Lawmakers are debating how to close a potentially $160 million loophole in Washington’s estate tax even as the Department of Revenue prepares to begin issuing refunds to comply with a state Supreme Court ruling.
The House Finance Committee on Wednesday voted 8-3 along party lines to reinstate the estate tax on married couples who used a planning tool that allows a spouse to transfer assets to a surviving spouse without paying taxes. Lawmakers say the court ruling left married couples’ estates untaxed, while single persons’ estates valued at more than $2 million are still subject to the tax.
House Bill 2064 now goes to the House floor for a vote Thursday — having to go through the process a second time because it did not pass the Senate in the regular legislative session that ended in late April.
The new proposal — if acted on quickly — could limit the number of tax refunds the state Department of Revenue must pay out to as little as $6 million, according to the Finance Committee chairman, Rep. Reuven Carlyle, D-Seattle.
The court ruling could result in the loss of $160 million in tax revenue over the next two years, and about $40 million a year after that. Because lawmakers have not acted yet, the state Department of Revenue says it is under pressure of lower court rulings to start handing out refunds.
Revenue has said it intends to start paying out refunds next week, and Carlyle said doing nothing could swell the refund costs to $138 million — all from K-12 public school funding.
“House Democrats are not going to let that happen,” Carlyle said in an interview.
On Wednesday, Senate Republicans introduced their own estate-tax proposal. The bill, sponsored by Republican budget writer, Sen. Andy Hill of Redmond, lowers the rate on the tax in the future but also addresses the court ruling as the House bill does. That measure also phases in raising the value of estates to be taxed from $2 million to the federal level of $5 million. That bill is scheduled for a public hearing Friday.
Lawmakers are in their 17th day of a 30-day special session. Raising revenue is a key position of Democrats, who approved the estate tax bill and a tax measure worth about $900 million last month during the regular legislative session as a piece of their proposal to put $1.3 billion of new money into K-12 schools.
Gov. Jay Inslee said the House Finance vote was “good progress toward addressing one of the key budget issues” but urged lawmakers to speed up their negotiations to finish by June 11, the 30th day of special session.
“There are less than two weeks left,” Inslee said in statement. “If budget negotiators are able to reach key compromise agreements in the next week, we will be able to finish on time. But negotiators need to pick up the pace to make it happen.”
The Associated Press contributed to this report.
Brad Shannon: 360-753-1688