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WA Dept. of Revenue Commits Major Error in Calculating Receipts from New Capital Gains Income Tax Scheme

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Reports out of the State Capitol in Olympia indicate that the WA Department of Revenue (DOR) has made a series of serious errors in how it has accounted for the state’s new capital gains income tax that has resulted in significant budget problems in Olympia. This news supports, with even greater urgency, Initiative 2109 to repeal the state’s capital gains tax.

The state’s regular tax revenue report—to be released on Wed., Feb. 14, 2024—will include details on these mistakes. The largest link in this chain of error was a “double booking” of approximately $50 million in tax receipts from the capital gain income tax.

Another significant error was a mistaken projection of receipts from the capital gains income tax. In practice, many people who have to pay the new tax have filed extensions that move the actual receipt of the tax revenue to later this year—or even next year. These extensions, a much bigger issue than experts expected, complicate implementation of the scheme significantly.

There were other smaller errors—some of which may be understandable, as the capital gains income tax scheme was a new government program—that added to the problems. And ALL capital gains income tax schemes are volatile and hard to predict.

In total, the series of errors has caused an overstatement of approximately $150 million for the current budget cycle. Now, the legislature will have to cut that $150 million from state budgets.

Making matters even worse, most of these cuts must come from the state’s Capitol Budget—that funds some of the best government projects in the state, including school buildings, internet infrastructure, and port development.

The details of the errors related to the state’s new capital gains income tax are still emerging. And an even larger total miscalculation could soon emerge.

“Our state’s recently-passed capital gains income tax scheme is an administrative mess. And a bureaucratic disaster,” says WAGOP Chairman Jim Walsh. “This new disclosure that the WA Department of Revenue miscounted and miscalculated the monies collected through the scheme proves this.”

“Legislative budget writers discovered this latest error—which is a good thing,” explains Chairman Walsh. “Better to find out about the problems sooner than later. Now, we have some idea where to check for mistakes. But the hard truth remains: The state’s capital gains income tax is a mess. We can try to fix it, in fits and dashes. Or we can do the smart thing—and just repeal it.”

“Initiative 2109, which will be on the general-election ballot this November, does that,” he adds.

“The state’s capital gains income tax scheme is a mess. An unreliable, spikey program. It doesn’t fit into any clearly-defined area of tax policy or law. Some insist it’s not an income tax. Which it is. These problems exist deep in the bones of the scheme. Fiddling around the edges with trivial refinements won’t fix its problems. We need to repeal the scheme altogether. I-2109 does that,” reiterates Chairman Walsh.