Don’t be fooled, farmland isn’t safe from the WA state capital gains tax | Opinion
By ignoring tax law recognized by literally every other state and the IRS, the Washington State Supreme Court ruled a capital gains tax is legal under our state’s constitution — punishing every farmer hoping to retire based upon the value of their land.
The court case legalizes a 7 percent tax on any income of more than $250,000 earned from the sale of stocks, bonds, land, or other assets. Proponents of this interpretation of the capital gains tax have said it would only apply to the “ultra wealthy” in Washington state. Some legislators characterized farmers as being an excellent example of those who should pay the tax because they “make more than $250,000 a year working part-time.”
In fact, the USDA notes the average farm income is approximately $48,000 annually or about half of the median income of most Washingtonians.
Farmers don’t meet the income requirement for the capital gains tax, but they will as soon as they try to retire. With the average age of Washington’s farmers hovering at 59, and the interest in farming from the next generation dwindling, many of our farmers have banked on being able to sell their land and retire with the proceeds.
The average farm in our state is approximately 400 acres and, with land prices ranging from $8,000 to $1.5 million an acre, depending upon where the land is located, farmland offers a significant opportunity to enjoy life’s golden years. But, while the average farm in our state is about 400 acres, most farms in Washington state are 50 acres or less and require their operators to work off-farm to defray the costs associated with running their farms. It would only take the sale of 31 acres at $8,000 an acre to reach the $250,000 mark before the capital gains tax would be collected, not to mention the real estate excise tax (REET).
Outside agriculture, land ownership is a privilege afforded to few. In the case of agriculture, land ownership is a hard-fought generational battle to keep land healthy and productive while fighting increased operations costs, laws that make food production more difficult, and a public that does not understand how agriculture functions.
Many farmers on the cusp of retirement age are beginning to recognize the need to make hard choices. They are entertaining steering their children away from a familial occupation, considering leasing their land to other farmers, or, in the ultimate sacrifice, selling their land to a buyer who will take it out of food production.
A visceral connection to the land is what differentiates farmers from many other types of business owners. We touch the soil every day; we see it bring forth new life every year under our care, concern, and love.
Yet, market forces, political wills, and the inability to save enough for retirement force even the most dedicated farmer to make choices they would not otherwise make. Parting with farmland is never an easy decision for a farmer.
It is made more difficult when the governor, some legislators, and the State Supreme Court tell farmers they are the “ultra wealthy” who deserve to be punished for a lifelong dedication to the care and maintenance of the land upon which they have made a living and provided for others.
As our state implements this new tax, we mustn’t forget that it isn’t just the “ultra wealthy” who are suffering the consequences of the legislature’s inability to curb spending habits.
People who earn less than half the state’s median income annually will foot the bill the moment they decide to sell their land to seek the opportunity to retire from the years of hard work they put into cultivating the land and making Washington’s agricultural economy the envy of many.
This story was originally published April 3, 2023 at 11:08 AM.