Policy groups blast, praise early capital gains tax collection

The Northwest Progressive Institute praised the move in a published statement, calling it a “defeat for right-wing anti-tax forces who want to keep Washington’s tax code permanently upside down.”

Freedom Foundation CEO Aaron Withe accused the Attorney General of wasting taxpayer funds by exerting effort to collect a tax that Withe hopes will ultimately be declared unconstitutional.

“Attorney General Bob Ferguson in his eagerness to soak taxpayers is creating a situation of chaos and confusion among Washingtonians preparing for the upcoming tax season,” Withe said in a statement. “It costs him nothing but the public’s tax dollars to fight the Washington constitution and the consistently expressed will of the people he is supposed to represent.”

The new tax, aimed at Washington’s wealthiest residents, adds a 7% tax on capital gains above $250,000 a year, such as profits from stocks or business sales. Exceptions include the sale of real estate, livestock, and small family-owned businesses.

Critics have charged that the tax, adopted last year under Senate Bill 5096, is unconstitutional and challenged its enforcement in Douglas County Superior Court.

Judge Brian Huber agreed, ruling on March 1 that the tax is properly considered both a graduated tax and a property tax and issued a stay against enforcement.

On July 13, the state Supreme Court agreed to take direct review of the case at Ferguson’s request, bypassing the Court of Appeals.

The attorney general then filed a motion on Nov. 3 asking the state Supreme Court to allow the DOR to collect the tax before a final ruling on the case.

Pending the Supreme Court’s decision, Washington lawmakers advised the Department of Revenue that its proposed rule concerning the payment of the capital gains tax should be labeled as advisory only, meaning that the tax should not be collected prior to the ruling.

However, Ferguson then asked the court to stay Huber’s injunction, allowing the state to collect the tax before a final ruling. The court agreed, so the first payments are now due on or before April 18, 2023.

Citizen Action Defense Fund Executive Director Jackson Maynard was not happy about the substance of the court’s Wednesday morning decision but did find a silver lining.

“While we are disappointed in the Court’s ruling today, the fact that the State was forced to follow proper procedure demonstrates that no one – even a state agency – is above the law,” he said in a statement. “CADF was clearly right in insisting that the Department needed to get a motion to stay the trial court ruling and couldn’t just ignore it.”

The Washington Policy Center repeated its claim that the “state is playing a game by calling the income tax an ‘excise tax.'” In a blog post, WPC stated that if the Supreme Court ruled in January that the capital gains income tax is constitutional, Washington would lose the “competitive advantage” of having no personal income tax.

Meanwhile, think tank representatives exchanged barbs in a Twitter exchange about the issue.

“Well, I must be all-powerful by having the IRS, 49 states, and other countries in my back pocket also calling a capital gains tax an income tax,” Jason Mercier of WPC said in response to a posting by NPI. Mercier included an advisory letter from the IRS to Congressman Dan Newhouse, R-WA4, which affirmed that point.

The NPI Twitter account responded, “Very amusing, Jason. In comes the WPC mention alert, and you move quickly to put your framing out there… You have been tweeting variations of this same thing hoping it will eventually get you results. Unfortunately for you, it’s not working.”

To that, the Twitter account for Mountain States Policy Center rejoined, “Some people call it ‘framing,’ other people call it the law.”

The state Supreme Court is set to hear oral arguments in the case, Chris Quinn, et al. vs. State of Washington, on Jan. 26, 2023.

Brett Davis contributed to this report.