OLYMPIA — Washington can collect a new state capital gains tax following a ruling by the Washington Supreme Court on Wednesday that gives the justices about two months to hear a challenge to the tax’s constitutionality.
The state Supreme Court on Wednesday stayed a lower court’s March ruling that said the tax was unconstitutional.
The suspension allows the Department of Revenue to administer and collect a 7 percent tax on the sale and exchange of assets such as stocks and bonds pending a court decision. The tax only applies to income over $250,000. The first returns should be in April.
A department spokesman said the suspension would allow the agency to impose the tax and the payments would be refunded if the state Supreme Court ruled the new law unconstitutional.
“While the suspension does not resolve the issues related to the constitutionality of the capital gains tax, its provision protects potential taxpayers and preserves the agency’s ability to effectively administer and impose the tax and fulfill its statutory obligations pending a final decision by the Washington Supreme Court,” the Department’s communications manager said Wednesday. income Michael Carpenter.
An online system will be available for taxpayers to report and pay their taxes, Carpenter said, adding, “If a court ultimately finds the statute unconstitutional, any tax payments received will be immediately returned with interest.”
On Jan. 26, the state Supreme Court will hear oral arguments challenging the tax that state lawmakers passed in 2021.
In March, Douglas County Superior Court Judge Brian Huber ruled the tax unconstitutional.
In the order, Huber wrote that the tax, among other things, violates the state constitution’s requirement of uniform taxation.
“It violates the uniformity requirement by imposing a 7 percent tax on an individual’s long-term capital gains above $250,000,” Huber wrote, but imposes “zero capital gains tax below the $250,000 threshold.”
The state advocated for the postponement of this ruling.
There is no income tax in Washington. While supporters of the new capital gains tax say it is an excise tax that will support public services in a state with a tax system that burdens low-income people, critics and opponents say the policy amounts to an unconstitutional income tax.
“Washington is the only organization in the world that calls the capital gains tax an excise tax,” said Jason Mercier, director of the Center for Government Reform at the Washington Policy Center, a conservative think tank. “It doesn’t matter if you go to the other 49 states, it doesn’t matter if you go to the IRS, the federal government or the rest of the world. You will get the same answer. It is an income tax because it is taxed.”
“Authorizing capital gains tax preparation is the right thing to do for Washington students and parents,” said Treasure McLee, executive director of Invest in WA Now. “The lawsuit challenging the capital gains tax is just a delay tactic for a small group of millionaires who refuse to pay what they owe. We cannot afford to put the personal interests and wealth of the super-rich ahead of our communities.”
