Tax Update Blog

Washington State Supreme Court Upholds State Capital Gain Tax (Updated)

March 24, 2023 | Blog
By Joe Kristan, CPA

The Washington Supreme Court this morning upheld a capital gains tax. Up until now, the state has had no income tax. The Seattle Times provides background:

Democrats passed the measure, which applies a 7% tax only to profits over $250,000, in 2021, with plans to spend the revenue on early childhood education programs. The tax applies to the sale of financial assets, such as stocks and bonds.

The court said the tax is constitutional under the Washington constitution because it is not an "income" tax:

The capital gains tax is appropriately characterized as an excise because it is levied on the sale or exchange of capital assets, not on capital assets or gains themselves.

For what it's worth, the tax base is capital gains from the federal income tax return.

Link:  No. 100769-8


Related: Washington Capital Gains Tax Overturned, But Moves to the State Supreme Court for Final Consideration



Additional coverage: 

Washington Capital Gains Tax Survives State High Court Scrutiny - Perry Cooper, Bloomberg ($). "The tax, which took effect on Jan. 1, 2022, is 7% on gains over $250,000 per year, excluding those from retirement account sales, real estate, and certain small businesses."

Washington State Justices Uphold Capital Gains Tax - Maria Koklanaris, Law360 Tax Authority ($). "The majority ruling will significantly ease matters for the state Department of Revenue because the department already has been collecting it. The state had asked the Washington justices to stay Judge Huber's strike of the tax pending their final decision. They agreed, and the stay cleared the way for the state to collect the tax for the 2022 tax year."

Washington Supreme Court Upholds Capital Gains Tax - Paul Jones, Tax Notes. "Washington treats income as a form of property under longstanding precedent dating back to 1933, and the state constitution requires all property to be uniformly taxed, and at a rate of no more than 1 percent."

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