OLYMPIA — House Democrats are proposing a 7 percent capital gains tax that would apparently hit farmers who retire from day-to-day operations, but wait to sell their land.
Although Democrats propose to exempt income from farm sales, there is a catch. To qualify for the exemption, a farmer would have to run the farm up to the day of the sale.
That would trip up farmers who turn management over to the next generation, but don’t sell immediately, according to the Washington Farm Bureau.
“A lot of folks will let their kids take over until they can build up enough capital, build up enough revenue so they can buy the land,” the Farm Bureau’s director of government relations, Tom Davis, said. “Any break in service would open up the retiring farmer to having to pay the capital gains tax.”
The Farm Bureau voiced its concern to the House Finance Committee at a hearing. The committee passed the bill on a party-line vote without addressing the concern.
“We were disappointed about that,” Davis said Wednesday. “I think there was an intent to help farmers. ... But I think for our retiring farmers, there’s still going to be a problem under this bill.”
The tax would apply to capital gains over $25,000 for individuals and $50,000 for couples. The Department of Revenue estimates the tax would affect 48,000 taxpayers a year.
The sale of cattle, horses and breeding livestock by professional farmers also would be exempt from the tax, as would the sales of homes and, in some cases, timber.
To make the tax more attractive, the capital gains tax bill also would cut property taxes for about 19,800 senior citizens, people with disabilities and some veterans. Nevertheless, the bill would increase state revenue by a projected $414.7 million over two years, beginning next year.
House Democrats put the tax in their budget proposal, but the prospects of it passing this year are slim. The Democratic-controlled Senate has not included taxing capital gains in its budget proposal. Plus, the economy is generating more tax revenue than expected, making a tax increase more difficult to sell politically.
Gov. Jay Inslee supports taxing capital gains, but hasn’t proposed it this year. “I’ve been advised the votes do not exist in the state Senate to do that,” Inslee said Wednesday at a press conference.
If the capital gains tax doesn’t pass this year, Davis said he expects the proposal to resurface in the 2019 session, after the 2018 elections.
“Next year is not an election year, it might be easier to take that vote,” he said.
Capital tax supporters see the tax as a step toward reforming what they see as a regressive tax system.
Davis said the Farm Bureau will oppose a capital gains tax even if all farm sales are exempted.
“We’re opposed to any new taxes like this,” he said.