The Washington Education Association (WEA) on June 30 filed a legal brief with the state supreme court in the capital gains income tax case asking the justices to change their prior rulings and now declare that income isn’t property (meaning you don’t own it). This is precisely the legal strategy that some supporters of the capital gains income tax planned realizing that voters keep rejecting constitutional amendments. The hope of income tax advocates is to use the new capital gains income tax to get the justices to change the rules of the game so that a graduated income tax can be imposed with a simple majority vote without the voters first amending the constitution.

The need to amend the constitution if a graduated income tax is to be imposed in Washington has long been the clear and consistent message from the state supreme court. For example, on September 13, 1960, the state supreme court issued a unanimous one-page ruling with this sage advice: Don’t ask the court to reverse its numerous rulings prohibiting a graduated income tax; instead amend the constitution.

That 1960 ruling is so timeless the current state supreme court justices could simply re-issue this part of the ruling in response to the WEA’s request to bypass voters:

"The argument is again pressed upon us that these cases were wrongly decided. The court is unwilling, however, to recede from the position announced in its repeated decisions. Among other things, the attorney general urges that the result should now be different because the state is confronted with a financial crisis. If so, the constitution may be amended by vote of the people. Such a constitutional amendment was rejected by popular vote in 1934."

The justices must have wanted to keep their 1960 ruling to just one page, otherwise they could have listed all the times Washingtonians have rejected a constitutional amendment to allow a graduated income tax. Including those since this ruling, the people voted down such proposals in 1934, 1936, 1938, 1942, 1970 and 1973:

• 1934 – HJR 12: Yes 43%; No 57%
  A resolution amending section 1 of Article VII of the constitution by providing that all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only; providing that there shall be such exemptions from taxation as the legislature may by general law provide; and providing that nothing contained in this section shall be construed to prevent the enactment of a graduated net income tax law. 
   
• 1936 – SJR 7: Yes 22%; No 78%
  A Proposal to repeal section 12, article XI and amend sections 1 and 9, article VII of the constitution by providing: uniform taxation upon the same class of subjects; that the legislature may provide exemptions and graduated net income tax, may vest municipalities with power to make local improvements by special assessment or taxation; cannot require counties or municipalities to tax for county or municipal purposes but may under legislative restriction, vest them with such authority.
   
• 1938 – SJR 5: Yes 33%; No 67%
  A Proposal to amend Section 1, Article VII of the Constitution of the State of Washington relating to taxation by providing that nothing contained in said section shall be construed to prevent the enactment of a graduated net income tax law.
   
• 1942 – Constitutional Amendment: Yes 34%; No 66%
  Constitutional Amendment Article VII, Sec. 2. A Proposal to amend Article VII of the Constitution by adding a new section, section 2, providing that income shall not be construed as property for the purpose of taxation, and empowering the legislature to enact graduated net income taxes, and to provide exemptions, offsets and deductions. 
   
• 1970 – HJR 42: Yes 32%; No 68%
  Shall the state constitution be amended to reduce the maximum allowable rate of taxation against property to 1 percent of true and fair value in the absence of authorized excess levies, and to permit the legislature to tax income at a single rate without regard to this limitation or, after 1975, at a graduated rate if the voters in that year or thereafter approve the removal of the single rate limitation?
   
• 1973 – HJR 37: Yes 23%; No 77%
  Shall a graduated net income tax be authorized, excess levies for school operations be prohibited, and some excise taxes limited?

Washington voters have also rejected multiple income tax ballot initiatives in 1944, 1975, 1982 and 2010:

• 1944 – I-158: Yes 30%; No 70%
  An act relating to revenue and taxation; providing for the levy and collection of a three per cent tax on gross income; providing for certain exemptions and deductions; providing for the disposition of revenue derived hereunder; prescribing monthly payments of not less than sixty dollars to certain aged, blind, disabled or widowed persons from an Employment and Retirement Mutual Insurance Fund, herein created; prescribing duties of officers and procedure in relation hereto; regulating disposition of payments by beneficiaries; defining terms and prescribing penalties.
   
• 1975 – I-314: Yes 33%; No 67%
  Shall corporations pay a 12% excise tax measured by income so that special school levies may be reduced or eliminated?
   
• 1982 – I-435: Yes 34%; No 66%
  Shall corporate franchise taxes, measured by net income, replace sales taxes on food and state corporate business and occupation taxes?
   
• 2010 – I-1098: Yes 36%; No 64%
  Initiative Measure No. 1098 concerns establishing a state income tax and reducing other taxes. This measure would tax “adjusted gross income” above $200,000 (individuals) and $400,000 (joint-filers), reduce state property tax levies, reduce certain business and occupation taxes, and direct any increased revenues to education and health. 

Curiously absent from the WEA’s latest income tax legal brief is any mention of these 10 prior votes, nor the fact Washingtonians have already rejected six constitutional amendments to allow a graduated income tax. Losing ten straight votes may be frustrating for income tax proponents but as the 1960 state supreme court correctly pointed out, that doesn’t mean you should ask judges to do what voters won’t. If you want a graduated income tax, you need to first ask voters to amend the constitution. 

And for the millionth time, yes, a capital gains tax is an income tax. As explained by the IRS:

“This is in response to your inquiry regarding the tax treatment of capital gains. You ask whether tax on capital gains is considered an excise tax or an income tax? It is an income tax. More specifically, capital gains are treated as income under the tax code and taxed as such."

Even Washington lawmakers appear to begrudgingly understand this when they defined capital gains income this way in the bill they passed (SB 5096):

“’Federal net long-term capital gain’ means the net long-term capital gain reportable for federal income tax purposes…”

If for some reason you still don’t believe the IRS and every other state in the country that a capital gains tax is an income tax, maybe our good mates in Australia can help convince you. Have a Capitan Cook at what the Australian Taxation Office says:

“You report capital gains and capital losses in your income tax return and pay tax on your capital gains. Although it is referred to as 'capital gains tax,' it is part of your income tax. It is not a separate tax.”

No matter where you look across the country or even the world, a capital gains tax is an income tax. Don’t let the WEA or anyone else pull the wool over your eyes on this indisputable fact. In Washington we own our income (it is property) and the state supreme court has consistently reaffirmed this fact. The proper way to impose a graduated income tax is with voter approval of a constitutional amendment. It is underhanded to try to redefine what an income tax is by calling it an "excise tax" and cooking up legal test cases in an attempt to get the state supreme court to do what voters won’t.

UPDATED 7/13

The state Supreme Court agreed today to take direct review of the capital gains income tax case (bypassing Court of Appeals). Briefing schedule for the case continues throughout the summer. This is a really simple case - either we own our income or we don't. For nearly a century the court has consistently ruled that income is property and the voters have rejected six constitutional amendments to change that.

Additional Information
Lawmaker’s emails confirm goal for capital gains proposal is broad income tax