Today, the Washington State Supreme Court heard oral arguments in Quinn et al v. State of Washington et al, the right wing legal challenge to the constitutionality of our recently enacted capital gains tax on the wealthy, which was passed into law in 2021 and is now being implemented by the Department of Revenue.
A group of people and entities known as the Quinn plaintiffs have hired former Attorney General Rob McKenna, former Assistant Attorney General Callie Castillo, and additional counsel sympathetic to the Republican aim of keeping taxes for the superwealthy as low as possible to try to get the law (ESSB 5096) thrown out.
Supporting this effort are billionaire funded anti-tax entities like the Washington Policy Center (which really ought to be known as the Washington Right Wing Policy Center, given its strong and fixed ideological orientation.)
WRWPC is so desperate to win this case that they’ve resorted to trying to lobby the nine Supreme Court justices with unregulated, geofenced advertising, as The Seattle Times’ David Gutman reported today in a must-read piece.
Standing in defense of the capital gains tax is the State of Washington, represented by Attorney General Bob Ferguson’s office, and the progressive movement. Because ESSB 5096 is a law enacted by the Legislature, its defense is primarily the responsibility of the Attorney General, the state’s chief legal officer.
Solicitor General Noah Purcell presented the state’s arguments this morning to the Court, squaring off against McKenna and Castillo. Purcell co-presented with an attorney for the intervenors in the case, Paul Lawrence of Pacifica Law Group. Paul is one of NPI’s inaugural Lynn Allen Award honorees; he has brought many successful cases before the Court and secured a series of three decisions that resulted in the invalidation of all of Tim Eyman’s most recent initiatives.
I traveled on NPI’s behalf to Tumwater to observe the oral arguments firsthand, and document the historic hearing in photographs. Here are my impressions of the hourlong discussion of the case between the justices and counsel.
This is a case with profound implications for the state’s future
The justices seem well aware that how they rule will affect the trajectory of the effort to make Washington’s upside down tax code more just and equitable.
If they rule for the Quinn plaintiffs, the capital gains tax on the wealthy would be thrown out, and the Legislature would have to reenact it to ensure the Education Legacy Trust is not deprived of an important source of revenue.
If they rule for the state and intervenors, the Legislature’s work to improve the tax code will have survived constitutional scrutiny, and a lower court ruling siding with the Quinn plaintiffs will disappear into the dustbin of history.
What got discussed
The major arguments of both sides were extensively scrutinized by the justices, who probed for weaknesses with their questions. Here’s a quick summary:
- Solicitor General Noah Purcell contended that the capital gains tax on the wealthy passes constitutional muster because the Legislature designed it to be an excise tax, not unlike the inheritance (estate) tax that has already been ruled constitutional, or the real estate excise tax.
- Counsel for the respondents Rob McKenna and Callie Castillo argued the capital gains tax is an unconstitutional income tax and also violates the Commerce Clause of the U.S. Constitution. They claim the tax is really a tax on income, despite what the state says, so it is therefore a tax on property, because the Court has previously held that income is property.
- Paul Lawrence, speaking for the intervenors, urged the justices to reconsider some of the Court’s previous holdings (like Culliton, a poorly reasoned decision that we’ve been stuck with since the 1930s) if they decide the state is wrong about the capital gains tax being an excise tax.
We’ve been posting briefs to capitalgainstax.legal if you’re interested in delving deep into the case. Judges often remark that 90% or greater of a case comes down to the briefs, even though oral argument usually draws more attention than the filing of a brief by one or more parties.
The court and the court of public opinion: McKenna brings up the electoral history of the decades-long effort to overturn Culliton
Washington State’s capital gains tax on the wealthy was created as an excise tax. As mentioned above, McKenna, Castillo and their clients insist that it’s really an “illegal, unconstitutional income tax,” and they have been repeating this to anyone who will listen to them. We have tested this argument in our polling against arguments for the tax and found that it doesn’t resonate with voters.
Nevertheless, opponents of just and equitable taxation have persisted in characterizing the capital gains tax as an income tax, reasoning that invoking what they think is the spooky third rail of Washington politics will ultimately help them prevail in their efforts to keep the state’s tax code upside down.
To that end, McKenna reminded the justices that on six occasions, voters have said no to attempts to change the Constitution to respond to the Culliton decision from the 1930s. McKenna was making the point that the Legislature actually mustered supermajorities to lawfully overturn Culliton, only to be repulsed.
But just because those particular amendments failed doesn’t mean voters concur with the Culliton decision or are fine with the consequences of it.
And those consequences have been profound.
Washington State has been ranked by ITEP repeatedly as having the worst state tax code in the country. Those who have the most pay the least, and those who have the least pay the most. (Hence the “upside down” moniker.)
The Culliton decision is a big reason for this inequity all these decades later.
Were it not for Culliton, Washington might have kept the graduated income tax voters said yes to all the way back in 1932. Instead, for almost a century, we’ve had a tax code based on a sales tax and a gross receipts business tax.
Fortunately, the Culliton decision is not the Constitution — it is an interpretation of the Constitution, and today’s Supreme Court could hold that it was wrongly decided. But even if it didn’t, as McKenna admitted, it wouldn’t be unconstitutional for Washington to levy an income tax. Under Culliton, the tax would just have to be uniform. It was nice that McKenna said this, because I’ve lost track of the number of times people have claimed that an income tax is unconstitutional. Such statements are in error, and it’s nice to have tape of McKenna saying so.
With ESSB 5096, the Legislature attempted to make Washington’s tax code more equitable without running afoul of the Supreme Court’s prior holdings. If the Court decides the Legislature succeeded, it doesn’t need to reach the question of whether Culliton was wrongly decided. If it decides the Legislature failed, it could revisit Culliton. It would be a rather remarkable result if Culliton fell as a result of this right wing legal challenge to Washington State’s new capital gains tax law.
Regardless of what happens, our research suggests we have entered a political era in Washington State in which popular support for progressive taxation is able to withstand the right wing’s howls of Run for your lives, that’s an income tax! If ESSB 5096 doesn’t survive, we’ll just work to reenact the capital gains tax on the wealthy, because Washington needs it and the public supports it.
Who asked questions of counsel, and who didn’t
Associate Justices Sheryl Gordon McCloud, Raquel Montoya-Lewis, Charles Johnson, Debra Stephens, Barbara Madsen, and Chief Justice Steven Gonzalez asked questions of counsel. I did not hear Justices Mary Yu, Susan Owens, or G. Helen Whitener ask any questions. Montoya-Lewis and Gordon McCloud asked the most questions of the six justices who spoke up.
Gordon McCloud was first out of the gate — her exchange with Solicitor General Noah Purcell consumed several minutes during the first part of oral argument.
Curiously, Gordon McCloud made not one but multiple misstatements during the course of the hour, prompting Purcell and later McKenna to gently correct her. She also forgot to turn on her microphone the first time she asked a question, prompting the Chief Justice to remind all of his colleagues to activate their mics.
What it was like to be in the room
The Supreme Court isn’t currently meeting in its ornate space in the Temple of Justice; that building is being renovated. So the justices, counsel, media, and interested observers instead filled a smaller space at an office building in Tumwater off of Israel Road. The justices sat at a long table with name placards on it, facing the tables for the counsel and a makeshift center podium.
Attendees sat behind counsel and to the sides.
The temporary meeting space has chairs for only around thirty-five guests, but it seemed that everyone who wanted to witness this oral argument in-person was able to, which meant the Court didn’t have to turn a bunch of people away.
Quinn could end up being a landmark case, and I think those who showed up today appreciated how important the stakes of it are for Washington’s future.
There were no outbursts or interruptions of any sort during the arguments; people listened quietly and respectfully. The only problem I heard commented on later was a lack of connectivity: the Court’s Wi-Fi didn’t work properly and cellular devices’ signal strength was too weak for liveblogging or even livetweeting.
When might the Court rule? We don’t know
It is unknown when the Court will return a decision. The Court doesn’t usually offer ETAs for opinions. Purcell asked the Court if it might be possible to get a ruling before the Legislature adjourns Sine Die in April, but the Court is under no obligation to acquiesce. The justices observed in reply to his comments that they have already given approval for the Department of Revenue to move forward with implementing ESSB 5096 while the case moves towards a final resolution.