Startup executives in the Seattle area are expressing concerns that a proposed expansion of the capital gains tax in Washington state may drive businesses and investors to consider relocating. The legislation, known as SB 6229 and its companion HB 2292, would impose a tax on profits from the sale of qualified small business stock (QSBS), even if those gains are exempt under federal law.
Under this proposal, individuals such as startup founders and early employees who opt for stock compensation rather than higher salaries would be liable for state taxes upon selling their shares, typically during an acquisition or IPO. This could lead to significant tax liabilities, potentially amounting to tens or hundreds of thousands of dollars per person, depending on equity value.
Public hearings for the bills are scheduled for January 27, with the House Committee on Finance meeting at 8 a.m. and the Senate Committee on Ways & Means at 4 p.m.. Remote testimony will be offered for participants, alongside written submissions available online.
Currently, Washington's capital gains tax aligns with federal guidelines, which allow for up to 100% tax exclusion on eligible gains under certain conditions. However, if enacted, these changes would take effect for gains earned starting January 1, 2026, while federal tax exemptions under Section 1202 would remain intact.