As 2023 state legislative sessions kick off, several new wealth tax bills are on the table. While it is too early to determine which of these bills may pass, each could lead to potential consequences for the wealthy if greenlighted.
In Massachusetts, a “millionaires’ tax” called the “Fair Share Amendment” was approved last fall by 52% of voters. This 4% tax applies to annual income over $1 million; and combined with the state’s existing 5% income tax, it raises the top tax rate to 9% and applies to the same ordinary income as capital gains. The new tax is anticipated to raise $1.3 billion in 2023, which is intended to fund education, roads, bridges and public transportation.1
In Los Angeles County, a mansion tax known as “Measure ULA” was approved by voters in the 2022 Midterm Elections. Effective April 1, 2023, an additional 4% tax will be imposed on the sale or transfer of properties valued between $5 million and $10 million, and an additional 5.5% tax will be applied to the sale or transfer of properties valued at $10 million or greater.
Lawmakers in California, Connecticut, Hawaii, Illinois, Maryland, New York, Oregon and Washington have also introduced wealth tax legislation this year. These states represent about 60% of wealth in the U.S.
California: A.B. 259 aims to impose a two-tier wealth tax. In 2024 and 2025, the bill would impose an annual tax of 1.5% on worldwide net worth exceeding $1 billion. Then in 2026, it would implement the two-tier tax, which would reduce the worldwide net worth threshold to $50M and impose a 1% annual tax. However, if a taxpayer's worldwide net worth exceeds $1 billion, the tax increases to 1.5%. If a California resident permanently establishes residence in another state, the tax would continue to apply to the former resident for the next four years on a fractional basis.
New York: S.B. 2162 proposes an additional tax on long-term capital gains, dividends or any other type of capital gain income ranging between 7.5% and 15% for incomes over $500,000. S.B. 1570 proposes a mark-to-market tax on New York residents with net assets of $1 billion or more at the end of each taxable year beginning in 2023. S.B. 3462 (Assembly Bill 4643A), introduced in January 2021, proposed creating separate taxes on inheritance and gift income, amending the computation of the estate tax and creating a gift tax.
Another potential bill aims to impose an additional tax of up to 15% on capital gains income, which would be included alongside the existing state (and local NYC) ordinary income tax rate (up to 10.9% for the state; and 3.876% for NYC).
Connecticut: Two separate bills propose increasing marginal tax rates, establishing a capital gains surcharge and restructuring certain taxes. If passed, S.B. 351 would impose a 5% surtax on capital gains, dividends and interest income of taxpayers who are subject to the state’s highest income tax rate (6.99%). The bill would also impose higher tax rates on taxpayers with taxable income over $1 million (9.55%), $10 million (10.25%) and $25 million (10.65%).
Hawaii: S.B. 358 aims to eliminate the state’s preferential rates for capital gains (maximum 7.25%) and tax them at ordinary income rates (up to 11%). Hawaii is one of the few states that currently has a preferential rate for capital gains. S.B. 345, if passed, would repeal an estate tax exemption granted to nonresidents for property with a Hawaii situs.2
Illinois: An anticipated bill would require taxpayers with financial assets of $1 billion or more to recognize unrealized capital gains by treating financial assets as if they were sold at the end of each year (i.e., annually marked to market), taxing the unrealized gains as Illinois income (at 4.95%).
Maryland: There are currently discussions around a bill that would impose an additional 1% tax on the highest income tax rate applied to certain capital gains income. Another expected bill aims to lower the inheritance exemption from its current $5 million threshold to $1 million.
Washington: If passed, H.B. 1473 would remove the exemption from property tax on certain intangible assets (e.g., stocks and bonds, publicly traded options, futures contracts) and impose a 1% tax on the value of intangible assets exceeding $250 million.
Oregon: H.B. 2672 aims to add a 13% tax bracket for income over $500,000.
At BNY Mellon Wealth Management, we continue to monitor these proposals as well as others. While proposals to restructure state wealth taxes are being considered, our team of wealth management experts can help you understand their potential impact on your financial situation and help you plan accordingly. If you have any questions or concerns, please reach out to your BNY Mellon advisor. We are here to help navigate the financial landscape and best position you to achieve your goals.
1. Tufts University: Evaluating the Massachusetts Millionaires Tax. Accessed February 2023.
2. Using the definition of "situs" as applied for federal estate tax purposes.
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