OLYMPIA — Early figures suggest Washington could bring in $849 million in its first year of collecting the state's new capital gains tax, potentially sending hundreds of millions more than expected to schools across the state.
State lawmakers passed the 7% tax on the sale or exchange of stocks, bonds and certain other assets above $250,000 in 2021. It has faced legal challenges, but got the go-ahead from the state Supreme Court in March.
The Legislature passed a budget based on earlier projections indicating Washington could collect $248 million in capital gains tax payments in the 2023 fiscal year, which ends July 1.
Instead, as of May 9, the state has collected $601 million more.
However, that figure could change later this year, once the roughly 2,500 taxpayers who have filed for extensions submit their returns, according to the state Department of Revenue.
But if that amount holds roughly the same it could mean significantly more money going toward K-12 schools, early childhood education and building and repairing schools.
The first $500 million collected from the capital gains tax annually goes into the state's Education Legacy Trust Account, which can only be spent on public schools, said Sen. Christine Rolfes, D-Bainbridge Island, the chair of the Senate's budget committee.
Any excess above $500 million goes into the state's construction budget, specifically for school construction projects. If the $849 million figure holds steady, more schools could get help with their construction projects, Rolfes said.
Rolfes said the capital gains tax can be an unpredictable source of revenue because it depends on the stock market and how investments fare from year to year. Lawmakers didn't want state programs to become reliant on revenues from the tax, so the excess above $500 million gets spent on one-time construction projects.
And while the $849 million is much higher than what lawmakers expected in the first year or two of the tax, it is "consistent" with the scale of collections that lawmakers were expecting looking ahead in future budget years, Rolfes said.
New spending from higher-than-expected revenues would have to be approved during the 2024 legislative session.
When it comes to school construction, state Sen. Mark Mullet, D-Issaquah, the Senate leader on the construction budget, says he would want to prioritize funding for schools in areas with lower property values since they can have a harder time passing levies.
"I think the focus will be how those dollars can help support those districts with lower property valuations," Mullet said, "And we're going to wait to see as the revenues come in. But if that ends up being real money, we can invest in the '24 session."
According to the Washington Department of Revenue, about 1,200 returns have been filed and 2,500 extensions have been granted.
Those taxpayers who filed extensions still had to make an estimated payment. The deadline for filing a return of extensions is Oct. 16.
Washington has no income tax, and that policy is part of a tax system that progressive Democrats argue disproportionately burdens low-income and poor Washingtonians.
This year, lawmakers introduced policies that would have created a tax on wealth and increased the tax on sales of multimillion-dollar properties, but neither bill passed. In recent years, lawmakers have also moved to fund a tax credit for low-income households.