(The Center Square) – The Washington State Supreme Court will hear oral arguments on the state’s contested capital gains income tax at 9 a.m. on Jan. 26, 2023, according to an email letter from Mary Tracy, case manager for the state’s highest court. The case will be heard in Tumwater due to renovations at the 109-year-old Temple of Justice building on the Capital Campus in Olympia.
In July, the court agreed to take direct review of the tax, bypassing the Court of Appeals.
Last year, the Democratically-controlled state Legislature passed and Gov. Jay Inslee signed into law a capital-gains tax aimed at the state’s wealthiest residents. The measure 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.
On March 1, Douglas County Superior Court Judge Brian Huber ruled the tax unconstitutional, siding with plaintiffs in supporting their definition of capital gains as income.
State Attorney General Bob Ferguson then asked the state Supreme Court to take up the case on direct appeal.
Leading up to that, in April 2021, the Freedom Foundation, an Olympia-based think tank, filed a lawsuit against the new tax alleging it violates the state constitution, as well as the Commerce Clause of the U.S. Constitution by taxing the sale of capital gains held out-of-state by Washington state residents.
In May 2021, former state Attorney General Rob McKenna filed a second lawsuit on behalf of a coalition of farmers, business owners, investors, and the Lacey-based Washington Farm Bureau, claiming the law is unconstitutional because it’s really a graduated income tax and not an excise tax.
The cases were subsequently consolidated in Douglas County Superior Court.