A judge overturned a new tax on Washington’s capital gains

Left: Attorney General Noah Purcell, Governor Jay Insley, Attorney General Bob Ferguson, Head of the Civil Rights Division Luke Colin Melody, Assistant Attorney General Marsh Chien, Attorney General Kelly Paradis, Assistant Attorney General Patricia Marquez.

OLYMPIA, WASHINGTON (AP) – A judge overturned a new capital gains tax on stocks, bonds and other high-yield assets that was approved by the Washington legislature last year, ruling it was an unconstitutional income tax.

In a written ruling released Tuesday, Douglas County Supreme Court Justice Brian Huber agreed with opponents of the new tax, who argued it was an income tax that violated previous state Supreme Court decisions and the state constitution because it is not the only property tax. .

Huber cited several elements of the law that he said “show signs of income tax, not excise tax,” including dependence on federal tax returns that Washington residents must file, the fact that they are levied annually. rather than at the time of the transaction, and that it is based on the aggregate calculation of capital gains during the year.

“The state characterizes the new tax statute as a ‘tax applicable to the sale or transfer of property’ and claims that such taxes are excise duties,” he wrote. “But, as noted above, the new tax is not levied on the“ sale or transfer ”of capital assets. Instead, the new tax statute levies a tax on the receipt and thus ownership of capital gains. ”

Attorney General Bob Ferguson said in an email Tuesday that his office will appeal to the state Supreme Court.

“A lot is at stake in this case, including funding for early learning, childcare programs and building schools,” he wrote. “Thus, we will continue to defend this law, passed by MPs in the legislature.”

The measure imposed a 7% tax on the sale of stocks, bonds and other elite assets in excess of $ 250,000 for both individuals and couples. It was projected that in 2023 it would bring in $ 415 million, the first year the state will receive tax money.

The litigation stems from two lawsuits that were later joined. The first was filed last April by The Freedom Foundation, a conservative think tank based in Olympia. A month later, former Washington Attorney General Rob McKenna filed a statement on behalf of state residents, including manufacturing business owners, investors and the Washington State State Bureau.

“Washington courts have twice rejected previous legislative efforts to impose an unconstitutional income tax, while Washington voters have rejected 10 consecutive measures, including six proposed constitutional amendments that would create a gradual state income tax,” McCau said. “Judge Huber’s decision rightly supports these precedents and honors the clear opinion of voters that we remain a state without a gradual income tax.”

Proponents of the tax say Washington, one of the few states that does not have a payroll tax, relies too heavily on sales tax, disproportionately affecting those on lower incomes. When the governor signed the new tax last May, Washington joined 41 states plus the District of Columbia before imposing a capital gains tax.

Pension accounts, real estate, farms and forestry were exempt from the tax. Business owners were also exempt from tax if they had been regularly involved in the business for five of the previous 10 years prior to the sale, owned it for at least five years and earned $ 10 million or less a year before the sale.

Under the new law, taxpayers can deduct up to $ 100,000 a year from their capital gains if they made more than $ 250,000 in charitable donations in the same tax year, Huber cited in his ruling, noting that as a “tax on income and unlike the excise tax, the new tax statute provides for the deduction of certain charitable donations made by the taxpayer during the tax year ”.

Since the state was not supposed to receive tax revenues until next year, this does not affect the work of lawmakers to supplement the state budget this year.

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