payment penalty. If payment is not received by the department by the
due date, the department will assess a penalty of nine percent of the amount of
the tax due; if the tax is not received on or before the last day of the month
following the due date, the department will assess a total penalty of 19
percent of the amount of the tax due; and if the tax is not received on or
before the last day of the second month following the due date, the department
will assess a total penalty of 29 percent of the amount of the tax due. See
RCW
82.32.090(1) and WAC
458-20-228 for more information
regarding late payment penalties.
(c)
Other penalties.
(i) Other penalties imposed under chapter
82.32 RCW may apply. These penalties include the penalties for substantial
underpayment of tax, disregard of specific written instructions, and intent to
evade tax. See
RCW
82.32.090 and WAC
458-20-228 for additional
information.
(ii) Any taxpayer who
knowingly attempts to evade payment of the capital gains excise tax is guilty
of a class C felony as provided in chapter 9A.20 RCW. Any taxpayer who
knowingly fails to pay tax, make returns, keep records, or supply information
required under the capital gains excise tax, is guilty of a gross misdemeanor
as provided in chapter 9A.20 RCW.
RCW
82.87.140.
(d)
Amended returns. The
penalties described in this subsection may apply to amended capital gains
excise tax returns, except the department will not assess late return or late
payment penalties on increased amounts of tax due as a result of the amendment
if the original capital gains excise tax return and tax due were timely filed
and paid.
(e)
Penalty
waivers.(i) The department will waive
the late filing penalty only if the department determines either of the
following:
(A) The taxpayer's failure to
timely file the return was due to circumstances beyond their control;
or
(B) The taxpayer has not been
delinquent in filing any capital gains excise tax returns due during the
preceding five calendar years.
(ii) The department will waive the late
payment (RCW 82.32.090(1))
and substantial underpayment penalties (RCW
82.32.090(2)) if the
department determines that the taxpayer's failure to timely pay was due to
circumstances beyond their control. See
RCW
82.32.105 and WAC
458-20-228 for additional
information regarding waivers due to circumstances beyond the taxpayer's
control.
(f)
Interest.
(i) If you do not pay
your capital gains excise tax by the due date described in subsection (4) of
this rule, you will be assessed interest on the unpaid amounts. See
RCW
82.32.050 and WAC
458-20-228 for additional
information on interest assessed on underpayments and interest
waivers.
(ii) If you have paid more
tax than is properly due, you will receive interest for your overpayment. See
RCW
82.32.060 and WAC
458-20-229 for information on
interest on tax overpayments.
(6)
General administration
(a)
Application of chapter 82.32
RCW. The department administers the capital gains excise tax in
accordance with chapter 82.32 RCW except as otherwise provided by law and to
the extent not inconsistent with chapter 82.87 RCW.
(b)
Preserving accurate and complete
records. You have the burden of proving any claimed deductions,
exemptions, and credits. Washington law requires you to keep accurate and
complete records and timely respond to communications from the department. You
must preserve records that substantiate the amounts of all deductions,
exemptions, or credits claimed, as well as any documentation that substantiates
your allocation of capital gains and losses. Claims for exemptions, deductions,
and credits from the capital gains excise tax may require additional documents
to be submitted to the department at the department's request. See
RCW
82.32.070 and WAC
458-20-254 for additional
information on recordkeeping requirements.
(c)
Refunds. If you discover
that you have overpaid taxes, penalties, or interest, you may file an amended
capital gains excise tax return or apply for a refund or credit. The provisions
under WAC
458-20-229 apply to refunds of
overpaid capital gains excise tax.
(d)
Informal administrative
reviews. If you disagree with the department's assessment of tax,
penalties, or interest; a department letter ruling; or the department's denial
of a refund, you may seek an informal review of that action by submitting a
petition for review with the department's administrative review and hearings
division. The petition must be filed within 30 days of the department action.
See WAC 458-20-100 for additional
information.
(e)
Nonclaim
period. The nonclaim period provided under
RCW
82.32.050 and
82.32.060 for deficient tax or
penalty payments and excess payment of tax, penalty, or interest, respectively,
apply to the capital gains excise tax. However, there is no limitation for the
period in which an assessment or correction of an assessment can be made upon a
showing of evasion or of misrepresentation of a material fact. See
RCW
82.32.050 and WAC
458-20-230.