AG asks state Supreme Court to allow collection of capital gains income tax before final ruling


For months I’ve been asking the Department of Revenue (DOR) if it plans to collect the capital gains income tax that was ruled unconstitutional by an Inslee-appointed judge on March 1. The answer has consistently been: "That decision has not been made yet.”

Yesterday, however, the Attorney General (AG) helped definitively answer that question by filing a motion with the state Supreme Court asking the justices to allow DOR to collect the capital gains income tax before a final ruling on the case. In fact, the AG argues that those challenging the capital gains income tax “would be better off” if the Supreme Court allows DOR to collect the tax before it weighs in on the case.

From the AG’s motion asking for permission to collect capital gains income tax:

“Plaintiffs will not be able to meet their burden of proving beyond a reasonable doubt that the capital gains tax is unconstitutional. The trial court ruled in their favor based on the erroneous premise that the tax is a property tax subject to the limitations in article VII of Washington’s Constitution, but that conclusion was incorrect, and is at the very least debatable...It would be profoundly irresponsible for the Department to fail to prepare to collect the tax in April 2023 as directed by statute.”

This effort by the state to just now seek a stay motion is profoundly disappointing.

The state could have asked for a stay back in March when the Superior Court ruled that capital gains income tax “is declared unconstitutional and invalid and, therefore, is void and inoperable as a matter of law.” It chose not to.

The Department of Revenue could have been upfront from the beginning that it planned to collect the capital gains income tax before a final ruling by the state Supreme Court. Instead, DOR played coy and told taxpayers that its rule-making activities were merely to “provide guidance to the public regarding the tax as a courtesy. Any guidance provided herein will apply only if the tax is ruled constitutional and valid, in its entirety, by a court of final jurisdiction.” DOR filed the capital gains income tax rules on November 2

Lawmakers could have acknowledged from the beginning that the IRS and every other state in the country unequivocally say that a capital gains tax is an income tax. Instead, they played word games although public records show that they wanted a lawsuit in the hopes the state Supreme Court would now by judicial fiat allow an income tax despite the voters rejecting six constitutional amendments.

Public trust is in short supply these days. The continued mindboggling actions by all levels of Washington State government surrounding the efforts to impose a capital gains income tax does little to restore public confidence that facts and process still matter in our state anymore.

Updated (3:35 p.m.)

Here is a statement by the Citizen Action Defense Fund (CADF) in response to the AG's motion to collect the capital gains income tax: 

"The motion today is a vindication for Citizen Action Defense Fund on two points. It is a tacit admission by the state that we were right in saying they needed to get a motion to stay the trial court ruling and couldn’t just ignore it. DOR will no longer just collect the tax on their own, they need to court to address it. Second, the department of revenue is dropping any pretense about the proposed rule being just 'guidance' - the filing demonstrates they plan to try to collect the tax. While we are evaluating next steps in response to the motion, the bottom line is that CADF successfully forced the state to follow the rules."  

Background: DOR responds to capital gains income tax cease and desist letter

Additional Information
State Supreme Court sets January 26 hearing for capital gains income tax lawsuit

Sign up for the WPC Newsletter