Income tax on capital gains passes Senate in 25-24 Saturday vote

By JASON MERCIER  | 
Mar 6, 2021
BLOG

Truly unbelievable. A Senate floor vote to impose an income tax has occurred before the March 17 Revenue Forecast and budget release. The state Senate has taken the first step towards imposing an income tax with a 25-24 Saturday vote on SB 5096 (income tax on capital gains). The House is expected to quickly approve the bill and send it to the Governor. The emergency clause was removed, however, meaning lawyers will have time to perfect their legal briefs with the expected court action taking a detour this fall for a referendum vote.

Despite irrefutable evidence from the IRS and every other state revenue department, supporters of this tax refuse to call it an income tax. They insist they have discovered a way to tax capital gains income that no other tax professional in the world is aware of – as an “excise tax.”

Several amendments were proposed to allow supporters to test their belief that this is really an “excise tax”:

  • Sen. Braun amendment: "Prohibits the state attorney general from requesting the court to reconsider its prior rulings declaring income to be property."
     
  • Sen. Braun amendment: "Eliminates the requirement for taxpayers owing the state tax to also file a copy of their federal income tax return."

Each of these amendments failed on voice votes.

Other amendments were also offered to provide more truth in advertising on the bill:

  • Sen. Short amendment: “Changes the title of the bill to: ‘enacting a capital gains income tax.’"
     
  • Sen. Short amendment: “Specifies that applicable Title 26 federal tax code references in the bill are to the federal income tax laws.”
     
  • Sen. Brown amendment: “Adds a referendum clause and a new section listing prior resolutions to impose an income tax.”
     
  • Sen. Fortunato amendment: “Specifies that the state capital gains tax authorized in section 103 of this act shall not be construed in any way as providing authorization for cities or counties to impose a local version of the tax.”
     
  • Sen. Wagoner amendment: “Delays the effective date of the act until July 1, 2025, to allow the Legislature to review recommendations from the Tax Structure Work Group before imposing a state tax on capital gains."

These amendments were also rejected.

The budget is balanced, Congress is sending the state billions more in COVID relief, revenues are currently projected to increase by more than 7%, and an additional large increase in revenue is expected at the March 17 Forecast. Despite this positive fiscal outlook, the Senate by a 25-24 vote has passed on a Saturday a constitutionally suspect income tax on capital gains. Truly unbelievable.

Additional Information
Editorial coverage of capital gains income tax proposals
WA Capital Gains Income Tax Proposal: What You Need to Know!
A Capital Gains Tax IS an Income Tax: Irrefutable Proof in About Two Minutes (short video)
BAD POLICY: An Income Tax on Capital Gains for Washington (short video)