Larry's Tax Law

The Wild Journey

I am taking time out from my multi-part series on Subchapter S to report on the Washington capital gains tax.  As you know, I have reported in several prior blog posts on the numerous challenges confronting the tax.  The long, interesting and turbulent ride of this legislation, however, may be over!

Initiative 2109 was presented to Washington state voters.  A “yes” vote for the initiative would repeal the new tax, while a “no” vote would retain the new tax.  

On November 5, 2024, the voters spoke loud and clear – they overwhelmingly voted to retain the Washington capital gains tax.  A whopping 64.1 percent of the voters (2,341,553 voters) voted “no” on the initiative, while 35.9 percent of the voters (1,312,162 voters) voted “yes.” 

As I previously reported, on May 4, 2021, Washington State Governor Jay Inslee signed Senate Bill 5096 ("SB 5096") into law, creating the state's first capital gains tax.  It is set to go into effect on January 1, 2022. 

The new law has had a turbulent ride during its infancy.  Before Governor Inslee could even sign the bill into law, opponents to the legislation filed a lawsuit in the Superior Court of Washington for Douglas County, challenging the new tax regime as a tax on income – a violation of the state’s constitution.  The plaintiffs in that case seek to enjoin the taxing authorities from assessing and collecting the tax or otherwise enforcing the new law. 

On May 4, 2021, Washington Governor Jay Inslee signed Senate Bill 5096 ("SB 5096") into law, creating a capital gains tax regime in Washington.  The bill has had a brief, but colorful journey so far.  It appears that the journey is continuing.

Will Washington's capital gains tax be here to stay?  At this point, it is anyone's guess.

SB 5096 was originally introduced to the Washington State Senate on January 6, 2021.  It was passed by the Senate on March 6, 2021, after a hearing in the Senate Committee on Ways and Means, three readings and some floor amendments.  The bill's passage margin in the Senate was narrow, receiving 25 affirmative votes and 24 negative votes. 

On April 25, 2021, the Washington State Legislature passed Senate Bill 5096 (SB 5096).  The bill was immediately sent to Governor's Inslee's desk for signature.  It brings a new tax regime to the state of Washington.

Before we go into the details surrounding the new tax, I have to mention that it was challenged even before the governor had the opportunity to sign it into law.  A group of potentially affected taxpayers filed a lawsuit in Douglas County, Washington, to strike down the new law as being unconstitutional.  So, it is possible that SB 5096 will never breathe life. 

Knowing that the new tax regime is under attack, it is still important to have a good understanding of it in the event it survives the battle.

In a new temporary rule, the Oregon Department of Revenue (“DOR”) formalized its prior informal guidance relative to the assessment of penalties for failing to make sufficient estimated payments under Oregon’s Corporate Activity Tax (“CAT”).  The temporary rule provides some relief to CAT taxpayers whose businesses are adversely affected by COVID-19. 

Background

Pursuant to ORS 317A.137(2), a taxpayer must make estimated quarterly CAT payments.  As discussed previously, ORS 317A.161(2) imposes a penalty on taxpayers who fail to make estimated payments equal to at least 80 percent of their CAT liability for any quarter during 2020. 

The DOR announced in April that it would not assess penalties against a taxpayer for failure to make estimated CAT payments during 2020 if the taxpayer did not have the financial ability to make the estimated payments.  The DOR further stated that it would honor a taxpayer’s good faith compliance efforts if the taxpayer documents those efforts. 

Unfortunately, the DOR pronouncement about penalty abatement was contained in an email blast.  Consequently, many taxpayers and tax practitioners were concerned about whether such an informal announcement could be relied upon, what actually constitutes “good faith compliance efforts” and how to document the efforts.

Background

As previously reported, the new Oregon Corporate Activity Tax (the “CAT”) went into effect on January 1, 2020.  The new law is quite complex and arguably not very well thought out by lawmakers.  Although the Oregon Department of Revenue (the “DOR”) has worked hard to bring clarity to the CAT through rulemaking, many questions remain, including application of the many exemptions and computation of the required tax estimates.  Despite pleas by small businesses to repeal or at least put the CAT in hibernation until the uncertainties resulting from the COVID-19 pandemic have been alleviated, both Oregon’s Governor and the state’s lawmakers have proclaimed in so many words that the show must go on – the CAT will remain in place, even during these horrific times.

On January 6, I presented a new White Paper, The Oregon Corporate Activity Tax – You Can Run and You Can Hide, but This New Tax Is Effective January 1, 2020, at the Oregon Society of Certified Public Accountants Annual State and Local Tax Conference.  We had a large number of attendees, including representatives of the Oregon Department of Revenue (the “DOR”).  Based upon the numerous questions I received (during and after the presentation), it is clear that tax practitioners are busy thinking about this new tax regime and how it applies to their clients.  Unfortunately, in this particular case, I do not believe the curiosity will kill the CAT.  It looks like it is here to stay.

In recent months, we have written extensively about Oregon’s new Corporate Activity Tax (the “CAT”).  As discussed in our last post, the Oregon Department of Revenue (the “Department”) recently announced that it would hold a dial-in meeting to solicit input regarding the Department’s rulemaking process from stakeholders located out of state or who otherwise could not attend the town hall meetings.  Peter Evalds attended the telephone meeting, which was held on Friday, October 25, 2019. 

This post continues our coverage of the CAT with an overview of new information we learned during the call.  This post also addresses questions and answers that the Department recently uploaded to the Frequently Asked Questions (“FAQs”) section of its CAT website.

We have written at length about Oregon’s new Corporate Activity Tax (the “CAT”). As discussed in our last post, the Oregon Department of Revenue (the “Department”) recently concluded a series of 12 town hall meetings around the state to solicit input from stakeholders regarding the Department’s rulemaking process.

As we talked about in our last post, the Department stated at the Portland town hall meeting its plan to conduct additional dial-in meetings for people who are located out of state or who otherwise could not attend the town hall meetings.

We have been covering Oregon’s new Corporate Activity Tax (the “CAT”) over the past few months.  As previously discussed, the Oregon Department of Revenue (the “Department”) has been conducting town hall meetings with stakeholders across Oregon.  The last meeting was held in Salem on October 4, 2019. 

In this post, we continue our coverage of the CAT with a discussion of the Department’s town hall meeting that Peter Evalds attended in Portland, Oregon on October 3, 2019.  We address significant issues discussed at the Portland meeting that were not discussed at the Beaverton meeting we covered a few weeks ago.