Emily Choi-Greene says she’s the type of person who supports tax increases on her ballot. But a new proposal in the Washington State Legislature is a step too far, in her view.
“This one attacks the very few people willing to take a risk on themselves to found a startup,” said Choi-Greene, co-founder and CEO of Seattle-based cybersecurity startup Clearly AI.
Choi-Greene was one of several startup leaders who voiced opposition during public testimony on Tuesday against SB 6229 and HB 2292, which would broaden the state’s capital gains tax and directly impact founders, early employees, and investors.
As we reported earlier this week, the proposed bills would apply the capital gains tax to profits from the sale of qualified small business stock, or QSBS, even when gains are fully exempt under federal law.
It would mean startup founders or early employees who take stock instead of a bigger salary, and investors who back early-stage companies, would owe new taxes potentially totaling tens or hundreds of thousands of dollars when a company is acquired or goes public.
Startup leaders in the Seattle region say the bills could spur founders and investors to build companies somewhere else.
“Founders are mobile. This sends a clear signal that Washington is not the place to build and hire,” said Amy Harris, director of government affairs for the Washington Technology Industry Association, said during her testimony.
Choi-Greene, who testified remotely from her company’s office in Seattle’s Ballard neighborhood, said she and her husband took a “huge risk and a huge pay cut” when they left Amazon to launch Clearly AI in 2024. She said “we can barely afford to run this startup.”
“We dip into our savings to build this company with the hope that we’ll still be able to afford our children’s college tuition with QSBS,” she said. She added that they structured early employee equity so it could qualify for QSBS.
Nicole Doyle, a Seattle-based entrepreneur who leads the city’s Founder Institute accelerator, said that opposing the bill isn’t about asking to be exempt from supporting Washington.
“In fact, many of us believe in paying our fair share,” Doyle said. “We’re asking not to single out the kind of long-term, high-risk equity that the federal law is deliberately trying to encourage.”
During his testimony in Olympia on Tuesday, Aviel Ginzburg, a Seattle-based venture capitalist at Founders’ Co-op and leader of the startup community Foundations, described the proposed law as a “job destruction bill” and an “extinction-level event” for both founders and investors in the Seattle region. He said the bill would move Seattle into a “third-tier innovation system.”
Mia Shigamura, senior analyst at the Washington State Budget and Policy Center, argued that the bill would help balance the state’s tax code. Washington is one of a few states without a personal income tax, relying instead on sales, property, and business taxes such as the B&O tax.
“Research shows that the QSBS exemption benefits multimillionaires and billionaire venture capitalists more than the truly small businesses that it was intended to benefit,” Shigamura said in her testimony.
Rep. April Berg, chair of the House Finance Committee who is co-sponsoring HB 2292, said the bill is “about tax fairness and consistency.”
“House Bill 2292 simply closes a loophole and treats these gains the same way that we treat other long-term capital gains,” she said.
Asked by Rep. Cyndy Jacobsen about the threat of entrepreneurs leaving to a more tax-friendly state, Rep. Berg said she doesn’t think people move based on taxes.
“Folks are making decisions all the time about whether to stay or leave, and I don’t necessarily think our tax code is a basis of those decisions,” Berg said.
QSBS is a long-standing federal incentive designed to reward the risk of starting and funding young companies. Founders, early employees, and investors can exclude up to 100% of eligible gains from federal capital gains taxes if they meet strict requirements, including holding the stock for at least five years and the company meeting federal asset limits at the time the stock was issued.
Washington’s existing capital gains tax law, approved in 2021, does not explicitly reject QSBS treatment. Most states conform to federal QSBS treatment, with the exception of California, Pennsylvania, Alabama, and Mississippi.
Additional developments:
- A fiscal note for the proposal was published late Monday. The bill is expected to increase state revenues by an estimated $1.2 million for fiscal year 2027 and affect 260 taxpayers. The state would incur costs of $398,400 in fiscal year 2027 related to the bill.
- According to the public sign-in sheets from the two hearings, more than 1,000 people registered opposition to the bills, compared with less than 15 who signed in as supporters.
- Washington’s 7% tax on capital gains applies to gains above $278,000 from the sale of stocks and bonds, excluding revenue from real estate and retirement accounts, among other exceptions. Last year the state passed a bill that increased the capital gains tax by creating a progressive rate structure — 7% on gains up to $1 million, and 9.9% on gains above $1 million.
- Washington is facing a budget shortfall of $2.3 billion in the current operating budget that runs through 2027.
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