Other LanguagesWATERVILLE — Attorney General Bob Ferguson released the following statement after a Douglas County Superior Court judge ruled against the state in a challenge to a tax on capital gains passed by the Legislature in 2021:
“There’s a great deal at stake in this case, including funding for early learning, child care programs, and school construction. 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.”
Senate Bill 5096, which Gov. Jay Inslee signed into law in May of last year, creates a 7 percent excise tax on capital gains above $250,000 beginning this year. The first collections under the law would begin in 2023. Less than one in 1,000 Washingtonians are expected to owe the tax each year, and only the wealthiest few.
The law applies to the sale of assets like stocks and bonds where a person receives capital gains exceeding $250,000 during the 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. 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.
Ten Washingtonians who claimed they would be subject to the tax filed a lawsuit challenging the new law. They are represented by, among others, former attorney general Rob McKenna and the Freedom Foundation. The plaintiffs argued that the tax is a tax on property, which makes it subject to restrictions in the Washington State Constitution, and that it also violated other constitutional provisions.
Washington Solicitor General Noah Purcell, as well as deputy solicitors general Jeffrey Even and Peter Gonick, and assistant attorneys general Cam Comfort and Charles Zalesky led the case for Washington.
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