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State Supreme Court upholds capital-gains tax

State Supreme Court upholds capital-gains tax – The Washington State Supreme Court issued a landmark ruling on Friday permitting the imposition of a state tax on capital gains. The Court, by a 7-2 majority, ruled against the plaintiffs, who challenged the capital gains tax signed into law two years ago by Governor Jay Inslee on the grounds that it violates the state constitution, which only allows for a uniform income tax of up to 1.0%. The Department of Revenue is collecting the tax which is due April 18, 2023 as the tax went into effect on January 1, 2022.  To learn more about the tax visits the Dept. of Revenue’s website.

AGC of Washington was a supporter of the lawsuit against the tax.

The ruling upholds Washington’s capital gains tax on the grounds that taxing investment income, but calling the levy an excise tax, is a permissible way to circumvent the state constitutional restriction stipulating that any income or property tax must be uniform and cannot exceed 1.0%. The two dissenting justices, however, contend that calling an income tax another name does not change the nature of that tax.

The state estimates that about 7,000 Washington residents will be subject to the tax within the first year. It is projected to produce $2.5 billion in revenue over six years. Even before the Supreme Court rule, Democratic leadership in the Legislature had already been making plans to collect the tax and had already plugged the revenue into their budget proposals.

Following the announcement of the ruling, the Washington Policy Center said that the move will open the state up to an income tax. It argues that the IRS, and most other U.S. states, consider such taxes a tax on income.

“Today’s ruling is unreal. The state supreme court agreed with lawmakers that Washington has discovered the first standalone excise tax on capital gains income on the planet. Every other tax jurisdiction in the world, from the IRS, to every other state, to other countries will tell you the same thing – capital gains are income and taxes on them are income taxes,” said Jason Mercier, WPC’s government reform director, in a statement. “With this ruling, the rules surrounding income taxes in Washington are now unclear. What will be the next type of income tax to be redefined by lawmakers? It is up to the voters now to respond.”

For more information, contact Jerry  VanderWood.

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