CERTIFICATION OF ENROLLMENT ENGROSSED SUBSTITUTE SENATE BILL 5096 Chapter 196, Laws of 2021 67th Legislature 2021 Regular Session CAPITAL GAINS TAX EFFECTIVE DATE: July 25, 2021 Passed by the Senate April 25, 2021 Yeas 25 Nays 24 DENNY HECK President of the Senate Passed by the House April 24, 2021 Yeas 52 Nays 44 LAURIE JINKINS Speaker of the House of Representatives CERTIFICATE I, Brad Hendrickson, Secretary of the Senate of the State of Washington, do hereby certify that the attached is ENGROSSED SUBSTITUTE SENATE BILL 5096 as passed by the Senate and the House of Representatives on the dates hereon set forth. BRAD HENDRICKSON Secretary Approved May 4, 2021 2:58 PM FILED May 5, 2021 JAY INSLEE Governor of the State of Washington Secretary of State State of Washington

AN ACT Relating to investing in Washington families and creating 1 a more progressive tax system in Washington by enacting an excise tax 2 on the sale or exchange of certain capital assets; amending RCW 3 83.100.230; adding a new section to chapter 82.04 RCW; adding a new 4 chapter to Title 82 RCW; creating new sections; and prescribing 5 penalties. 6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON: 7 NEW SECTION. Sec. 1. INTENT. The legislature finds that it is 8 the paramount duty of the state to amply provide every child in the 9 state with an education, creating the opportunity for the child to 10 succeed in school and thrive in life. The legislature further finds 11 that high quality early learning and child care is critical to a 12 child's success in school and life, as it supports the development of 13 the child's social-emotional, physical, cognitive, and language 14 skills. Therefore, the legislature will invest in the ongoing support 15 of K-12 education and early learning and child care by dedicating 16 revenues from this act to the education legacy trust account and the 17 common school construction account. 18 The legislature further recognizes that a tax system that is 19 fair, balanced, and works for everyone is essential to help all 20 Washingtonians grow and thrive. But Washington's tax system today is 21 ENGROSSED SUBSTITUTE SENATE BILL 5096 AS RECOMMENDED BY THE CONFERENCE COMMITTEE Passed Legislature - 2021 Regular Session State of Washington 67th Legislature 2021 Regular Session By Senate Ways & Means (originally sponsored by Senators Robinson, Hunt, Nguyen, and Wilson, C.; by request of Office of Financial Management) READ FIRST TIME 02/18/21. p. 1 ESSB 5096.SL

the most regressive in the nation because it asks those making the 1 least to pay the most as a percentage of their income. Middle-income 2 families in Washington pay two to four times more in taxes, as a 3 percentage of household income, as compared to top earners in the 4 state. Low-income Washingtonians pay at least six times more than do 5 our wealthiest residents. 6 To help meet the state's paramount duty, the legislature intends 7 to levy a seven percent tax on the voluntary sale or exchange of 8 stocks, bonds, and other capital assets where the profit is in excess 9 of $250,000 annually to fund K-12 education, early learning, and 10 child care, and advance our paramount duty to amply provide an 11 education to every child in the state. The legislature recognizes 12 that levying this tax will have the additional effect of making 13 material progress toward rebalancing the state's tax code. 14 The legislature further intends to exempt certain assets from the 15 tax including, but not limited to, qualified family-owned small 16 businesses, all residential and other real property, and retirement 17 accounts. 18 NEW SECTION. Sec. 2. DISTRIBUTION OF REVENUES. (1) All taxes, 19 interest, and penalties collected under this chapter shall be 20 distributed as follows: 21 (a) The first $500,000,000 collected each fiscal year shall be 22 deposited into the education legacy trust account created in RCW 23 83.100.230; and 24 (b) Any remainder collected each fiscal year shall be deposited 25 into the common school construction account. 26 (2) The amounts specified under subsection (1)(a) of this section 27 shall be adjusted annually as provided under section 17 of this act. 28 Sec. 3. RCW 83.100.230 and 2019 c 415 s 990 are each amended to 29 read as follows: 30 The education legacy trust account is created in the state 31 treasury. Money in the account may be spent only after appropriation. 32 Expenditures from the account may be used only for support of the 33 common schools, and for expanding access to higher education through 34 funding for new enrollments and financial aid, early learning and 35 child care programs, and other educational improvement efforts. 36 ((During the 2015-2017, 2017-2019, and 2019-2021 fiscal biennia 37 appropriations from the account may be made for support of early 38 p. 2 ESSB 5096.SL

learning programs. It is the intent of the legislature that this 1 policy will be continued in subsequent fiscal biennia.)) 2 NEW SECTION. Sec. 4. DEFINITIONS. The definitions in this 3 section apply throughout this chapter unless the context clearly 4 requires otherwise. 5 (1) "Adjusted capital gain" means federal net long-term capital 6 gain: 7 (a) Plus any amount of long-term capital loss from a sale or 8 exchange that is exempt from the tax imposed in this chapter, to the 9 extent such loss was included in calculating federal net long-term 10 capital gain; 11 (b) Plus any amount of long-term capital loss from a sale or 12 exchange that is not allocated to Washington under section 11 of this 13 act, to the extent such loss was included in calculating federal net 14 long-term capital gain; 15 (c) Plus any amount of loss carryforward from a sale or exchange 16 that is not allocated to Washington under section 11 of this act, to 17 the extent such loss was included in calculating federal net long- 18 term capital gain; 19 (d) Less any amount of long-term capital gain from a sale or 20 exchange that is not allocated to Washington under section 11 of this 21 act, to the extent such gain was included in calculating federal net 22 long-term capital gain; and 23 (e) Less any amount of long-term capital gain from a sale or 24 exchange that is exempt from the tax imposed in this chapter, to the 25 extent such gain was included in calculating federal net long-term 26 capital gain. 27 (2) "Capital asset" has the same meaning as provided by Title 26 28 U.S.C. Sec. 1221 of the internal revenue code and also includes any 29 other property if the sale or exchange of the property results in a 30 gain that is treated as a long-term capital gain under Title 26 31 U.S.C. Sec. 1231 or any other provision of the internal revenue code. 32 (3) "Federal net long-term capital gain" means the net long-term 33 capital gain reportable for federal income tax purposes determined as 34 if Title 26 U.S.C. Secs. 55 through 59, 1400Z-1, and 1400Z-2 of the 35 internal revenue code did not exist. 36 (4) "Individual" means a natural person. 37 (5) "Internal revenue code" means the United States internal 38 revenue code of 1986, as amended, as of the effective date of this 39 p. 3 ESSB 5096.SL

section, or such subsequent date as the department may provide by 1 rule consistent with the purpose of this chapter. 2 (6) "Long-term capital asset" means a capital asset that is held 3 for more than one year. 4 (7) "Long-term capital gain" means gain from the sale or exchange 5 of a long-term capital asset. 6 (8) "Long-term capital loss" means a loss from the sale or 7 exchange of a long-term capital asset. 8 (9) "Real estate" means land and fixtures affixed to land. "Real 9 estate" also includes used mobile homes, used park model trailers, 10 used floating homes, and improvements constructed upon leased land. 11 (10)(a) "Resident" means an individual: 12 (i) Who is domiciled in this state during the taxable year, 13 unless the individual (A) maintained no permanent place of abode in 14 this state during the entire taxable year, (B) maintained a permanent 15 place of abode outside of this state during the entire taxable year, 16 and (C) spent in the aggregate not more than 30 days of the taxable 17 year in this state; or 18 (ii) Who is not domiciled in this state during the taxable year, 19 but maintained a place of abode and was physically present in this 20 state for more than 183 days during the taxable year. 21 (b) For purposes of this subsection, "day" means a calendar day 22 or any portion of a calendar day. 23 (c) An individual who is a resident under (a) of this subsection 24 is a resident for that portion of a taxable year in which the 25 individual was domiciled in this state or maintained a place of abode 26 in this state. 27 (11) "Taxable year" means the taxpayer's taxable year as 28 determined under the internal revenue code. 29 (12) "Taxpayer" means an individual subject to tax under this 30 chapter. 31 (13) "Washington capital gains" means an individual's adjusted 32 capital gain, as modified in section 7 of this act, for each return 33 filed under this chapter. 34 NEW SECTION. Sec. 5. TAX IMPOSED. (1) Beginning January 1, 35 2022, an excise tax is imposed on the sale or exchange of long-term 36 capital assets. Only individuals are subject to payment of the tax, 37 which equals seven percent multiplied by an individual's Washington 38 capital gains. 39 p. 4 ESSB 5096.SL

(2) The tax levied in subsection (1) of this section is necessary 1 for the support of the state government and its existing public 2 institutions. 3 (3) If an individual's Washington capital gains are less than 4 zero for a taxable year, no tax is due under this section and no such 5 amount is allowed as a carryover for use in the calculation of that 6 individual's adjusted capital gain, as defined in section 4(1) of 7 this act, for any taxable year. To the extent that a loss 8 carryforward is included in the calculation of an individual's 9 federal net long-term capital gain and that loss carryforward is 10 directly attributable to losses from sales or exchanges allocated to 11 this state under section 11 of this act, the loss carryforward is 12 included in the calculation of that individual's adjusted capital 13 gain for the purposes of this chapter. An individual may not include 14 any losses carried back for federal income tax purposes in the 15 calculation of that individual's adjusted capital gain for any 16 taxable year. 17 (4)(a) The tax imposed in this section applies to the sale or 18 exchange of long-term capital assets owned by the taxpayer, whether 19 the taxpayer was the legal or beneficial owner of such assets at the 20 time of the sale or exchange. The tax applies when the Washington 21 capital gains are recognized by the taxpayer in accordance with this 22 chapter. 23 (b) For purposes of this chapter: 24 (i) An individual is considered to be a beneficial owner of long- 25 term capital assets held by an entity that is a pass-through or 26 disregarded entity for federal tax purposes, such as a partnership, 27 limited liability company, S corporation, or grantor trust, to the 28 extent of the individual's ownership interest in the entity as 29 reported for federal income tax purposes. 30 (ii) A nongrantor trust is deemed to be a grantor trust if the 31 trust does not qualify as a grantor trust for federal tax purposes, 32 and the grantor's transfer of assets to the trust is treated as an 33 incomplete gift under Title 26 U.S.C. Sec. 2511 of the internal 34 revenue code and its accompanying regulations. A grantor of such 35 trust is considered the beneficial owner of the capital assets of the 36 trust for purposes of the tax imposed in this section and must 37 include any long-term capital gain or loss from the sale or exchange 38 of a capital asset by the trust in the calculation of that 39 p. 5 ESSB 5096.SL

individual's adjusted capital gain, if such gain or loss is allocated 1 to this state under section 11 of this act. 2 NEW SECTION. Sec. 6. EXEMPTIONS. This chapter does not apply to 3 the sale or exchange of: 4 (1) All real estate transferred by deed, real estate contract, 5 judgment, or other lawful instruments that transfer title to real 6 property and are filed as a public record with the counties where 7 real property is located; 8 (2)(a) An interest in a privately held entity only to the extent 9 that any long-term capital gain or loss from such sale or exchange is 10 directly attributable to the real estate owned directly by such 11 entity. 12 (b)(i) Except as provided in (b)(ii) and (iii) of this 13 subsection, the value of the exemption under this subsection is equal 14 to the fair market value of the real estate owned directly by the 15 entity less its basis, at the time that the sale or exchange of the 16 individual's interest occurs, multiplied by the percentage of the 17 ownership interest in the entity which is sold or exchanged by the 18 individual. 19 (ii) If a sale or exchange of an interest in an entity results in 20 an amount directly attributable to real property and that is 21 considered as an amount realized from the sale or exchange of 22 property other than a capital asset under Title 26 U.S.C. Sec. 751 of 23 the internal revenue code, such amount must not be considered in the 24 calculation of an individual's exemption amount under (b)(i) of this 25 subsection (2). 26 (iii) Real estate not owned directly by the entity in which an 27 individual is selling or exchanging the individual's interest must 28 not be considered in the calculation of an individual's exemption 29 amount under (b)(i) of this subsection (2). 30 (c) Fair market value of real estate may be established by a fair 31 market appraisal of the real estate or an allocation of assets by the 32 seller and the buyer made under Title 26 U.S.C. Sec. 1060 of the 33 internal revenue code, as amended. However, the department is not 34 bound by the parties' agreement as to the allocation of assets, 35 allocation of consideration, or fair market value, if such 36 allocations or fair market value do not reflect the fair market value 37 of the real estate. The assessed value of the real estate for 38 property tax purposes may be used to determine the fair market value 39 p. 6 ESSB 5096.SL

of the real estate, if the assessed value is current as of the date 1 of the sale or exchange of the ownership interest in the entity 2 owning the real estate and the department determines that this method 3 is reasonable under the circumstances. 4 (d) The value of the exemption under this subsection (2) may not 5 exceed the individual's long-term capital gain or loss from the sale 6 or exchange of an interest in an entity for which the individual is 7 claiming this exemption; 8 (3) Assets held under a retirement savings account under Title 26 9 U.S.C. Sec. 401(k) of the internal revenue code, a tax-sheltered 10 annuity or custodial account described in Title 26 U.S.C. Sec. 403(b) 11 of the internal revenue code, a deferred compensation plan under 12 Title 26 U.S.C. Sec. 457(b) of the internal revenue code, an 13 individual retirement account or individual retirement annuity 14 described in Title 26 U.S.C. Sec. 408 of the internal revenue code, a 15 Roth individual retirement account described in Title 26 U.S.C. Sec. 16 408A of the internal revenue code, an employee defined contribution 17 program, an employee defined benefit plan, or a similar retirement 18 savings vehicle; 19 (4) Assets pursuant to, or under imminent threat of, condemnation 20 proceedings by the United States, the state or any of its political 21 subdivisions, or a municipal corporation; 22 (5) Cattle, horses, or breeding livestock if for the taxable year 23 of the sale or exchange, more than 50 percent of the taxpayer's gross 24 income for the taxable year, including from the sale or exchange of 25 capital assets, is from farming or ranching; 26 (6) Property depreciable under Title 26 U.S.C. Sec. 167(a)(1) of 27 the internal revenue code, or that qualifies for expensing under 28 Title 26 U.S.C. Sec. 179 of the internal revenue code; 29 (7) Timber, timberland, or the receipt of Washington capital 30 gains as dividends and distributions from real estate investment 31 trusts derived from gains from the sale or exchange of timber and 32 timberland. "Timber" means forest trees, standing or down, on 33 privately or publicly owned land, and includes Christmas trees and 34 short-rotation hardwoods. The sale or exchange of timber includes the 35 cutting or disposal of timber qualifying for capital gains treatment 36 under Title 26 U.S.C. Sec. 631(a) or (b) of the internal revenue 37 code; 38 (8)(a) Commercial fishing privileges. 39 p. 7 ESSB 5096.SL

(b) For the purposes of this subsection (8), "commercial fishing 1 privilege" means a right, held by a seafood harvester or processor, 2 to participate in a limited access fishery. "Commercial fishing 3 privilege" includes and is limited to: 4 (i) In the case of federally managed fisheries, quota and access 5 to fisheries assigned pursuant to individual fishing quota programs, 6 limited entry and catch share programs, cooperative fishing 7 management agreements, or similar arrangements; and 8 (ii) In the case of state-managed fisheries, quota and access to 9 fisheries assigned under fishery permits, limited entry and catch 10 share programs, or similar arrangements; and 11 (9) Goodwill received from the sale of an auto dealership 12 licensed under chapter 46.70 RCW whose activities are subject to 13 chapter 46.96 RCW. 14 NEW SECTION. Sec. 7. DEDUCTIONS. In computing tax for a taxable 15 year, a taxpayer may deduct from his or her Washington capital gains: 16 (1) A standard deduction of $250,000 per individual, or in the 17 case of spouses or domestic partners, their combined standard 18 deduction is limited to $250,000, regardless of whether they file 19 joint or separate returns. The amount of the standard deduction shall 20 be adjusted pursuant to section 17 of this act; 21 (2) Amounts that the state is prohibited from taxing under the 22 Constitution of this state or the Constitution or laws of the United 23 States; 24 (3) The amount of adjusted capital gain derived from the sale or 25 transfer of the taxpayer's interest in a qualified family-owned small 26 business pursuant to section 8 of this act; and 27 (4) Charitable donations deductible under section 9 of this act. 28 NEW SECTION. Sec. 8. QUALIFIED FAMILY-OWNED SMALL BUSINESS 29 DEDUCTION. (1) In computing tax under this chapter for a taxable 30 year, a taxpayer may deduct from his or her Washington capital gains 31 the amount of adjusted capital gain derived in the taxable year from 32 the sale of substantially all of the fair market value of the assets 33 of, or the transfer of substantially all of the taxpayer's interest 34 in, a qualified family-owned small business, to the extent that such 35 adjusted capital gain would otherwise be included in the taxpayer's 36 Washington capital gains. 37 p. 8 ESSB 5096.SL

(2) For purposes of this section, the following definitions 1 apply: 2 (a) "Assets" means real property and personal property, including 3 tangible personal property and intangible property. 4 (b) "Family" means the same as "member of the family" in RCW 5 83.100.046. 6 (c)(i) "Materially participated" means an individual was involved 7 in the operation of a business on a basis that is regular, 8 continuous, and substantial. 9 (ii) The term "materially participated" must be interpreted 10 consistently with the applicable treasury regulations for Title 26 11 U.S.C. Sec. 469 of the internal revenue code, to the extent that such 12 interpretation does not conflict with any provision of this section. 13 (d) "Qualified family-owned small business" means a business: 14 (i) In which the taxpayer held a qualifying interest for at least 15 five years immediately preceding the sale or transfer described in 16 subsection (1) of this section; 17 (ii) In which either the taxpayer or members of the taxpayer's 18 family, or both, materially participated in operating the business 19 for at least five of the 10 years immediately preceding the sale or 20 transfer described in subsection (1) of this section, unless such 21 sale or transfer was to a qualified heir; and 22 (iii) That had worldwide gross revenue of $10,000,000 or less in 23 the 12-month period immediately preceding the sale or transfer 24 described in subsection (1) of this section. The worldwide gross 25 revenue amount under this subsection (2)(d)(iii) shall be adjusted 26 annually as provided in section 17 of this act. 27 (e) "Qualified heir" means a member of the taxpayer's family. 28 (f) "Qualifying interest" means: 29 (i) An interest as a proprietor in a business carried on as a 30 sole proprietorship; or 31 (ii) An interest in a business if at least: 32 (A) Fifty percent of the business is owned, directly or 33 indirectly, by any combination of the taxpayer or members of the 34 taxpayer's family, or both; 35 (B) Thirty percent of the business is owned, directly or 36 indirectly, by any combination of the taxpayer or members of the 37 taxpayer's family, or both, and at least: 38 (I) Seventy percent of the business is owned, directly or 39 indirectly, by members of two families; or 40 p. 9 ESSB 5096.SL

(II) Ninety percent of the business is owned, directly or 1 indirectly, by members of three families. 2 (g) "Substantially all" means at least 90 percent. 3 NEW SECTION. Sec. 9. ADDITIONAL DEDUCTION FOR CHARITABLE 4 DONATIONS. (1) In computing tax under this chapter for a taxable 5 year, a taxpayer may deduct from his or her Washington capital gains 6 the amount donated by the taxpayer to one or more qualified 7 organizations during the same taxable year in excess of the minimum 8 qualifying charitable donation amount. For the purposes of this 9 section, the minimum qualifying charitable donation amount equals 10 $250,000. The minimum qualifying charitable donation amount under 11 this subsection (1) shall be adjusted pursuant to section 17 of this 12 act. 13 (2) The deduction authorized under subsection (1) of this section 14 may not exceed $100,000 for the taxable year. The maximum amount of 15 the available deduction under this subsection (2) shall be adjusted 16 pursuant to section 17 of this act. 17 (3) The deduction authorized under subsection (1) of this section 18 may not be carried forward or backward to another tax reporting 19 period. 20 (4) For the purposes of this section, the following definitions 21 apply: 22 (a) "Nonprofit organization" means an organization exempt from 23 tax under Title 26 U.S.C. Sec. 501(c)(3) of the internal revenue 24 code. 25 (b) "Qualified organization" means a nonprofit organization, or 26 any other organization, that is: 27 (i) Eligible to receive a charitable deduction as defined in 28 Title 26 U.S.C. Sec. 170(c) of the internal revenue code; and 29 (ii) Principally directed or managed within the state of 30 Washington. 31 NEW SECTION. Sec. 10. OTHER TAXES. The tax imposed under this 32 chapter is in addition to any other taxes imposed by the state or any 33 of its political subdivisions, or a municipal corporation, with 34 respect to the same sale or exchange, including the taxes imposed in, 35 or under the authority of, chapter 82.04, 82.08, 82.12, 82.14, 82.45, 36 or 82.46 RCW. 37 p. 10 ESSB 5096.SL

NEW SECTION. Sec. 11. ALLOCATION OF GAINS AND LOSSES. (1) For 1 purposes of the tax imposed under this chapter, long-term capital 2 gains and losses are allocated to Washington as follows: 3 (a) Long-term capital gains or losses from the sale or exchange 4 of tangible personal property are allocated to this state if the 5 property was located in this state at the time of the sale or 6 exchange. Long-term capital gains or losses from the sale or exchange 7 of tangible personal property are also allocated to this state even 8 though the property was not located in this state at the time of the 9 sale or exchange if: 10 (i) The property was located in the state at any time during the 11 taxable year in which the sale or exchange occurred or the 12 immediately preceding taxable year; 13 (ii) The taxpayer was a resident at the time the sale or exchange 14 occurred; and 15 (iii) The taxpayer is not subject to the payment of an income or 16 excise tax legally imposed on the long-term capital gains or losses 17 by another taxing jurisdiction. 18 (b) Long-term capital gains or losses derived from intangible 19 personal property are allocated to this state if the taxpayer was 20 domiciled in this state at the time the sale or exchange occurred. 21 (2)(a) A credit is allowed against the tax imposed in section 5 22 of this act equal to the amount of any legally imposed income or 23 excise tax paid by the taxpayer to another taxing jurisdiction on 24 capital gains derived from capital assets within the other taxing 25 jurisdiction to the extent such capital gains are included in the 26 taxpayer's Washington capital gains. The amount of credit under this 27 subsection may not exceed the total amount of tax due under this 28 chapter, and there is no carryback or carryforward of any unused 29 credits. 30 (b) As used in this section, "taxing jurisdiction" means a state 31 of the United States other than the state of Washington, the District 32 of Columbia, the Commonwealth of Puerto Rico, any territory or 33 possession of the United States, or any foreign country or political 34 subdivision of a foreign country. 35 NEW SECTION. Sec. 12. FILING OF RETURNS. (1)(a) Except as 36 otherwise provided in this section or RCW 82.32.080, taxpayers owing 37 tax under this chapter must file, on forms prescribed by the 38 department, a return with the department on or before the date the 39 p. 11 ESSB 5096.SL

taxpayer's federal income tax return for the taxable year is required 1 to be filed. 2 (b)(i) Except as provided in (b)(ii) of this subsection (1), 3 returns and all supporting documents must be filed electronically 4 using the department's online tax filing service or other method of 5 electronic reporting as the department may authorize. 6 (ii) The department may waive the electronic filing requirement 7 in this subsection for good cause as provided in RCW 82.32.080. 8 (2) In addition to the Washington return required to be filed 9 under subsection (1) of this section, taxpayers owing tax under this 10 chapter must file with the department on or before the date the 11 federal return is required to be filed a copy of the federal income 12 tax return along with all schedules and supporting documentation. 13 (3) Each taxpayer required to file a return under this section 14 must, without assessment, notice, or demand, pay any tax due thereon 15 to the department on or before the date fixed for the filing of the 16 return, regardless of any filing extension. The tax must be paid by 17 electronic funds transfer as defined in RCW 82.32.085 or by other 18 forms of electronic payment as may be authorized by the department. 19 The department may waive the electronic payment requirement for good 20 cause as provided in RCW 82.32.080. If any tax due under this chapter 21 is not paid by the due date, interest and penalties as provided in 22 chapter 82.32 RCW apply to the deficiency. 23 (4)(a) In addition to the Washington return required to be filed 24 under subsection (1) of this section, an individual claiming an 25 exemption under section 6(2) of this act must file documentation 26 substantiating the following: 27 (i) The fair market value and basis of the real estate held 28 directly by the entity in which the interest was sold or exchanged; 29 (ii) The percentage of the ownership interest sold or exchanged 30 in the entity owning real estate; and 31 (iii) The methodology, if any, established by the entity in which 32 the interest was sold or exchanged, for allocating gains or losses to 33 the owners, partners, or shareholders of the entity from the sale of 34 real estate. 35 (b) The department may by rule prescribe additional filing 36 requirements to substantiate an individual's claim for an exemption 37 under section 6(2) of this act. Prior to adopting any rule under this 38 subsection (4)(b), the department must allow for an opportunity for 39 p. 12 ESSB 5096.SL

participation by interested parties in the rule-making process in 1 accordance with the administrative procedure act, chapter 34.05 RCW. 2 (5) If a taxpayer has obtained an extension of time for filing 3 the federal income tax return for the taxable year, the taxpayer is 4 entitled to the same extension of time for filing the return required 5 under this section if the taxpayer provides the department, before 6 the due date provided in subsection (1) of this section, the 7 extension confirmation number or other evidence satisfactory to the 8 department confirming the federal extension. An extension under this 9 subsection for the filing of a return under this chapter is not an 10 extension of time to pay the tax due under this chapter. 11 (6)(a) If any return due under subsection (1) of this section, 12 along with a copy of the federal income tax return, is not filed with 13 the department by the due date or any extension granted by the 14 department, the department must assess a penalty in the amount of 15 five percent of the tax due for the taxable year covered by the 16 return for each month or portion of a month that the return remains 17 unfiled. The total penalty assessed under this subsection may not 18 exceed 25 percent of the tax due for the taxable year covered by the 19 delinquent return. The penalty under this subsection is in addition 20 to any penalties assessed for the late payment of any tax due on the 21 return. 22 (b) The department must waive or cancel the penalty imposed under 23 this subsection if: 24 (i) The department is persuaded that the taxpayer's failure to 25 file the return by the due date was due to circumstances beyond the 26 taxpayer's control; or 27 (ii) The taxpayer has not been delinquent in filing any return 28 due under this section during the preceding five calendar years. 29 NEW SECTION. Sec. 13. JOINT FILERS. (1) If the federal income 30 tax liabilities of both spouses are determined on a joint federal 31 return for the taxable year, they must file a joint return under this 32 chapter. 33 (2) Except as otherwise provided in this subsection, if the 34 federal income tax liability of either spouse is determined on a 35 separate federal return for the taxable year, they must file separate 36 returns under this chapter. State registered domestic partners may 37 file a joint return under this chapter even if they filed separate 38 federal returns for the taxable year. 39 p. 13 ESSB 5096.SL

(3) The liability for tax due under this chapter of each spouse 1 or state registered domestic partner is joint and several, unless: 2 (a) The spouse is relieved of liability for federal tax purposes 3 as provided under Title 26 U.S.C. Sec. 6015 of the internal revenue 4 code; or 5 (b) The department determines that the domestic partner qualifies 6 for relief as provided by rule of the department. Such rule, to the 7 extent possible without being inconsistent with this chapter, must 8 follow Title 26 U.S.C. Sec. 6015. 9 NEW SECTION. Sec. 14. ADMINISTRATION OF TAXES. Except as 10 otherwise provided by law and to the extent not inconsistent with the 11 provisions of this chapter, chapter 82.32 RCW applies to the 12 administration of taxes imposed under this chapter. 13 NEW SECTION. Sec. 15. CRIMINAL ACTIONS. (1) Any taxpayer who 14 knowingly attempts to evade payment of the tax imposed under this 15 chapter is guilty of a class C felony as provided in chapter 9A.20 16 RCW. 17 (2) Any taxpayer who knowingly fails to pay tax, make returns, 18 keep records, or supply information, as required under this title, is 19 guilty of a gross misdemeanor as provided in chapter 9A.20 RCW. 20 NEW SECTION. Sec. 16. A new section is added to chapter 82.04 21 RCW to read as follows: 22 BUSINESS AND OCCUPATION TAX CREDIT. (1) To avoid taxing the same 23 sale or exchange under both the business and occupation tax and 24 capital gains tax, a credit is allowed against taxes due under this 25 chapter on a sale or exchange that is also subject to the tax imposed 26 under section 5 of this act. The credit is equal to the amount of tax 27 imposed under this chapter on such sale or exchange. 28 (2) The credit may be used against any tax due under this 29 chapter. 30 (3) The credit under this section is earned in regards to a sale 31 or exchange, and may be claimed against taxes due under this chapter, 32 for the tax reporting period in which the sale or exchange occurred. 33 The credit claimed for a tax reporting period may not exceed the tax 34 otherwise due under this chapter for that tax reporting period. 35 Unused credit may not be carried forward or backward to another tax 36 p. 14 ESSB 5096.SL

reporting period. No refunds may be granted for unused credit under 1 this section. 2 (4) The department must apply the credit first to taxes deposited 3 into the general fund. If any remaining credit reduces the amount of 4 taxes deposited into the workforce education investment account 5 established in RCW 43.79.195, the department must notify the state 6 treasurer of such amounts monthly, and the state treasurer must 7 transfer those amounts from the general fund to the workforce 8 education investment account. 9 NEW SECTION. Sec. 17. ANNUAL ADJUSTMENTS. (1) Beginning 10 December 2023 and each December thereafter, the department must 11 adjust the applicable amounts by multiplying the current applicable 12 amounts by one plus the percentage by which the most current consumer 13 price index available on December 1st of the current year exceeds the 14 consumer price index for the prior 12-month period, and rounding the 15 result to the nearest $1,000. If an adjustment under this subsection 16 (1) would reduce the applicable amounts, the department must not 17 adjust the applicable amounts for use in the following year. The 18 department must publish the adjusted applicable amounts on its public 19 website by December 31st. The adjusted applicable amounts calculated 20 under this subsection (1) take effect for taxes due and distributions 21 made, as the case may be, in the following calendar year. 22 (2) For purposes of this section, the following definitions 23 apply: 24 (a) "Applicable amounts" means: 25 (i) The distribution amount to the education legacy trust account 26 as provided in section 2(1)(a) of this act; 27 (ii) The standard deduction amount in sections 4(13) and 7(1) of 28 this act; 29 (iii) The worldwide gross revenue amount under section 8 of this 30 act; and 31 (iv) The minimum qualifying charitable donation amount and 32 maximum charitable donation amount under section 9 of this act. 33 (b) "Consumer price index" means the consumer price index for all 34 urban consumers, all items, for the Seattle area as calculated by the 35 United States bureau of labor statistics or its successor agency. 36 (c) "Seattle area" means the geographic area sample that includes 37 Seattle and surrounding areas. 38 p. 15 ESSB 5096.SL

NEW SECTION. Sec. 18. The provisions of RCW 82.32.805 and 1 82.32.808 do not apply to this act. 2 NEW SECTION. Sec. 19. Sections 1, 2, 4 through 15, and 17 of 3 this act constitute a new chapter in Title 82 RCW. 4 NEW SECTION. Sec. 20. (1) If a court of competent jurisdiction, 5 in a final judgment not subject to appeal, adjudges section 5 of this 6 act unconstitutional, or otherwise invalid, in its entirety, section 7 16 of this act is null and void in its entirety. Any credits 8 previously claimed under section 16 of this act must be repaid within 9 30 days of the department of revenue's notice to the taxpayer of the 10 amount due. 11 (2) If the taxpayer fails to repay the credit by the due date, 12 interest and penalties as provided in chapter 82.32 RCW apply to the 13 deficiency. 14 NEW SECTION. Sec. 21. If any provision of this act or its 15 application to any person or circumstance is held invalid, the 16 remainder of the act or the application of the provision to other 17 persons or circumstances is not affected. 18 Passed by the Senate April 25, 2021. Passed by the House April 24, 2021. Approved by the Governor May 4, 2021. Filed in Office of Secretary of State May 5, 2021. --- END --- p. 16 ESSB 5096.SL