The Tool Desk
Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Washington did not enact a proposal to tax gains from startup exits that qualify for the federal Qualified Small Business Stock (QSBS) exclusion. Senate Bill 6229 and companion House Bill 2292 would have added those federally excluded gains when calculating Washington taxable capital gains, but both stalled during the 2026 session. The proposal prompted Seattle-area tech leaders to warn about effects on startup hiring and investment; supporters called it a fairness measure.
What SB 6229 and HB 2292 proposed
Senate Bill 6229, titled “Concerning taxation of a long-term capital gain of a section 1202 small business stock,” would have required taxpayers to add the federal exclusion for qualifying small-business stock back to federal net long-term capital gains when calculating Washington taxable capital gains. House Bill 2292 was its companion.
The Senate Bill Report said the change would apply to gains earned on or after January 1, 2026. It concerned Washington’s state tax treatment; it would not have repealed or changed the federal section 1202 exclusion itself.
What QSBS means—and who may qualify
Qualified Small Business Stock treatment comes from federal Internal Revenue Code section 1202. Depending on the applicable rules, eligible gains may be excluded from federal income tax, potentially up to 100%. Eligibility is conditional: it depends on factors including the issuing company’s assets and business activity, as well as how long the stock is held. Being a founder, employee, or investor does not by itself establish eligibility.
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The Senate report describes different thresholds and holding periods depending on when the stock was issued: for stock issued before July 4, 2025, it identifies a $50 million gross-assets threshold and a five-year holding period; for later-issued stock, it describes a $75 million threshold and a three-year holding period. Section 1202 rules are technical and may depend on the particular shares and circumstances, so these broad criteria are not a determination that any individual qualifies.
How the proposal related to Washington’s existing capital gains tax
Washington’s capital gains tax applies to individuals’ sale or exchange of long-term capital assets. The Senate Bill Report describes the tax-year 2025 framework as 7% on the first $1 million of taxable Washington capital gain and 9.9% on the amount above $1 million. It also lists a $278,000 exclusion for tax year 2025, adjusted annually for inflation.
Those figures describe the existing framework, not rates or an exclusion created by SB 6229. The proposal would have changed whether federally excluded section 1202 gains were included in Washington’s taxable capital-gains calculation; it did not become a current tax obligation.
Where the bills stand
The official [Washington Senate history for SB 6229] records a public hearing on January 27, 2026, and an executive session scheduled for February 19 at which no action was taken. The [House history for HB 2292] records a January 27 House Finance hearing and no later action. Neither bill became law in the 2026 session.
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What the fiscal estimate did—and did not—say
The Washington Department of Revenue’s 2026 fiscal note projected $1.2 million in additional revenue for fiscal year 2027 and estimated that 260 taxpayers would be affected. These are projections, not collected revenue or a count of people who ultimately paid under the proposal. The fiscal note’s assumptions include that affected taxpayers would not reduce taxable income in response to the change; the estimate therefore should not be read as evidence about whether companies or investors would relocate.
Why Seattle-area tech leaders objected
Opponents, including startup founders, investors, and Washington Technology Industry Association representatives, argued that taxing gains otherwise excluded under QSBS could make Washington startups less attractive to early employees and investors, or encourage company formation elsewhere. Amy Harris, the association’s director of government affairs, said the proposal “weakens one of the few policies Washington has that actually rewards startup risk.”
Those statements are predictions about possible behavior, not evidence that the bills caused founders, investors, or companies to leave Washington. The available legislative and reporting record establishes the debate and the bills’ status, not a resulting change in startup location decisions.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why supporters backed the change
Supporters framed the proposal as a way to make Washington’s treatment of long-term capital gains more consistent and to limit a benefit they said disproportionately helps wealthy investors. Rep. April Berg, chair of the House Finance Committee and a co-sponsor of HB 2292, said: “House Bill 2292 simply closes a loophole and treats these gains the same way that we treat other long-term capital gains.”
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Brian Boland, a former Facebook executive and Delta Fund founder, offered a different characterization of the effect: “The bill moves from zero tax on gains which most people never get to experience to a smaller tax on gains.” These are arguments in a policy dispute; neither establishes what the proposal’s economic effects would have been.
Quick Recap
What to take away if you have startup equity
- The 2026 bills proposed including certain federally excluded section 1202 gains in Washington taxable capital gains.
- They stalled and did not become law in the 2026 session, so this proposal itself did not create a new Washington tax obligation.
- Federal QSBS eligibility and Washington state tax treatment are separate questions. A person’s actual tax position depends on the shares, transaction, timing, and applicable law.
- The Department of Revenue’s revenue and taxpayer figures were estimates, while claims about startup recruitment, investment, or relocation were predictions made by participants in the debate.
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