Impressions from today’s oral arguments in right wing’s capital gains tax legal challenge

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.