State Supreme Court Allows DOR to Collect Capital Gains Income Tax Revenue Before Court Decision

Washington State Supreme Court accepted Attorney General Bob Ferguson’s request  to allow the Department of Revenue to collect on capital gains income tax revenue, before the court makes their final decision.

On Nov. 30, the state supreme court placed a stay on their final decision until their next court hearing in January.

In 2021, state legislature passed SB 5096, which levies a 7% tax on capital gains that earned more than $250k a year.

Exemptions include purchase of real estate, retirement assets, condemned assets, some livestock purchases, commercial fishing, and timber purchases.

It is estimated that approximately 7,000 taxpayers would owe $415 million, with the first payments due by April 18, 2023.

This case began on Feb. 4 when multiple plaintiffs filed a lawsuit against the state regarding the capital gains income tax, claiming it is an income tax and therefore unconstitutional.

Plaintiffs include groups such as the conservative Freedom Foundation and Washington Farm Bureau, along with East Wenatchee resident Chris Quinn, Red Apple Orchards owner April Clayton.

State Attorneys argued for the lawsuit’s dismissal partly because there’s no certainty that the plaintiffs would ever end up paying capital gains taxes themselves.

Edmond School District and the Washington Education Association are siding with the state, with funding for early learning and child care programs currently at stake.

Revenues from this tax are geared towards funding the Education Legacy Trust Account and the Common School Construction Account, which would fund education programs and construction for Washington schools.

On March 1, Douglas County Superior Court Judge Brian Huber ruled to overturn the capital gains tax, siding with the plaintiff’s assertion that this tax is an unconstitutional income tax rather than the legislatively defined excise tax.

Huber concluded that this law violates state uniformity and limitation requirements, and is therefore invalid. 

Back in July, the Quinn v. State of Washington case was kicked up to the state Supreme Court upon Ferguson’s request. 

Later on Nov. 3, Washington State Attorney General Bob Ferguson filed a motion to the state Supreme Court to allow the Department of Revenue to collect on tax revenues before the court makes their final decision

State Attorneys, along with Ferguson, repeatedly affirmed that this is a legal excise tax.

Ferguson has previously stated that this tax would only apply to “the richest few,” with fewer than one in 1,000 residents actually paying the tax.

The state Supreme Court will hear oral arguments on this case on Jan. 26, 2023.