Supreme Court declines to hear challenge against WA capital gains tax

On Tuesday, the U.S. Supreme Court ruled that they would not take up the appeal case regarding the constitutionality of the Washington state’s capital gains tax.

The law creating the capital gains tax, SB 5096, was signed in 2021 by Gov. Jay Inslee and went into effect in Jan. 2022, before it was stopped by a lawsuit. The legislation created a 7% tax on the sale or exchange of capital assets above $250,000.

More news: Capital gains tax brings in $330M more than expected for state budget

Opponents quickly filed court cases to try and fight the constitutionality of the tax, arguing that it was a tax on income and a violation of the state’s constitution that requires all taxes be “uniform upon the same class of property.” A Douglas County Superior Court judge ruled in opposition, saying that since the tax was not applied to gains below $250,000, it was not being applied uniformly.

“It violates the uniformity requirement by imposing a 7% tax on an individual’s long-term capital gains exceeding $250,000, but imposing zero tax on capital gains below that $250,000 threshold,” Douglas County Superior Court Judge Brian Huber’s ruling reads.

The challenge made its way up to the Washington State Supreme Court where, in a 7-2 ruling, the judges decided that the tax was constitutional.

“Because the capital gains tax is an excise tax under Washington law, it is not subject to the uniformity and levy requirements of Article VII. We further hold the capital gains tax is consistent with our state constitution’s privileges and immunities clause and the federal dormant commerce clause,” the court’s ruling said. “We, therefore, reject the Plaintiffs’ facial challenge to the capital gains tax and remand to the trial court for further proceedings consistent with this opinion.”

More news: ‘Courts are not supposed to be policymaking’ in capital gains tax

Washington brought in $327 million more in revenue than originally forecast, according to estimates released by the Washington State Economic and Revenue Forecast Council.

The Office of Financial Management credited the additional money coming in from the new capital gains tax. Now, the office predicts the state will have $66 billion for the 2023-2025 budget. The council also increased the Near General Fund forecast for the following biennium (2025-27) by about $147 million, with total expected revenues of nearly $70.5 billion, according to The Office of Financial Management.

This is not the last chance to remove the tax, with a conservative group, Let’s Go Washington, organizing a ballot initiative to repeal the tax via a statewide referendum.