AG asks court to dismiss lawsuits against capital gains tax; uncertain next steps in challenges to Seattle payroll tax.

Catching up on a couple of taxing matters.

The Lens reports that Attorney General Bob Ferguson wants to get rid of legal challenges to the capital gains tax. (We’ve written about the lawsuits here and here.)

Washington State Attorney General Bob Ferguson has filed a request for the Douglas County Superior Court to dismiss two lawsuits filed against the state’s newly enacted capital gains income tax law. As hinted at during a recent State Supreme Court hearing regarding a bank tax, among Ferguson’s arguments is the assertion that the plaintiffs lack legal standing because they have yet to actually pay the tax.

“They have no way of knowing what capital gains they will have in future years,” Ferguson wrote further. “In short, Plaintiffs seek to jump the starting gun.”

Lens reporter TJ Martinell notes the AG ignores the elephant in the room.

Incidentally, Ferguson’s brief avoids addressing the plaintiffs’ central claim that the tax violates the state constitution’s uniformity clause regarding taxation on property. Though the brief describes it as an excise tax, it also notes that those subject to the tax must return their federal income tax returns for the taxable year to the Department of Revenue.

More in Martinell’s story.

Also, as we wrote earlier, a King County judge recently rejected a challenge to Seattle’s “JumpStart” payroll tax filed by the Seattle Metropolitan Chamber of Commerce. The Puget Sound Business Journal reports that next steps in the challenge are uncertain.

The chamber issued a news release following the decision but has declined further comment.

“We are working with our legal team to explore next steps,” Rachel Smith, chamber president and CEO, said in the release. “The projections for the JumpStart Tax depend on businesses reopening and many more people coming back to work in Seattle. We stand ready to collaborate with city leaders on good policy.”

As the article points out, if the decision stands businesses will face additional uncertainties.

The tax has details that likely will need clarification, experts say. Cases could go to court, for example, over which employees count as being Seattle-based. With remote work becoming more mainstream as a result of the Covid-19 pandemic, categorizing the primary location of employees working for Seattle-based companies could become extremely tricky.

And,

Deciphering which employees count toward the tax is complex work. Under the tax’s guidelines, employees count as Seattle-based if they are primarily assigned in Seattle or perform at least half of their services in Seattle. Even if they don’t fit this criteria, they can still count toward the tax if they don’t perform at least half of their services in a different city and they live in Seattle. Any confusion could lead to lawsuits that could result in having more details spelled out.

Another question is how to treat independent contractors, which experts say currently do count toward the tax.

Definitely sounds messy.