Judge shoots down capital gains tax law | Business | wenatcheeworld.com - wenatcheeworld.com
WATERVILLE — A new state law that levies a 7% tax on capital gains exceeding $250,000 was ruled invalid Tuesday in Douglas County Superior Court.
Judge Brian Huber's decision ruled the law violates the “uniformity and limitation requirements” of the state constitution.
The bill was approved by lawmakers in early 2021 and in April the Freedom Foundation, a conservative advocacy group, filed a lawsuit against the state of Washington and the state Department of Revenue on behalf of state residents, including Chris Quinn of East Wenatchee. Quinn wrote in a court declaration his entire income is derived from long-term investments and the tax would have a negative effect on his retirement.
Opponents of the bill believe the capital gains tax is a step toward an income tax, which Washington does not have. Supporters argue it’s an excise tax, similar to taxes paid on the sale of real estate.
Huber ruled the bill was “properly characterized as an income tax” rather than an excise tax and — because it’s a tax on income — the bill is also “properly characterized as a tax on property.”
Attorneys representing the state and the bill’s opponents presented oral arguments Feb. 4 in Superior Court.
State attorneys argued that the new tax statute is applied to the “sale or transfer of property,” like an excise tax. But, Huber noted, the tax is not “levied upon ‘the sale or transfer’ of capital assets” and instead taxes the receipt of capital gains.
Furthering its argument that the bill is an excise tax, state attorneys said the tax is only applied to the voluntary sale of a long-term asset.
Huber found fault with this point, explaining “the new tax would be levied not only upon capital gains from voluntary transactions, but also in a number of scenarios where the sale or transfer of a capital asset would occur without any voluntary act,” such as those involving a minority shareholder or a trust beneficiary.
A group of 10 plaintiffs that included an Orondo orchardist and the Washington Farm Bureau filed a similar lawsuit in May against the state and the state Department of Revenue. The two cases were consolidated in July.
Supporters argue that on top of funding education, the tax forces the wealthy to pay a higher share of their income in taxes and would help rebalance the state’s tax code. The tax was estimated to raise $445 million each year beginning in 2023 and would be used to fund K-12 education.
Invest in WA Now, a progressive advocacy group, issued a news release Tuesday criticizing Huber’s decision.
“By siding with a tiny number of extremely wealthy residents, the lower court is ignoring widespread public support for helping working families find childcare and providing children with the education they need to succeed in life,” said the group’s executive director, Treasure Mackley.
Meliesa Tigar, a Wenatchee small business owner, believes the bill would help parents who can’t work because they can’t find affordable childcare.
“The capital gains tax is a much-needed improvement in Washington’s tax code because those of us who are doing well are beneficiaries of our public education system, either directly or indirectly,” Tigard said in the news release.
Pleased by Huber’s ruling, the Opportunity for All Coalition, a group formed to combat the capital gains tax, noted state courts have twice rejected efforts by legislators to enact an income tax.
“Judge Huber’s decision rightly upholds those precedents and honors the voters’ clearly state preference that we remain a state without a graduated income tax,” said former state Attorney General Rob McKenna, who argued at the Feb. 4 hearing on behalf of the plaintiffs.
source: https://www.wenatcheeworld.com/business/judge-shoots-down-capital-gains-tax-law/article_fdcf685a-99c4-11ec-a8bf-874a74505b18.html
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