U.S. Supreme Court Won’t Hear Appeal Of WA Capital Gains Tax

The U.S. Supreme Court will not take on a lawsuit challenging Washington’s capital gains tax.

The court declined an appeal Tuesday by the conservative Freedom Foundation on behalf of plaintiff including Chris Quinn of East Wenatchee and Orondo tree farmer April Clayton.

The group claims the tax is actually an illegal income tax. Washington state has no income tax

Douglas County Superior Court Judge Brian Huber ruled in their favor, but the state Supreme Court overturned that decision by a 7-2 vote.

The capital gains tax law could still face a challenge as an initiative to overturn it could go before voters in November.

The Legislature passed the tax in 2021 and payments were due in April 2023. It’s a 7 percent tax on sales of stocks, bonds and other tangible assets totaling more than $250,000, although it does not include real estate transactions.

The tax brought in almost $900 million in revenue in its first year. The Washington State Department of Revenue reported roughly 3,700 returns were filed.

The first $500 million goes toward education, while revenues above that will go toward school construction.

The appeal filed by the Freedom Foundation to the U.S. Supreme Court differed from the original lawsuit's contention that the tax is an illegal income tax.

Instead, the Freedom Foundation claimed the tax violates the U.S. Commerce Clause which only grants Congress the right to regulate interstate commerce.

The filing claimed the tax violates the clause by taxing out of state transactions by Washington residents.

The group Let’s Go Washington filed a petition to repeal the capital gains tax.

It’s one of several policies passed by the Democratic-controlled Legislature in recent years that could face a challenge at the ballot in November.