ESB 5797
In CommitteeSenate
Intangible assets tax
Enacting a tax on stocks, bonds, and other financial intangible assets for the benefit of public schools.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill creates a new tax on financial intangible assets — such as stocks and bonds — for Washington residents with more than $50 million in such assets. The tax is $10 per $1,000 of value and is intended to generate new revenue specifically for public schools, while exempting retirement and college savings, small holdings, and most households entirely.
- Imposes a new $10 tax per $1,000 of true and fair value of certain financial intangible assets (e.g., stocks, bonds, mutual funds, ETFs) owned by Washington residents.
- Exempts all financial intangible assets for individuals with less than $50,000,000 in such assets — meaning most households would pay $0.
- Exempts retirement accounts (401(k)s, IRAs), college savings plans (529s, Coverdell), annuities, and ownership interests in private companies and partnerships.
- Requires annual filing and electronic payment by April 15, with penalties for late filing or payment.
- Creates a new Title 84A RCW to codify the tax rules, and includes anti-abuse provisions to prevent avoidance (e.g., concealing assets or transferring them just before year-end).
Who is affected
- Very high-net-worth Washington residents — Approximately 4,300 very high-net-worth individuals (those with more than $50 million in financial intangible assets) would owe this tax; it is designed to impact only the wealthiest residents.
- Retirement and college savers — Individuals and families with retirement accounts, 529 college savings plans, or other exempt accounts would not be taxed on those assets.
- General public / middle- and low-income households — Most Washington households (those with less than $50 million in financial intangible assets) would pay $0 in this tax, and all retirement, college savings, and small holdings are fully exempt.
- Business owners and entities — Businesses structured as corporations, LLCs, partnerships, etc., would not be subject to the tax on their intangible assets, but individuals who own such entities would still be taxed on their ownership interests if they meet the threshold.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
The tax targets extreme wealth concentration—only ~4,300 residents with >$50M in financial intangibles—making it highly progressive and unlikely to affect median households; revenue is constitutionally dedicated to public schools, directly supporting the state’s paramount duty under Article IX, §1 of the WA Constitution.
FinancialPeopleRef: Sec. 1(3), Sec. 3, Sec. 7Exemptions for retirement accounts (401(k), IRA, 403(b), etc.) and college savings (529, Coverdell) protect middle- and working-class savings from taxation, preserving long-term financial security and reducing future reliance on public assistance.
FinancialPeopleRef: Sec. 6(6), Sec. 6(13)Anti-abuse provisions—including disregard of transactions designed to conceal assets or convert taxable to exempt assets before year-end—reduce tax avoidance and improve revenue stability, supporting public trust in the tax system and ensuring more reliable school funding.
Public SafetyPeopleRef: Sec. 12 (Sec. 10 penalty provisions), Sec. 14 (anti-abuse)By taxing financial intangible assets (stocks, bonds, ETFs, mutual funds) that are overwhelmingly held by the top 1%, the bill begins to correct Washington’s status as the second-most regressive state tax system, moving toward a more equitable distribution of tax responsibility.
FinancialPeopleRef: Sec. 1(2), Sec. 3, Sec. 7The bill explicitly excludes itself from tax preference reporting requirements (RCW 82.32.805/808), streamlining legislative oversight and reducing bureaucratic friction—though this also limits transparency into future modifications or exemptions.
Local GovernmentLean peopleRef: Sec. 15 (exemption from tax preference laws), Sec. 17 (codification)
Potential Concerns (5)
The $10 per $1,000 tax rate is progressive on paper but applies only to a very small group (≈4,300 people), limiting broader fiscal impact on state revenue structure; the tax does not generate meaningful revenue for schools without broader base or higher rates, and the exemption of retirement/college accounts means middle-class savings are not protected from future taxation if thresholds are lowered.
FinancialRef: Sec. 6(1)Exemptions for cash, annuities, options, futures, commodities, and other complex financial instruments reduce the tax base and create inequities—e.g., a high-net-worth individual holding $60M in exempt annuities pays $0, while one with $51M in stocks pays $510,000, undermining the tax’s fairness and predictability.
FinancialRef: Sec. 6(2)-(13)The “substantial intangible assets tax valuation understatement” penalty (30–50% of underpayment) creates significant compliance risk and administrative burden for filers, especially for complex asset valuations (e.g., private equity stakes, derivatives), potentially discouraging voluntary compliance or encouraging aggressive tax planning.
FinancialRef: Sec. 14 (new Sec. 10)Exempting all intangible assets held by artificial persons (corporations, LLCs, partnerships) means business owners who hold assets through entities avoid the tax entirely—even if they personally exceed the $50M threshold—encouraging asset reclassification and entity structuring to avoid taxation.
Business & EmploymentLean peopleRef: Sec. 6(8)The burden of proof for innocent spouse relief rests entirely on the petitioner, and the rule explicitly excludes relief for transfers between spouses within 12 months (presumed tax avoidance), potentially harming spouses in abusive or unequal relationships who lack financial autonomy or documentation.
Rights & LibertiesLean peopleRef: Sec. 8 (Innocent Spouse Relief)
Who Is Most Affected
The ~4,300 Washington residents with >$50M in financial intangible assets face a new tax liability (e.g., $500,000 on $50M of taxable assets). While most are already wealthy and diversified, this tax may accelerate offshore structuring or relocation, especially if combined with federal tax changes.
Retirement and college savers benefit from full exemptions, preserving long-term financial security. However, if future legislatures lower the $50M threshold or expand the tax base, these groups could be vulnerable to future taxation despite current protections.
Middle- and low-income households are effectively exempt (99.96% of WA residents), avoiding direct tax liability. However, if the tax fails to generate expected revenue or is repealed, schools may face future budget cuts, indirectly harming families dependent on public education.
Corporations and business entities are fully exempt on intangible assets held through them, giving large firms and wealthy business owners an incentive to restructure asset ownership. Sole proprietors and small business owners with < $50M in intangibles face no direct liability, but may be indirectly affected if the tax leads to reduced state education funding.
Public schools stand to gain dedicated, progressive revenue—potentially hundreds of millions annually—if the tax base remains stable and compliant. However, if avoidance is high or the base shrinks (e.g., due to migration or restructuring), revenue may fall short of projections, undermining the bill’s stated goal of fully funding basic education.