State Supreme Court breaks precedent, opens door for state income taxes

Mar 24, 2023


SEATTLE - The Washington State Supreme Court broke with nearly a century of precedent and allowed the income tax on capital gains to stand.  Previously, the clear language of the state constitution allowed only a uniform income tax capped at 1 percent.  In allowing the income tax on capital gains, the state high court has distorted the clear language of the state constitution which prohibits graduated taxes on anything subject to ownership, including income. “Today’s ruling is unreal. The State supreme court agreed with lawmakers that Washington has discovered the first standalone excise tax on capital gains income on the planet. Every other tax jurisdiction in the world, from the IRS, to every other state, to other countries will tell you the same thing – capital gains are income and taxes on them are income taxes," explained Jason Mercier, Washington Policy Center's Center for Government Reform Director.  "With this ruling, the rules surrounding income taxes in Washington are now unclear. What will be the next type of income tax to be redefined by lawmakers? It is up to the voters now to respond.”49 other states and the IRS already recognize that capital gains taxes are income taxes. Today's decision will make Washington state the only state to define capital gains taxes as excise taxes and opens the door to the introduction of other income taxes as well.  “This ruling undermines Washington state’s competitive status making it harder for our state to attract, retain, and grow jobs and economic opportunity,” said Mike Gallagher, President and CEO of Washington Policy Center (WPC). “This decision is a loss for our state. The one-of-a-kind tax created by the law is a volatile source of revenue for the state at best and a surefire gateway for more income taxes to come.  Experience shows that the income they seek will rapidly move to states where investment is welcome.  Texas and Florida won today.”


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For context and background in this case, here are links to past research followed by a few short informational videos on the capital gains income tax: