Under Washington law, prime contractors perform construction for consumers, while speculative builders construct on property they own. The differentiation between these classifications is important because prime contractors are subject to Washington’s business and occupation (“B&O”) tax and retail sales tax, while speculative builders are not. In Lanzce G. Douglass, Inc. v. Department of
Jay Jetter
Jay Jetter is an attorney in the tax section of Stoel Rives’ Benefits, Tax, and Private Client group, where he assists businesses and individuals with a variety of federal, state, and local tax issues.
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Washington’s Capital Gains Tax Implications on the Transfer of Ownership Interests in Entities That Own Real Property
In addition to Washington’s real estate excise tax (REET), transferors of ownership interests in entities that own real property in Washington must also factor in Washington’s capital gains tax when making such transfers. The Washington Supreme Court upheld the capital gains tax as a constitutional excise tax earlier this year. See Quinn v. State, 1 Wn.3d 453, 526 P.3d 1 (2023). The tax is a flat tax of 7% of all adjusted long-term capital gains over $250,000 allocated to the state. RCW 82.87.010.
Gains from the sale of real estate are generally exempt from Washington’s capital gains tax. RCW 82.87.050(1). The tax also does not apply to the sale or exchange of an interest in a privately held entity, if the gain or loss from such sale or exchange is attributable to real estate directly owned by such entity. RCW 82.87.050(2). But what does this mean in the context of multi-tiered ownership structures, where a party desires to sell membership interests in a subsidiary that owns real estate?