Plaintiffs Respond to State Capital Gains Tax Briefing »Publications» Washington Policy Center
On February 4, the Douglas County Superior Court will hold a summary judgment hearing in the capital gains tax lawsuit. I was told that TVW was planning to broadcast the hearing. Final briefs are expected on January 21. Yesterday I pointed to the attorney general’s surprising request to strike a letter from the IRS, documented emails with state tax services, and the Washington state public records from the court record. describing a capital gains tax as an income tax. Let us now see the final arguments of the complainants.
Here are some of the quotes from the January 7 complainants’ brief:
- âSecond, the State and Education parties are attempting to recast how the capital gains tax actually works in order to respond to their argument that ESSB 5096 created an excise tax, not a tax on capital gains. the property. But despite the opinion of the legislator, the capital gains tax is not imposed only on the transactional activity of sale or exchange of long-term fixed assets. It does not require any voluntary action by the taxpayer. And, unlike excise taxes, the measure of capital gains tax is the amount of gains reported on federal income tax returns, not the measure of the allegedly taxed transaction. Capital gains tax is imposed annually on long-term capital gains income reported by an individual. ESSB 5096 created an income tax, which our Supreme Court said is a property tax. Because tax is levied on income – property – under the Washington Constitution, it must meet the uniformity and rate limitation requirements of Article VII. The capital gains tax violates both requirements and the state motion makes no contrary argument.
- âThis capital gains tax is just the latest in a long line of unsuccessful efforts to impose an income tax in Washington. But each time, Washington voters have rejected every effort. Since 1934, voters in Washington have rejected six proposed constitutional amendments that would have allowed progressive income taxes. Voters also rejected four statewide initiatives to codify an income tax into law. The most recent effort was I-1098 in 2010, which concerned the establishment of a state income tax and the reduction of other taxes, where Washington voters rejected a proposed income tax. income with a decisive margin of 64% against. Indeed, during an advisory vote in the November 2021 elections, voters rejected this capital gains tax with a margin of 61% to 39%.
- âESSB 5096 imposes a capital gains tax and is therefore a property tax under the Washington Constitution, as interpreted by the Supreme Court in a long series of binding precedents. In order to claim that ESSB 5096 instead imposes an excise tax, the state must ignore how the capital gains tax actually works: by taxing capital gains realized by individual Washington taxpayers and reported to the federal government on an annual basis. But, contrary to what the state claims, ESSB 5096 does not actually impose a tax on the privilege of selling or trading property in the state. If this were the case, the capital gains tax would then be imposed on each taxpayer who acts voluntarily and it would only be taxed to the extent that the taxpayer enjoys the privilege of engaging in these actions within the ‘State.
- âUnlike the real estate excise tax or the B&O retail tax, the measure of capital gains tax at issue here is not measured by the value of the sale or long-term fixed asset exchange, which the state never deals with. Instead, capital gains tax is measured by an individual’s total long-term annual capital gains in Washington for the federal tax year. . . In other words, capital gains tax is measured by the amount of the individual’s net income from the sale or exchange of long-term assets and reported on the individual’s federal income tax return at the time. during a tax year. Capital gains tax is an annual income tax.
- âThe Education parties are asking this Court not only to quash the Supreme Court, but to substitute its judgment for the will expressed on several occasions by the people. Washington voters rejected six proposed constitutional amendments and four statewide initiatives to codify an income tax into law. Voters have said time and time again that the courts are right in Culliton, Jensen and Huntley. None of the interests offered by education parties are sufficient to amend the Constitution by court order when voters repeatedly refused to do so. In sum, the Education Parties do not cite any decision from a Washington court suggesting Culliton was either “incorrect” or undermined by an eroded legal basis. This Court is bound to apply the binding precedent – recognized by the education parties – that the two-tier tax on capital gains income violates the uniformity clause of the Washington Constitution and the cap on capital gains. ‘one percent of property taxes.
I will highlight any important elements of the final legal briefs after they are tabled on January 21.
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