Washington state Attorney General Bob Ferguson at a news conference in Seattle in 2019. Ferguson said his office will appeal a decision by Douglas County Superior Court Judge Brian Huber to overturn a new capital gains tax on high profit stocks, bonds and other assets. (AP Photo/Elaine Thompson, File)

Washington state Attorney General Bob Ferguson at a news conference in Seattle in 2019. Ferguson said his office will appeal a decision by Douglas County Superior Court Judge Brian Huber to overturn a new capital gains tax on high profit stocks, bonds and other assets. (AP Photo/Elaine Thompson, File)

Judge overturns state’s capital gains tax on high-profit stocks

Attorney General Bob Ferguson said his office would appeal to the state Supreme Court.

  • By RACHEL LA CORTE Associated Press
  • Wednesday, March 2, 2022 6:59am
  • Northwest

By Rachel La Corte / Associated Press

OLYMPIA — A judge has overturned a new capital gains tax on high profit stocks, bonds and other assets that was approved by the Washington Legislature last year, ruling that it is an unconstitutional tax on income.

In his written decision issued Tuesday, Douglas County Superior Court Judge Brian Huber agreed with opponents of the new tax who had argued it was a tax on income that violates previous state Supreme Court rulings and the state constitution because it is not a uniform taxation on property.

Huber cited several elements of the law that he said “show the hallmarks of an income tax rather than an excise tax,” including a reliance on federal IRS tax returns that must be filed by Washington residents, the fact it is levied annually instead of at the time of the transaction, and that it is based on an aggregate calculation of capital gains over the course of a year.

“The State characterizes the new tax statute as a “tax that applies on the sale or transfer of property” and argues that such taxes are excise taxes” he wrote. “But as noted above, the new tax is not levied upon ‘the sale or transfer” of capital assets. Instead, the new tax statute levies a tax on receipt, and thus ownership, of capital gains.”

Attorney General Bob Ferguson said in an email Tuesday his office would appeal to the state Supreme Court.

“There’s a great deal at stake in this case, including funding for early learning, child care programs, and school construction,” he wrote. “Consequently, we will continue defending this law enacted by the peoples’ representatives in the Legislature.”

The measure imposed a 7% tax on the sale of stocks, bonds, and other high-end assets in excess of $250,000 for both individuals and couples. It was projected to bring in $415 million in 2023, the first year the state would see money from the tax.

The legal challenge stems from two lawsuits that were later consolidated. The first was filed last April by The Freedom Foundation, an Olympia-based conservative think tank. A month later, former Washington Attorney General Rob McKenna filed the second on behalf of state residents including manufacturing business owners, investors, and the Washington State Farm Bureau.

“Washington’s courts have twice rejected previous efforts by the legislature to enact an unconstitutional income tax, while Washington’s voters have rejected 10 straight ballot measures, including six proposed constitutional amendments, that would have created a graduated state income tax,” McKenna said in astatement. “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.”

Supporters of the tax say that Washington — one of a handful of states with no income tax on wages — leans too heavily on its sales tax, disproportionately affecting those with less income. When the governor signed the new tax into law last May, Washington joined 41 states plus the District of Columbia in having a capital gains tax.

Retirement accounts, real estate, farms and forestry were all exempt from the tax. Business owners were also exempt from the tax if they are regularly involved in running the business for five of the previous 10 years before they sell, own it for at least five years, and gross $10 million or less a year before the sale.

Under the new law, taxpayers could deduct up to $100,000 a year from their capital gains if they made more than $250,000 in charitable donations in the same tax year, something Huber cited in his ruling, noting that like “an income tax and unlike an excise tax, the new tax statute includes a deduction for certain charitable donations the taxpayer has made during the tax year.”

Because the state wasn’t set to see any revenue from the tax until next year, it does not affect the work being done by lawmakers on the state supplemental budget this year.

Talk to us

More in Northwest

FILE - In this March 9, 1995 file photo, trainer Marcia Hinton pets Lolita, a captive orca whale, during a performance at the Miami Seaquarium in Miami. The new owners of the Miami Seaquarium will no longer stage shows with its aging orca Lolita under an agreement with federal regulators. MS Leisure, a subsidiary of The Dolphin Company, said in a news release it completed acquisition of the Seaquarium on Thursday, March 3, 2022.    (Nuri Vallbona/Miami Herald via AP, File)
Agreement in place to return Lolita the orca to the Pacific

A plan is in place to return an orca that has lived in captivity for more than 50 years to her home waters.

NO CAPTION. Logo to accompany news of Seattle.
Seattle Audubon changes name, severing tie to slave owner

Seattle Audubon is changing its name to Birds Connect Seattle to move away from a name with a racist legacy.

Logo for news use, for stories regarding Washington state government — Olympia, the Legislature and state agencies. No caption necessary. 20220331
Washington moves to end child sex abuse lawsuit time limits

House Bill 1618 would remove time limits that have stymied lawsuits who frequently do not fully confront childhood trauma until years later.

In this image provided by John Odegard, firefighters in Seattle douse flames at a marina on Lake Union, near the city's University District, early on Wednesday, March 22, 2023. The fire burned 30 boats on a dry-rack storage facility, and a man found hiding in one vessel was arrested for investigation of arson, authorities said. (John Odegard via AP)
Fire at Seattle marina burns 30 boats on dry rack storage

A man found hiding in one vessel was arrested for investigation of arson, authorities said.

NO CAPTION. Logo to accompany news of Seattle.
Deputy shot, wounded in Seattle during eviction, 1 dead

A King County Sheriff’s deputy was shot Monday and a person inside the residence was later found dead.

NO CAPTION. Logo to accompany news of Washington state.
Man pleads guilty to stalking Washington state lawmaker

Isaiah Long, 34, of Bremerton, pleaded guilty to two counts of felony stalking Rep. Michelle Caldier.

X
Amtrak restores full daily train service to Vancouver, B.C.

Amtrak has restarted direct trips between Portland, Oregon and Vancouver, British Columbia.

Leonard Cobb, co-founder of state’s first Medic One, dies at 96

An incident more than 60 years ago helped prompt creation of the groundbreaking emergency medical service.

A Value Village store is seen Tuesday, Dec. 12, 2017, in Edmonds, Wash. The company that operates 300 Value Village, Savers and other thrift stores in the U.S., Canada and Australia is suing Washington state Attorney General Bob Ferguson, saying his office has violated its rights by demanding $3.2 million to settle a three-year investigation. (AP Photo/Elaine Thompson)
Court rejects deception charges against Savers Value Village

The Washington state Supreme Court handed the thrift store chain Savers Value Village a unanimous win Thursday.

Breadson John, 8, was found safe in Missouri on Wednesday, Feb. 21, after going missing from Vancouver in June 2022. (FBI)
Vancouver boy, 8, missing since June, found in Missouri

Breadson John was found safe in Jasper County Missouri after being missing for 8 months.

Seattle Council Member Kshama Sawant speaks to supporters and opponents of a proposed ordinance to add caste to Seattle's anti-discrimination laws at a rally at Seattle City Hall, Tuesday, Feb. 21, 2023, in Seattle. Sawant proposed the ordinance. (AP Photo/John Froschauer)
Seattle becomes first U.S. city to ban caste discrimination

The Seattle City Council on Tuesday added caste to the city’s anti-discrimination laws, becoming the first city to pass such a law outside South Asia.

Clay Siegall, cofounder and former CEO of Seagen. (Ken Lambert / The Seattle Times)
Why prosecutors say former Seagen CEO wasn’t charged after arrest

Edmonds prosecutors said there were contradictory statements on the night Seagen ex-CEO Clay Siegall was accused of domestic violence.