State Supreme Court to decide fate of state income tax

After the Legislature passed Governor Inslee’s desired capital gains tax in 2021, it came under scrutiny from lawyers and opponents who said it was actually a tax on Income.

Now the case will go to the State Supreme Court

Earlier this year, Douglas County Superior Court Judge Bruce Huber ruled that the tax (which only applies to winnings over $250,000) is actually an income tax. Even the IRS considers capital gains a form of income. Capital gains come from selling stocks, investments, and other big-ticket items (like a boat). They are considered income. however, Inslee and the Legislative Democrats tried to spin it differently.

It was a significant political setback for Inslee, who had wanted such a tax since taking office. Washington State Attorney General Bob Ferguson has asked the High Court to take up the case, and on Wednesday it was announced that they would.

The Washington State Constitution prohibits any form of income tax and has been repeatedly voted down by voters. That’s why Democrats encouraged by Inslee passed it in the legislative session, despite credible evidence that it’s illegal.

The Freedom Foundation released a statement on the court’s actions on Wednesday, from Eric Stahlfeld, who is the Foundation’s chief litigation counsel, which said in part:

“Despite a century of court rulings acknowledging that our state constitution requires that income taxes be applied equally and cannot exceed one percent without voter approval, Attorney General Ferguson and the legislative majority of the state are brazenly trying to impose a selective capital gains tax on Washington entrepreneurs.

“The state enacted this illegal tax in 2021 knowing every step of the way that it was an intentional attempt to circumvent the state constitution,” Stahlfeld concluded. “But the constitution has not been changed, the law is still the law, and the Freedom Foundation is confident that the Supreme Court will again strike down this latest punitive tax scheme by greedy politicians in Olympia.” (authorization of the FF).

The Foundation and other groups have been fighting the tax since it was passed. No timetable has yet been given as to when the Court will rule on this matter.

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