Supreme Court Upholds Washington Capital Gains Tax as an Excise Tax

by Mike Nelson

On Friday, March 24, 2023, the Washington State Supreme Court upheld the capital gains tax. In a 7-2 ruling in the Quinn v Washington State case, the majority ruled that the capital gains tax is an excise tax and is, therefore, legal in Washington State. Since it was ruled an excise tax, they did not weigh in on the constitutional questions.

This means that tax filers and their CPAs will be required to submit their subjected capital gains taxes by the April 18, 2023, deadline.

The Washington State Department of Revenue (DOR) has said that they are prepared to accept all the taxes due this year. We have heard from many CPAs in the last two years who still see a number of issues with the implementation and with the filing systems. While we do not anticipate DOR will go through any rulemaking for this tax season, we will continue to have conversations with them and other stakeholders to try and resolve these issues before the 2024 filing deadline.

During the court proceedings DOR and the state legislature declined to amend the law or draft rules to fix many of the issues facing the bill. Now that the Supreme Court has upheld the tax the DOR will hopefully be more willing to address the uncertainty and problems in the law that was passed in 2021.

The plaintiffs in this case have previously stated that they will challenge the law in federal court as well as a violation of the commerce clause in the US Constitution. Given Washington is now the first jurisdiction to view a capital gains tax as not an income tax, this also opens the door for future taxes being called an excise tax to avoid legal and constitutional problems in the state, and that may cause new and unforeseen challenges.