WA Supreme Court Upholds Capital Gains Tax
The state's new capital gains tax will stay in place after the Washington Supreme Court released its decision Friday upholding the law.
The 7-2 decision affirming the law means there'll be a 7 percent tax on sales of stocks or bonds totaling more than $250,000 beginning this year.
The Supreme Court had previously accepted Attorney General Bob Ferguson’s request to allow the Department of Revenue to start collecting the tax before its decision was made.
The ruling overturns a decision in Douglas County Superior Court in a lawsuit brought by several parties, including east Wenatchee resident Chris Quinn and Orondo tree farmer April Clayton.
The plaintiff's chief argument against the tax is that it's a property tax on income, in violation of the uniformity and levy limitations on property taxes imposed by the Washington Constitution. Washington State has no income tax.
Douglas County Superior Court Judge Brian Huber sided with the plaintiff, concluding the tax is a property tax that violates the state's constitution.
The Supreme Court's hand down stated that the capital gains tax is valid because it's directed at the sale or exchange of the stocks or bonds and is not a tax on the assets themselves, or on the profits from them.
"This understanding of the tax is consistent with a long line of precedent recognizing excise taxes as those levied on the exercise of rights associated with property ownership, such as the power to sell or exchange property, in contrast to property taxes levied on property itself," the decision stated.
The high court decision further held the capital gains tax is consistent with the state constitution’s privileges and immunities clause and the federal dormant commerce clause, rejecting the plaintiff’s secondary argument.
In a dissenting opinion, Associate Chief Justice Charles Johnson and Justice Sheryl Gordon McCloud disagreed that the tax is limited to the transaction itself, and argued that the structure of the tax reveals it to be a tax on income resulting from the transaction.
The dissenting justices said the tax is a tax on income. The two justices also suggested the court had overstepped its bounds by ruling on a tax structure that should only be changed by the legislature and voters through a constitutional amendment. The Minority essentially said the decision affirmed a law that violates the state Constitution.
Plaintiffs in the lawsuit include a number of individuals along with the Washington Farm Bureau and the nonprofit Freedom Foundation.
The conservative Freedom Foundation filed its lawsuit representing a group of state residents, including Chris Quinn of East Wenatchee.
Another group of plaintiffs led by the Washington Farm Bureau included April Clayton, a tree farmer from Orondo. That group filed a lawsuit in May.
Both suits were combined into one case against the state and the state Department of Revenue in July by order of Judge Huber, presided over the case in Douglas County.
State Representative Mike Steels of Chelan told KPQ News Friday morning that lawmakers would have to spend time dealing with about $250 million collected by the Department of Revenue toward the capital gains tax, which they'd previously set aside. Steele said the legislature may be thrown into overtime because of the issue.