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": Enacted under SSB 6346, this law imposes a 9.9% tax on Washington taxable income exceeding $1,000,000. Crucially, the tax is not effective immediately; it will take effect starting January 1, 2028. This delayed start gives the state's highest earners and business owners a critical multi-year window to structure their assets, plan their residency, and verify their location history.

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.

The Importance of Day Counting and the Planning Window

With a 9.9% tax rate on income over $1,000,000 starting in 2028, and the existing 7% tax on capital gains, the stakes of being classified as a Washington resident are higher than ever. However, because the Millionaires' Tax does not take effect until January 1, 2028, taxpayers have a vital multi-year planning window (2026 and 2027) to prepare.

During this ramp-up period, establishing a solid baseline of non-residency is paramount. Tax auditors conducting audits in 2028 and beyond will likely scrutinize presence history in the leading years to identify patterns of domicile and physical presence.

Establishing non-residency requires more than just "intent" or post-hoc estimates. It requires empirical, contemporaneous 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 clear, contemporaneous log of your location.

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.

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