Washington State Attorney General Bob Ferguson has filed a request for the Douglas County Superior Court to dismiss two lawsuits filed against the state’s newly enacted capital gains income tax law. As hinted at during a recent State Supreme Court hearing regarding a bank tax, among Ferguson’s arguments is the assertion that the plaintiffs lack legal standing because they have yet to actually pay the tax.
“They have no way of knowing what capital gains they will have in future years,” Ferguson wrote further. “In short, Plaintiffs seek to jump the starting gun.”
Incidentally, Ferguson’s brief avoids addressing the plaintiffs’ central claim that the tax violates the state constitution’s uniformity clause regarding taxation on property. Though the brief describes it as an excise tax, it also notes that those subject to the tax must return their federal income tax returns for the taxable year to the Department of Revenue.
“The absurdity of this capital gains tax debate in Washington continues,” Washington Policy Center Government Reform Director Jason Mercier wrote in an email. “First there was the refusal to call the tax what everyone else in the world agrees on, that it is an income tax. Then there was the claim, that despite massive revenue growth, adopting an income tax on capital gains was an emergency warranting denial of the people’s right of referendum. Now the Attorney General is arguing that this is simply a ‘political’ dispute and since the tax isn’t owed until 2023 the court should prevent any legal challenges to it now. Will the next argument from the state be you don’t own your income?”
In his brief, Ferguson cites a state law describing how a taxpayer can seek reimbursement for paying a tax that didn’t apply to them, but only after the tax has been paid.
Yet, former State Attorney General Rob McKenna recently told Lens that this state law cited during the recent Supreme Court hearing and in Ferguson’s brief concerns taxpayer recourse when a tax isn’t actually owed, not when the tax’s legality is challenged.
That provision states:
All taxes, penalties, and interest shall be paid in full before any action may be instituted in any court to contest all or any part of such taxes, penalties, or interest. No restraining order or injunction shall be granted or issued by any court or judge to restrain or enjoin the collection of any tax or penalty or any part thereof, except upon the ground that the assessment thereof was in violation of the Constitution of the United States or that of the state.
Ferguson’s brief also requests that the cases be transferred to Thurston County Superior Court, arguing that “changing venue would forward the ends of justice in this case. The Legislature enacted this tax in Thurston County and the Department will administer it from Thurston County; no relevant governmental action will take place in Douglas County.”
The Thurston County Superior Court has previously ruled on similar cases, including the 2016 Proposition 1 in the city of Olympia which created a graduated income tax. Although the measure was defeated in the November election, the court issued a ruling striking it down on statutory grounds.