Aerial vew of the Washington State Capitol Campus with Temple of Justice in foreground
This aerial view of the Washington State Capitol Campus shows the Temple of Justice in the foreground, with the Legislative Building behind it (Photo: Andrew Villeneuve/NPI)

An expert on Wash­ing­ton state courts, the late Charles H. Shel­don, once described the Wash­ing­ton State Supreme Court as a pas­sive, but nonethe­less polit­i­cal body. “Courts are polit­i­cal agen­cies because they author­i­ta­tive­ly allo­cate val­ues among mem­bers of soci­ety,” Shel­don advanced in his text, A Cen­tu­ry of Judg­ing: A Polit­i­cal His­to­ry of the Wash­ing­ton Supreme Court (1988).

“The judges of the state’s court of last resort, wit­ting­ly or unwit­ting­ly, have been mak­ing pub­lic policy.” 

This process was high­light­ed last month as the Court heard oral argu­ment in the chal­lenge to the state’s cap­i­tal gains tax on the wealthy, which pit the State against a col­lec­tion of indi­vid­u­als and trade asso­ci­a­tions (the Quinn plain­tiffs) that allege their mem­bers will be sub­ject to, and unlaw­ful­ly harmed by, the tax. 

Often, it is dif­fi­cult to judge the out­come of a case based on oral argu­ment because the observ­er can­not deter­mine if the jus­tices’ inquiries come from a place of con­vic­tion, or intel­lec­tu­al exploration. 

While it is com­mon for advo­cates to be sub­ject to ques­tions by the jus­tices soon after their intro­duc­tion, the vig­or of the ini­tial ques­tion­ing of Solic­i­tor Gen­er­al Noah Pur­cell, par­tic­u­lar­ly by Jus­tice Sheryl Gor­don McCloud, pre­vent­ed him from doing much more than repeat the points made by the State in its briefs as to why the cap­i­tal gains tax is an excise tax. 

That the Solic­i­tor Gen­er­al was unable to pro­vide deep­er illu­mi­na­tion of the State’s argu­ment was detri­men­tal to its case, as there was some­thing about its argu­ment that did not appear to ful­ly click with the jus­tices. How­ev­er, the Solic­i­tor Gen­er­al was able to make up for this in part dur­ing his rebut­tal at the end of argument.

But, for most of the jus­tices, their ques­tions appeared to stem from explo­ration, and it is uncer­tain how most of the Court will decide this case. 

Jus­tice McCloud’s col­lo­qui­es with the Solic­i­tor Gen­er­al, to con­trast, point to the con­clu­sion that she will vote to decide that the cap­i­tal gains tax is an income tax.

How­ev­er, it won’t be clear until the Court pub­lish­es its deci­sion whether her ques­tion­ing was to per­suade the Court to decide that it is required to address its prece­dent in Cul­li­ton v. Chase — a 1933 opin­ion which, infused with the right-wing judi­cial views of the era, deter­mined that a tax on per­son­al income is a prop­er­ty tax — and over­turn it, or to dis­pose of the cap­i­tal gains tax altogether. 

If the Court does the for­mer, it is prob­a­bly bet­ter both doc­tri­nal­ly and for our state than to sim­ply uphold the tax as an excise tax. And, the jus­tices’ con­cep­tion of judi­cial restraint will cau­tion them from reach­ing the Cul­li­ton ques­tion if they can instead find for the cap­i­tal gains tax on these grounds. 

But, if this does occur, there is an aspect of the Court reject­ing the State’s argu­ment that would be broad­ly unfortunate. 

As explained in the ami­cus brief of law pro­fes­sors sub­mit­ted in sup­port of uphold­ing the tax, pri­or to the Lochn­er era, leg­is­la­tures were accord­ed broad dis­cre­tion in how they clas­si­fied the tax­es they levied for the com­mon good.

Dur­ing this era (named for the 1905 case Lochn­er v. New York, the now-dis­cred­it­ed U.S. Supreme Court deci­sion in which the Court found that states were pro­hib­it­ed from lim­it­ing the work­ing hours of bak­ers for health and safe­ty rea­sons), many right-wing judges imposed their own ideas of immutable nat­ur­al law to lim­it the dis­cre­tion of state leg­is­la­tures in pro­vid­ing for the health, safe­ty, and well-being of their res­i­dents. Cul­li­ton was one such decision. 

Yet, even in the con­strained idea of leg­isla­tive pow­er that emerged in this peri­od, the Wash­ing­ton Supreme Court found, in an opin­ion issued the same day as its deci­sion in Cul­li­ton, that the leg­is­la­ture can use the receipt of income to cal­cu­late the amount of an excise tax, a con­trary posi­tion to that which forms many of the chal­lengers’ claims.

Here, the leg­is­la­ture has decid­ed that it is appro­pri­ate for the state to tax the trans­fer of cap­i­tal assets, a type of trans­fer the Court has pre­vi­ous­ly deter­mined in oth­er con­texts is not a tax on the prop­er­ty itself. 

The leg­is­la­ture has also deter­mined that the way the tax should be mea­sured is by the gains rec­og­nized upon the trans­fer of those assets — which is a lim­it­ed tax more favor­able to its pay­ers than, say, also tax­ing their losses. 

In the words of the law pro­fes­sors’ brief, for the Court to find against the cap­i­tal gains tax because of this struc­ture would extend Cul­li­ton “far beyond its hold­ing and [] dis­re­gard the Court’s exten­sive excise tax precedents.” 

To add to this con­clu­sion, such a deci­sion would sub­sti­tute a leg­isla­tive deter­mi­na­tion as to the most effi­cient and func­tion­al way to admin­is­ter the assess­ment of the tax with the Court’s own. Even if the Court were to ren­der the dis­tinc­tion between the clas­si­fi­ca­tion of the tax­es most­ly moot by declar­ing that income tax­es are con­sti­tu­tion­al­ly per­mis­si­ble, its rejec­tion of the cap­i­tal gains tax as an excise tax would be a sad skep­ti­cism of nuance (nuance that was neces­si­tat­ed in many ways by Court and fed­er­al prece­dent) and the dis­cre­tion of a leg­isla­tive body to craft eco­nom­ic leg­is­la­tion in the pub­lic interest. 

Paci­fi­ca Law Group’s Paul Lawrence, a Lynn Allen Award hon­oree who rep­re­sent­ed indi­vid­ual edu­ca­tors, the Edmonds School Dis­trict, and the Wash­ing­ton Edu­ca­tion Asso­ci­a­tion argued that Cul­li­ton should be over­turned if the Court decides that the cap­i­tal gains tax on the wealthy enact­ed through ESSB 5096 is an income tax. 

Lawrence ably demon­strat­ed Cul­li­ton’s shaky under­pin­nings and the con­tor­tions that judges have gone through to jus­ti­fy or strike down cer­tain tax­es. While done in ser­vice of over­turn­ing the income-tax-as-prop­er­ty-tax line of cas­es, he showed how the dis­tinc­tion between an excise tax or income tax has been large­ly based on the dis­po­si­tion of the jus­tices, empha­siz­ing the Court’s pre­vi­ous treat­ment of tax­es on the gross income of busi­ness­es and on the income of state employ­ees as excise tax­es. Both tax­es use income as the method of measurement.

Lawrence’s argu­ment under­cut an immutabil­i­ty about the nature of the tax­es that appeared accept­ed, or at least not pub­licly inter­ro­gat­ed, by many of the justices.

Lawrence demon­strat­ed that it is a judi­cial choice to empha­size or down­play cer­tain aspects of the tax­es brought before the Court. 

Only Jus­tice Raquel Mon­toya-Lewis appeared to sug­gest that these def­i­n­i­tions aren’t “sta­t­ic” when ques­tion­ing the coun­sel for some of the plain­tiffs, a ques­tion for­mer Attor­ney Gen­er­al Rob McKen­na tried to answer even as he bar­reled through oth­er attempts at ques­tions by the justices.

McKen­na’s co-coun­sel Cal­lie Castil­lo spent the bulk of her time argu­ing against the tax on the grounds that it vio­lates the Dor­mant Com­merce Clause, a set of jurispru­dence that has become an implied pro­vi­sion of the U.S. Constitution. 

Fea­tur­ing this argu­ment, which came before McKenna’s, was odd, because, as the Solic­i­tor Gen­er­al stat­ed in his rebut­tal, no oth­er state’s cap­i­tal gains tax has been found uncon­sti­tu­tion­al under this doctrine. 

The U.S. Supreme Court has long found it per­mis­si­ble to tax intan­gi­ble prop­er­ty based on the res­i­dence of the indi­vid­ual. To this, I’ll main­tain that the plain­tiffs’ argu­ment seems to be an attempt to either mud­dy the issue using fed­er­al law or jump over the Wash­ing­ton Supreme Court and try to use the cur­rent right-wing major­i­ty on the U.S. Supreme Court as a vehi­cle to lim­it such tax­es more broadly. 

There will like­ly be much time yet to try to divine the mean­ing of the pro­ceed­ings for the jus­tices’ ulti­mate deci­sion. While the Solic­i­tor Gen­er­al request­ed that the Court expe­dite their deci­sion and release it before the end of the leg­isla­tive ses­sion, because of poten­tial impacts to the bud­get, the Court is under no oblig­a­tion to do so and has already stayed the tri­al court’s deci­sion in favor of the Quinn plain­tiffs, allow­ing the Depart­ment of Rev­enue to move for­ward, as Jus­tice Mad­sen point­ed out just before the end of oral argument.

How­ev­er long it takes, until the deci­sion is pub­lished it will be unclear which pol­i­cy the jus­tices will make when they define the law; but, it will be pol­i­cy, regardless.

Editor’s Note: NPI alum Patrick Stick­ney is an attor­ney and res­i­dent of Taco­ma. All views are his own and do not nec­es­sar­i­ly reflect those of any orga­ni­za­tion with which he is affiliated.

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