On February 18, 2025, the Washington State Senate introduced Senate Bill 5314, a legislative proposal aimed at addressing the intersection of business and occupation taxes with capital gains taxes. The bill seeks to provide clarity and relief for taxpayers by allowing a credit against business and occupation taxes for sales or exchanges that are also subject to capital gains tax, thereby preventing double taxation on the same transaction.

Key provisions of Senate Bill 5314 include the establishment of a credit equal to the amount of business and occupation tax imposed on a sale or exchange that is also taxed under the capital gains tax statute, RCW 82.87.040. This credit can be applied against any taxes due under the business and occupation tax chapter for the reporting period in which the sale or exchange occurred. However, the credit cannot exceed the tax due for that period, and any unused credit cannot be carried forward or refunded.

The bill also stipulates that the credit will first apply to taxes deposited into the general fund, with any remaining credit reducing amounts deposited into the workforce education investment account. Notably, the provisions of this bill are set to expire on January 1, 2026, raising questions about the long-term implications for taxpayers and state revenue.

Debate surrounding Senate Bill 5314 has focused on its potential economic impact, particularly in relation to small businesses and the broader implications for state funding. Proponents argue that the bill will alleviate financial burdens on businesses engaged in transactions subject to both tax types, while opponents express concerns about the potential loss of revenue for essential state programs funded by the business and occupation tax.

Experts suggest that the bill's passage could lead to increased compliance and reporting accuracy among taxpayers, as it simplifies the tax obligations associated with capital gains. However, the expiration date raises uncertainty about the sustainability of these benefits and the potential need for future legislative action to extend or modify the provisions.

As the legislative session progresses, stakeholders will be closely monitoring discussions and potential amendments to Senate Bill 5314, which could shape the tax landscape in Washington State and influence economic activity in the coming years.