Initiative to repeal capital gains tax stalls as lawsuit continues

Initiative 1929, a new initiative to repeal the state’s capital gains tax that was passed last year, will be dead on arrival at the state capitol this fall.

Sponsors of the initiative said on Friday, June 10 that they won’t proceed, and will instead wait for the lawsuit challenging the legality of the tax.

New initiative backed by conservative donors takes aim at Washington capital gains tax

“While our polling shows that voters overwhelmingly support repealing the capital gains income tax, our coalition has confidence in the strength of the court case and we believe that the lower court decision will be upheld on appeal,” Mark Funk, a spokesman for the political committee Repeal the Capital Gains Income Tax wrote in a statement. “Therefore, we believe the best coalition strategy in 2022 is to place our confidence in the courts to overturn this illegal tax.”

The bill, signed into law by Governor Jay Inslee last May, was struck down on March 1, 2022 on the basis that it  “violates the uniformity requirement by imposing a 7% tax on an individual’s long-term capital gains exceeding $250,000,” according to Judge Brian Huber.

This holds that the tax acts as an income tax rather than an excise tax that Inslee framed it as, ruled the judge, because it acts “as a tax on the receipt of income [the tax] is also properly characterized as a tax on property” which is not permitted by the Washington state constitution.

If the law is upheld, it is expected to generate $415 million in funding for early childhood learning in 2023.

“There’s a great deal at stake in this case, including funding for early learning, child care programs, and school construction,” Washington Attorney General Bob Ferguson said in a statement after Huber’s ruling. “Consequently, we will continue defending this law enacted by the people’s representatives in the Legislature.“

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