Washington State Tax Residency

For decades, Washington has been known as one of the few states without a personal income tax. However, the fiscal landscape in the Evergreen State is rapidly changing. With the recent adoption of a capital gains tax and a new tax on high earners, understanding Washington's residency rules has become critical for tax planning.

The New Tax Landscape in Washington

Washington has implemented two significant taxes that target high-income individuals and those with substantial investment gains:

• Capital Gains Tax: Enacted under RCW 82.87, this is a 7% tax on the sale or exchange of long-term capital assets, such as stocks, bonds, and business interests. The tax applies to individuals with Washington capital gains exceeding a standard deduction (originally $250,000).
• The "Millionaires' Tax": More recently, the state legislature passed SSB 6346, which imposes a 9.9% tax on Washington taxable income exceeding $1,000,000. This tax effectively targets the state's highest earners and brings Washington's tax policy closer to those of other high-tax states.

Who is a Washington Resident?

Both statutes use nearly identical definitions for determining who is subject to these taxes. Under Washington law, you are considered a resident if you meet either the "Domicile Test" or the "Statutory Residency Test."

1. The Domicile Test

If your domicile is in Washington, you are generally considered a resident for the entire taxable year. However, there is a narrow exception. You may be treated as a non-resident even if domiciled in Washington if you:

1. Maintained no permanent place of abode in Washington during the entire taxable year;
2. Maintained a permanent place of abode outside of Washington during the entire taxable year; and
3. Spent in the aggregate not more than 30 days of the taxable year in Washington.

2. The Statutory Residency Test (The 183-Day Rule)

Even if you are not domiciled in Washington, you will be considered a statutory resident if you:

• Maintained a place of abode in Washington; and
• Were physically present in the state for more than 183 days during the taxable year.

Crucially, Washington defines a "day" as any portion of a calendar day. Even a brief visit for a few hours counts as a full day for residency purposes.

The Importance of Day Counting

With a 9.9% tax rate on income over $1,000,000 and a 7% tax on capital gains, the stakes of being classified as a Washington resident are higher than ever. For individuals who split their time between Washington and other states (such as Florida or Texas), precise day counting is the only way to safeguard against an unexpected tax bill.

Establishing non-residency requires more than just "intent." It requires empirical evidence. If you are trying to prove you spent 183 days or fewer in Washington, or if you are a domiciliary trying to stay under the 30-day limit to qualify for the non-resident exception, you must maintain a contemporaneous log of your location.

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