Judge Blocks WA Capital Gains Tax, AG Plans To Appeal

OLYMPIA, WA — A superior court judge in Douglas County blocked Washington's new capital gains tax Tuesday, ruling that the legislation passed last year ran afoul of the state's constitutional requirement for uniform taxation.

Gov. Jay Inslee signed Senate Bill 5096 into law last May, which established a 7 percent tax on capital gains above $250,000. Collections on the tax were scheduled to begin in 2023 and were estimated to impact fewer than one in 1,000 Washingtonians.

According to Attorney General Bob Ferguson's office, the law levies a tax only on sales of certain assets that net more than $250,000 in a year.

"For example, if a person bought stock for $100,000 and sold it 10 years later for $400,000, they would have a capital gain of $300,000," Ferguson's office wrote. "The first $250,000 of that amount would be exempt from tax, so the person would owe the 7 percent tax rate only on the remaining $50,000 in gains, for a total tax payment of $3,500 on the $400,000 sale. The tax does not apply to assets in retirement accounts, sales of real estate (including homes and farmland), livestock, timberlands, qualified small businesses and more."

Tuesday's decision is the result of a legal challenge filed by 10 Washington residents who said they would be impacted by the tax.

As The Seattle Times reports, Judge Brian Huber — an Inslee appointee — sided with the plaintiffs and ruled the tax violated the state constitution's uniformity requirement by only applying to gains above the $250,000 threshold. He also disagreed with the state's characterization of the measure as an excise tax instead of an income tax.

In a statement shared Tuesday, Ferguson said he intended to appeal the ruling and take the matter before the state's highest court.

"There's a great deal at stake in this case, including funding for early learning, child care programs, and school construction," Ferguson said. "Consequently, we will continue defending this law enacted by the peoples' representatives in the Legislature. All the parties recognize this case will ultimately be decided by the State Supreme Court. We respectfully disagree with this ruling, and we will appeal."