Washington State Supreme Court rules capital gains tax on wealthy can be collected for now

In a defeat for right wing anti-tax forces who want to keep Wash­ing­ton’s tax code per­ma­nent­ly upside down, the Ever­green State’s high­est court issued a stay today of a low­er court rul­ing that attempt­ed to bar the imple­men­ta­tion of a 2021 law enact­ed by the Leg­is­la­ture levy­ing a cap­i­tal gains tax on the wealthy.

The rul­ing, request­ed by Attor­ney Gen­er­al Bob Fer­gu­son, frees the Depart­ment of Rev­enue (DOR) to pro­ceed with col­lect­ing the new cap­i­tal gains tax, which is a cru­cial new fund­ing source for edu­ca­tion, preschool, and ear­ly learning.

Only Wash­ing­ton’s wealth­i­est fam­i­lies will pay the 7% tax on the sale or exchange of stocks, bonds, and oth­er assets, which ful­ly exempts all real estate and retire­ment accounts. There’s also exemp­tions for fam­i­ly farms and timberlands.

Addi­tion­al­ly, the law pro­vides a stan­dard deduc­tion of $250,000 per year per indi­vid­ual, mar­ried cou­ple, or domes­tic part­ner­ship, and a busi­ness and occu­pa­tion cred­it is avail­able for small businesses.

More infor­ma­tion is avail­able from this page on DOR’s web­site.

The con­sti­tu­tion­al­i­ty of the tax has yet to be decid­ed. The Court will hear oral argu­ments from a group of respon­dents (for­mer­ly plain­tiffs) who con­tend it isn’t con­sti­tu­tion­al and appel­lants (for­mer­ly defen­dants, includ­ing the State of Wash­ing­ton) who assert that it is in late Jan­u­ary 2023. A final rul­ing is like­ly to be hand­ed down by the Court lat­er this year, per­haps in the late spring.

The respon­dents, known as the Quinn plain­tiffs, sought out a sym­pa­thet­ic tri­al court to lodge a chal­lenge against Engrossed Sub­sti­tute Sen­ate Bill 5096, the law that cre­at­ed Wash­ing­ton’s cap­i­tal gains tax on the wealthy. They found one in Bri­an Huber of Dou­glas Coun­ty, a court that rarely hears con­sti­tu­tion­al chal­lenges. Huber grant­ed the Quinn plain­tiffs a rul­ing strik­ing down ESSB 5096, but his deci­sion was prompt­ly appealed to the Wash­ing­ton State Supreme Court.

The Supreme Court grant­ed direct review sev­er­al months ago, which result­ed in the case bypass­ing the Court of Appeals. Because the time is draw­ing near for imple­men­ta­tion and col­lec­tion of the tax, the State asked that the Supreme Court effec­tive­ly dis­card Huber’s rul­ing. The Court’s order today does just that.

NPI applauds this deci­sion. Our team agrees that it’s an encour­ag­ing devel­op­ment ahead of the next phase of the case, which will deter­mine the fate of the lawsuit.

Orga­ni­za­tions we work with are also feel­ing encouraged.

“Allow­ing cap­i­tal gains tax prepa­ra­tions to go for­ward is the right step for Washington’s stu­dents and par­ents,” said Trea­sure Mack­ley of Invest in Wash­ing­ton Now, a non­prof­it that has been work­ing on ESSB 5096’s defense.

“The law­suit chal­leng­ing the cap­i­tal gains tax is just a delay tac­tic by a small group of mil­lion­aires who refuse to pay what they owe. We can­not afford to put the self-inter­ests and for­tunes of the super-rich ahead of our communities.”

Mean­while, rep­re­sen­ta­tives of the right wing forces work­ing for ESSB 5096’s defeat were unhap­py. Jason Merci­er of the Wash­ing­ton Pol­i­cy Cen­ter vent­ed by post­ed a GIF on Twit­ter with the cap­tion: “I am irri­tat­ed right now.”

Merci­er and oth­er oper­a­tives work­ing for the wealth­care of mil­lion­aires and bil­lion­aires have been try­ing unsuc­cess­ful­ly for years to brand the cap­i­tal gains tax on the wealthy as an income tax. But our polling has found that their argu­ments just aren’t res­onat­ing with the pub­lic, which is clear­ly deeply frus­trat­ing for them.

In addi­tion to los­ing in the court of pub­lic opin­ion, they’ve also now just lost in the high­est court in the land, which is not stacked with Fed­er­al­ist Soci­ety alum­ni, unlike the Unit­ed States Supreme Court. The Court’s order today was unan­i­mous, which does­n’t give them even a dis­sent to hang their hats on.

A relat­ed effort to over­turn ESSB 5096 via ini­tia­tive col­lapsed back in the spring after right wing megadonors refused to sign off on plans to fund a bal­lot mea­sure to force a pub­lic vote on ESSB 5096, appar­ent­ly fear­ing that vot­ers would sanc­tion the Leg­is­la­ture’s work to make Wash­ing­ton’s tax code more progressive.

That has left anti-tax forces reliant on the Quinn legal chal­lenge, at least for the time being. Those forces are ide­o­log­i­cal­ly opposed to any and all ideas for reform­ing Wash­ing­ton’s tax code to require the wealthy to pay their fair share in dues to the state. It is essen­tial that they lose if Wash­ing­ton is ever to become a state with a bal­anced, fair, and just tax code.