The Washington State Supreme Court this week handed taxpayers a stunning defeat in a 5-2 ruling that the state capital gains income tax counts as an "excise tax" rather than an illegal income tax. The ruling overturned a lower court decision that had found what was plainly obvious: the Washington state capital gains tax is a tax on income.
The Washington capital gains tax was set up as a 7 percent “excise tax on capital gains” to avoid an 80 year-old court ruling that income taxes violate Washington’s constitution. Voters had rejected constitutional amendments to allow new income taxes in ten ballot amendment votes, the most recent being in 2010. Politicians in Washington had been attempting to find a way around their voters' rejection of income taxes, and unfortunately today the State Supreme Court rewarded those politicians with a pretzel-logic ruling. Today's decision will now see taxes hiked by more than $500 million on Washington state residents due to this tax.
NTUF's amicus brief was joined by the Tax Foundation, the Washington Policy Center, and a number of prominent tax economists and policy analysts. The State Supreme Court ignored all the analysis from tax experts and professionals in wriggling their way to this ruling, to the detriment of taxpayers across the state.
This ruling has the potential to be disastrous for Washington state taxpayers. Tax-hiking policymakers are no doubt licking their lips at this ruling's potential to give them leeway to pass all sorts of new tax hikes - and despite this setback, NTUF will be there to continue to fight for them.