(The Center Square) – Even if Washington state voters ultimately decide to reject Initiative 645 repealing the state’s new income tax, there will be a “significant life” in how to implement it, according to the state Department of Revenue.
One of the biggest challenges for the DOR’s new income tax advisory group will be coming up with recommendations to the state Legislature on how to adequately clarify who a state resident is and thus subject to the tax.
“The income tax work is complex,” Senior Assistant Director of Tax Policy Tim Jennrich told the advisory group at its Aug. 24 meeting. “We expect it to be a significant lift. There are clearly a lot of issues that we already have identified for discussion purposes, and we have to get this all done within a fairly quick timeframe.”
The 9.9% income tax currently exempts residents who make less than $1 million annually.
Senate Bill 6346 defines a resident as someone who meets the following criteria:
Who is domiciled in this state during the taxable year, unless the individual: (A) maintained no permanent place of abode in this state during the entire taxable year, maintained a permanent place of abode outside of this state during the entire taxable year, and spent in the aggregate not more than 30 days of the taxable year in this state.
Ahurst and Perkins Coie Partner and U.S. Tax Lead Brain Mahon told the advisory group that “domicile is a facts and circumstances test that has been around for decades and it requires you to balance things that aren’t easy to balance and so there is always going to be ambiguity.”
He added that “if I have a client that comes to me and (says) ‘I want to make sure that I’ve severed my Washington domicile and taken up a new domicile,’ we will tell them what the gold standard is and it would be to to cut all your ties to Washington including charitable contributions.”
President/Shareholder Underhill McLaughlin Hanson Lindblom P.C. Robert Underhill said that when it comes to enforcement of state residency “California would be one of most aggressive.
“They share a border with two states with no tax and very low tax,” he added. “So it’s an issue for them. This tax is a little unique in that most of the people who are going to pay it probably own two homes. Many have three four and where they spend their time is generally the thing you look most closely at.”
He added that “they may not spend six months a year anywhere. Most of my clients probably don’t spend 6 months of year anywhere unless they have kids here, so it’s it. Multiple facts. I don’t know how you codify that. I really don’t. How do you identify the certainty around charitable giving, right, just in terms of what we are not taking into effect for domicile?”
The advisory group is required to required to submit two reports to the fiscal committees of the State House of Representatives and State Senate in December with recommendations to both chambers.