Article

“Wealth Tax” Bills Introduced in California and Washington

by Alex Thacher
February 08, 2021

Summary

California and Washington are testing out the concept of a wealth tax.

Details

California introduced AB 2088 in 2020. It would have subjected California residents, part-year residents and any person who spends more than 60 days inside California to a tax equaling 0.4% of net worth exceeding $30 million. This bill did not pass in 2020, but in California’s new legislative session, AB 71 has already been introduced. While this bill is not a wealth tax, it is targeted to increase the tax base of taxpayers by including global intangible low-taxed income (GILTI) and taxing corporations earning $5 million or more at a higher rate.

In recent years, California has increased the amount of bills targeting high-wealth individuals and high-net-income corporations. Washington is now following suit by proposing its own new wealth tax in the 2021 legislative session as HB 1406. Starting in 2022, Washington’s bill would impose a new 1% tax on each Washington resident with financial intangible assets exceeding $1 billion. There are an estimated 12 individuals in Washington who would be subject to this tax.

Insights

Our state and local tax experts are following the bills and foresee possible challenges with implementation if either passes. For example, for the Washington bill, there is an exclusion from the tax for the fair market value of nonfinancial intangible assets including, among other things, reputation, prestige and good name. State tax auditors will have a difficult time determining the value of an individual’s reputation. If passed, both bills will likely face constitutional challenges, and the people subject to the taxes certainly have sufficient resources should they choose to fight it in court.

We’ll keep you posted. If you have any additional questions, contact our experts.

February 08, 2021

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Authors
Alex Thacher - Partner, Tax - San Jose, CA | Armanino
Partner
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