Today, the Washington Supreme Court issued its highly anticipated ruling in Quinn v State of Washington and found the tax to be legal.
In ruling the tax constitutional, the court found it to be a valid excise tax and thus constitutional and not subject to the limitations on property in the Washington constitution. The court noted that excise taxes are based on the exercise of rights associated with property ownership, in this case the right to sell an asset for a gain.
Therefore the court did not need to rule on the question of whether a prior court case finding an income tax to be unconstitutional in Washington is still correct or should be overturned.
While outside the legal analysis, the court noted the regressivity of Washington’s current tax system and how the capital gains legislation was tied to education funding. Many of the tax’s supporters base their support on the policy goals rather than the mechanism of the tax.
There are many areas in the current law that are ambiguous and need further guidance. The legislature is still in session, so there is the potential for clarification or changes to the current excise tax. At least one bill has proposed a similar excise tax on capital gains that would apply at much lower amounts. The current legislative session is scheduled to go through April 23rd.
What’s Next
Based on the ruling, tax payments and extensions or returns for 2022 are due April 18, 2023. See our earlier blog with information on registering for a DOR account to file and pay these taxes.
Now that the court has ruled, we anticipate additional guidance from the Department of Revenue, but timing is unclear. Due to this, we recommend filing extensions and tax payments timely while we await further guidance.
We will keep you informed of changes as they develop. If you have questions on how the tax applies to your particular situation, please contact your Sweeney Conrad service team to discuss!