The Freedom Foundation was first out of the gate, filing a lawsuit in Douglas County challenging the Legislature’s new capital gains tax. The Wenatchee World reports,
A lawsuit filed Wednesday in Douglas County Superior Court aims to overturn a capital gains tax recently approved by state legislators.
Senate Bill 5096 levies a 7% tax on the capital gains of the sale of assets exceeding $250,000.
Conservative group the Freedom Foundation in conjunction with Seattle law firm Lane Powell are challenging what they believe to be a tax on income and therefore a violation of the state constitution.
“The Washington Constitution is unambiguous,” said Freedom Foundation CEO Aaron Withe in a news release. “Taxpayers can’t be treated differently based on the amount of their income. It’s both punitive and illegal.”
A second lawsuit will be filed shortly, by the Opportunity for All Coalition.
Statement from Collin Hathaway, President, OFAC on intention to file lawsuit against illegal state capital gains tax:
“The Opportunity for All Coalition (OFAC) plans to file a lawsuit against the recently passed statewide capital gains tax – which looks a lot like a state income tax. Washingtonians have rejected income tax measures 10 times before. The state’s constitution clearly prohibits this type of tax, something that its supporters know. On top of that, it is totally unnecessary given current state budget surpluses, and will only serve to inhibit job creation and economic prosperity.”
The Seattle Times reports that the governor, who has not yet signed the bill, believes it will survive a court challenge.
Gov. Jay Inslee said he was “confident” the courts would uphold the policy, which Democrats have said they structured as an excise tax, rather than an income tax.
“Yes, I am confident that it is constitutional,” said Inslee in an interview Wednesday. He described the bill as a policy “that will simply bring some modicum of fairness” to Washington’s tax system.
Jason Mercier, with Washington Policy Center, explores some of the background supporting concerns that the capital gains tax is seen by proponents as a pathway to a progressive income tax.
…these emails from Sen. Pedersen discuss the goal for the capital gains income tax:
- April 30, 2018: “But the more important benefit of passing a capital gains tax is on the legal side, from my perspective. The other side will challenge it as an unconstitutional property tax. This will give the Supreme Court the opportunity to revisit its bad decisions from 1934 and 1951 that income is property and will make it possible, if we succeed, to enact a progressive income tax with a simple majority vote.” (emphasis added)
- December 15, 2018: “I personally believe that adopting a capital gains tax is one of the best things we could do to help advance the possibility of an income tax in our state, because it could help resolve the legal uncertainty about whether an income tax is a ‘property tax’ subject to constitutional limitations. Until that happens, it would take 2/3 majorities in the legislature (and a vote of the people) to adopt an income tax, which makes it very unlikely to happen.” (emphasis added)
Remember, the voters have already rejected 6 constitutional amendments to allow a graduated income tax. The state Supreme Court last year also refused to hear the Seattle income tax case that was trying to challenge these prior court rulings.
With these new lawsuits we’ll see if the courts stay consistent or instead re-write the rules of the game concerning income taxes in Washington.