A $500 million tax met its end in Washington State this week, when a state judge ruled that the state’s newly passed capital gains tax violated Washington’s constitutional prohibitions on income taxes. NTUF’s Joe Bishop-Henchman had submitted a key brief in the case and was one of several attorneys who argued the case in Douglas County Superior Court.
State legislators had enacted the new 7 percent “excise tax on capital gains” to avoid an 80-year old court ruling that income taxes violate the state constitution. Constitutional amendments to allow for an income tax have been rejected by voters in 1934, 1936, 1938, 1942, 1944, 1970, 1973, 1975, 1982, and 2010.
NTUF argued that a tax on capital gains income is a type of income tax, and extensively referenced public finance literature, academic research, and past caselaw. Our brief observed that the Washington tax is levied on individuals not transactions, on aggregate annual income not at the time of transactions, is accompanied by deductions similar to income taxes, and tracks federal income tax filings. The judge repeated each of these arguments in his ruling.
Numerous economists and public finance experts signed onto the NTUF brief, including Adam Hoffer, Randall Holcombe, Jeremy Horpedahl, Todd Nesbit, Justin Ross, William Shughart, Jared Walczak, and the Washington Policy Center. We’re also grateful to former Attorney General Rob McKenna and Allison Foreman, who argued the case for taxpayers alongside Bishop-Henchman.
We will be monitoring if the state decides to appeal. The case is Quinn v. Washington, Nos. 21-2-00075-09 & 21-2-00087-09 (Wash. Sup. Ct. Douglas Co. Mar. 1, 2022).