(The Center Square) – The U.S. Supreme Court on Tuesday morning declined to hear an appeal of a Washington State Supreme Court ruling from March 2023 that found a statewide capital gains tax to be lawful.
The justices, as is their custom, did not offer a reason for not taking the case.
Opponents of the tax – a 7% levy on individuals’ long-term capital gains exceeding $250,000 – had argued it was functionally an income tax that violated the state constitution’s strict rules on income taxes.
Proponents contend the tax is an excise tax on a good or service and not an income or property tax, as opponents claim, because it applies to sales or transfers of assets.
The state’s justices in a 7-2 decision ruled the tax to be an excise tax and not a property tax, which the state constitution limits to 1% annually. The court also rejected the notion that it was an income tax, which state Supreme Court decisions going back to the 1930s have struck down based on the state Constitution’s uniformity clause that does not allow income to be taxed at different rates.
In appealing that decision to the nation’s highest court, opponents pivoted, contending that the capital gains tax runs afoul of the U.S. Constitution’s commerce clause when applied to gains earned from sales outside Washington.
The capital gains tax went into effect in 2022 and brought in approximately $900 million last year, far exceeding original projections.
Supporters of the tax cheered the decision from the U.S. Supreme Court.
“The U.S. Supreme Court’s decision today was a huge victory for Washington kids and families,” said Treasure Mackley, executive director of Invest in Washington Now, in a news release. “It preserved $900 million a year to support Washington’s child care and education programs, far more than was initially projected to be collected from this tax. This decision could not have come at a more critical time as school districts across the state are facing funding shortfalls.”
Washington State Budget & Policy Center Executive Director Misha Werschkul had a similar reaction.
“It’s great news for Washington state and our country that the United States Supreme Court has decided not to hear oral arguments for Quinn v. Washington,” she said in a news release. “This case was a cynical attempt by the wealthiest Washingtonians to overturn a modest tax impacting only the very wealthiest 0.2% of Washington taxpayers. In 2023 alone, the capital gains excise tax raised nearly $1 billion to pay for investments in schools, child care, and early learning. With today’s order, the Washington State Supreme Court’s overwhelming 7-2 ruling in favor of the constitutionality of the tax stands.”
Andrew Villeneuve, founder and executive director of Northwest Progressive Institute, hailed the decision as a win for Washingtonians.
“The events of the last three years have vindicated the Legislature’s work to balance Washington’s tax code by levying a capital gains tax on the wealthy,” he told The Center Square via email. “Happily, the tax is bringing in more money for education, early leaning, and childcare than it was originally expected to, defying the naysayers, who said it wouldn’t work. Its legality and constitutionality have been affirmed by the Washington State Supreme Court in a landmark decision. And now the U.S. Supreme Court has allowed that ruling to stand.”
Opponents of the tax took the setback in stride.
“We always knew the odds were long, but we remain disappointed the U.S. Supreme Court did not take the opportunity to correct the flawed direction of our state,” said Michael Gallagher, president and CEO of the Washington Policy Center, in a news release.
He went on to note, “The good news is that over 400,000 Washington citizens have already seen the damage this tax has done and raised their voices to fellow citizens. Washington state’s Constitution and its last 100 years of economic success have the same foundation: keeping our state income tax at zero preserves our economic growth, jobs, and opportunities for families. The last thing we need to do is send our innovators and investors to Texas and Florida.”
In December, voter advocacy group Let’s Go Washington turned in nearly 420,000 signatures for Initiative 2109 to the Legislature. The measure would repeal the capital gains tax. At the same time, the organization also turned in almost 438,000 signatures for Initiative 2111 to prohibit income taxes at the city and county level.
