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SB 5314

Modifying the capital gains tax.

2025-2026 Regular Session Introduced by Paul Harris and 2 co-sponsors

SB 5314 replaces the B&O capital gains credit with a nonrefundable Washington capital gains tax credit, reducing capital gains receipts and triggering quarterly transfers to ELTA a

Effective date 7/27/2025*.
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WeVote Research Nonpartisan
Bill Summary · SB 5314

Summary — SB 5314 (Chapter 409, 2025 Laws)

Status: Signed by Governor 5/20/2025. Effective date: July 27, 2025.
Introduced: 1/16/2025. Passed Senate 4/18/2025 (30–19); passed House 4/11/2025 (59–37).

Purpose

SB 5314 makes a range of statutory fixes and administrative changes to Washington’s capital gains excise tax (chapter 82.87 RCW). The bill aims to “close loopholes,” clarify ambiguous language, replace an existing Business & Occupation (B&O) tax credit with a capital gains tax credit, and improve tax administration without an estimated net effect on state or local tax collections.

Key provisions and changes

  • Replace B&O tax credit with a new nonrefundable capital gains tax credit:
    • Effective for tax year 2025 (taxes due 2026).
    • Credit equals the amount of B&O tax imposed on the same sale or exchange that is also subject to the capital gains tax.
    • Credit is earned in the tax reporting period of the sale/exchange; cannot be carried forward/backward and no refunds for unused credit.
  • Transitional and sunset language:
    • Existing RCW 82.04.4497 (the prior B&O credit provision) is amended and set to expire Jan 1, 2026; the bill preserves taxpayers’ existing rights, liabilities, rules, and proceedings arising before expiration.
  • State funding/offset mechanics:
    • Because the new credit reduces capital gains tax receipts, the state treasurer must transfer amounts from the general fund to the Education Legacy Trust Account (ELTA) and the Common School Construction Account (CSCA) quarterly (last working day of March, June, September, December) equal to the reduction, as determined by the Department of Revenue (DOR).
    • DOR must notify the treasurer at least two weeks before each transfer; DOR may adjust future transfers to correct prior over- or understatements.
    • Limited administrative judicial review: challenges to DOR determinations must be filed within 15 days in Thurston County via petition for judicial review under the Administrative Procedure Act.
  • Definitions and scope:
    • Clarifies and expands statutory definitions (e.g., “adjusted capital gain”), including treatment of long‑term capital loss carryovers and allocation rules for Washington.
    • Modifies and clarifies exemptions and the credit for taxes paid to other jurisdictions.
  • Administrative and taxpayer provisions:
    • Treats spouses and domestic partners more consistently for filing and credit purposes.
    • Adds a late payment penalty waiver option.
    • Changes publication schedule for annual inflation adjustments and shifts certain distributions to the following fiscal year (rather than calendar year).
    • Adds a nonclaim period (procedural limitation on making claims).
    • Adds a new reporting requirement for brokers and barter exchanges (aligning with Form 1099‑B reporting obligations).

Who is affected

  • Individual taxpayers with Washington‑allocated long‑term capital gains (including those with sales of intangible and tangible property tied to Washington).
  • Businesses subject to B&O tax where the same sale might have been subject to both taxes.
  • Brokers and barter exchanges (new reporting requirement).
  • Department of Revenue and State Treasurer (administration and transfer mechanics).
  • ELTA and CSCA (funding flows).

Fiscal and procedural notes

  • The bill is described as not estimated to affect overall state or local tax collections (administrative reallocation and transfer mechanics offset the new credit).
  • DOR is required to calculate and report transfer amounts; quarterly transfer schedule is specified.
  • Key statutory sections amended include RCW 82.04.4497 and multiple sections of chapter 82.87 RCW; some provisions include expirations and transitional protections.

If you'd like, I can produce a plain‑language flowchart of how the new credit and transfer mechanics work for a taxpayer or for the state treasury.

Compiled from official sources — confirm details with the bill’s official record.

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