Judge Overturns Washington State's New Capital Gains Tax

OLYMPIA, Wash. (AP) — A judge has overturned a new capital gains tax on high profit stocks, bonds and other assets that was approved by the Washington Legislature last year, ruling that it is an unconstitutional tax on income.

In his written decision issued Tuesday, Douglas County Superior Court Judge Brian Huber agreed with opponents of the new tax who had argued it was a tax on income that violates previous state Supreme Court rulings and the state constitution because it is not a uniform taxation on property.

Huber cited several elements of the law that he said “show the hallmarks of an income tax rather than an excise tax," including a reliance on federal IRS tax returns that must be filed by Washington residents, the fact it is levied annually instead of at the time of the transaction, and that it is based on an aggregate calculation of capital gains over the course of a year.

“The State characterizes the new tax statute as a “tax that applies on the sale or transfer of property” and argues that such taxes are excise taxes” he wrote. “But as noted above, the new tax is not levied upon ’the sale or transfer” of capital assets. Instead, the new tax statute levies a tax on receipt, and thus ownership, of capital gains.”