Washington
Reviewed October 2026Federal §453 conformity
Washington has no income tax through 2027, but since 2022 it has something a business seller cannot ignore: an excise on long-term capital gains, currently 7% above an inflation-adjusted standard deduction ($278,000 for 2025; the 2026 figure is pending from the Department of Revenue) and 9.9% on gains over $1 million in a year. The excise piggybacks on the federal numbers, so installment gain shows up year by year as you recognize it federally — which means, as in Massachusetts, the payment schedule manages the thresholds. Spreading a $3 million gain across six years can keep each year under the $1 million tier, or even under the standard deduction entirely. A second layer arrives in 2028: the legislature enacted a 9.9% income tax on Washington taxable income above $1,000,000 per household for tax years beginning January 1, 2028, with a credit for the excise already paid. Payments received in 2028 and later — gain and interest alike — count toward that line, and the tax is expected to be challenged in court.
Nonresident sourcing
The excise reaches individuals, and allocation follows two different rules: gain from tangible property turns on where the property was located, while gain from intangibles — including stock — turns on where the seller was domiciled at the time of the sale. That makes the seller's domicile on closing day, not in the payment years, the controlling fact for a stock deal.
Withholding
No withholding applies — the excise is paid with an annual return, and estimated payment habits from the income-tax world translate directly. The 2028 income tax is also designed around annual returns and estimated payments (first returns in 2029), not withholding on sale proceeds.
Selling, then moving (residency change)
The moving question runs both directions here and the timing rule is unusual. For a stock or other intangible sale, what matters is domicile on the day of sale: a Washington resident who sells and then moves still owes the excise on every later payment, while someone who genuinely establishes domicile elsewhere before selling owes none of it — and a seller who moves to Washington after closing an out-of-state intangible sale does not import the gain. For Washington real estate the question never arises, because real estate gain is exempt outright. The 2028 income tax changes the second half of that picture: it follows residency year by year (residents, part-year residents, and nonresidents on Washington-source income), so a Washington resident receiving payments in 2028 and later above the $1,000,000 household line owes it regardless of where the sale closed, and a genuine move out before those payment years takes non-Washington-source payments out of its reach.
Pass-through entity (PTE) tax election
For 2026 and 2027 there is no PTE election because there is no income tax to work around — the excise applies at the individual level. Owners of multistate entities paying other states' PTE taxes get the federal deduction; nothing happens on the Washington side. That changes with the 2028 income tax: ESSB 6346 (2026) creates an elective entity-level tax for partnerships and S corporations, with owner credits, for tax years beginning January 1, 2028, so an entity holding an installment note into 2028 will have a Washington election to calendar.
Estate and IRD
Washington's estate tax is still among the steepest in the country, but the 2025 spike was short-lived. For deaths on or after July 1, 2026, the legislature rolled rates back to 10%–20% with a flat $3,000,000 exclusion that no longer rises with inflation; the 35% top rate and $3,076,000 exclusion applied only to deaths between July 1, 2025 and June 30, 2026. An installment note counts in the estate at full value either way. A seller who used the excise's deductions and exemptions well during life can still hand the note to an estate-tax problem at death. The two regimes do not coordinate; the planning has to.
Planning notes
Washington analysis starts with what is being sold. Real estate: exempt, full stop. A qualifying family-owned small business: a dedicated deduction may wipe out the excise — many Main Street deals walk through that door. Everything else: design the payment schedule against the annual threshold and the $1 million tier, fix domicile before the sale rather than after, and run the estate projection early against the flat $3,000,000 exclusion (10%–20% rates for deaths on or after July 1, 2026). Then look past 2027: payments landing in 2028 and later above $1,000,000 a year meet the new 9.9% income tax — gain and interest both — with the excise credited against it, so a schedule that spreads a large note into 2028+ should be modeled under both regimes.
Washington exempts real estate gain entirely and offers a deduction that can eliminate the excise for qualifying family-owned small businesses. For many Main Street sales, the right answer is zero — confirm asset class and the business-size tests before designing the schedule around a tax that may not apply.
For stock and other intangible sales, Washington allocates the gain based on where the seller was domiciled when the sale closed. Moving away afterward does not stop the excise on remaining payments — and moving away the year before, done genuinely and documented, stops all of it.
ESSB 6346 (2026) imposes a 9.9% tax on Washington taxable income above a $1,000,000 per-household standard deduction for tax years beginning January 1, 2028, with a credit for the capital-gains excise paid and an elective entity-level PTE tax. Installment payments received in 2028 and later — the gain and the interest — count toward that line. Legal challenges are expected; model the layer as enacted law with litigation risk, and keep 'no income tax' confined to 2026–2027.
Educational information, current as of the October 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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