House Democratic Freshman unveiled a long-term tax proposal during a news conference this morning, Wednesday, February 29th.

In total 12 freshman were in attendance showing support for the proposal. Among those 12 was Representative Chris Reykdal who represents Evergreen and parts of Thurston county.

The proposal would establish a state tax on capital gains. A capital gains tax (CGT) is a tax on the profit realized on the sale of non-inventory assets that are purchased at a lower price than the sales price. The most common capital gains are realized from the sale of stocks, bonds, and real estate.

According to legislative staff research, under the federal tax code, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. The amount of federal CGT depends on both the tax bracket of the individual and the amount of time the capital asset was held before being sold. In addition to the federal CGT, capital gains are often subject to state income taxes. Many states do not have separate capital gains tax rates. Instead, most states tax capital gains as ordinary income subject to the state’s income taxes rates. Washington has neither an income tax nor any specific excise tax on capital gains.

Introduced as HB 2563, the tax would begin January 1, 2013.  An annual state net capital gains tax would be imposed on the sale or other voluntary exchange of capital assets by resident individuals, trusts, and estates during the year. The tax rate would be five percent and applied to the capital gains amount reported on the federal income tax return. For resident individuals, all capital gains are apportioned to the state, regardless of the location of the asset. For taxpayers filing joint federal tax returns, a $10,000 deduction is provided. For taxpayers filing other returns, a $5,000 deduction is allowed. The sale of a person’s primary residence is not subject to CGT.

The bill is up for public hearing this morning in House Ways & Means.