The Opportunity for All Coalition filed a lawsuit today to repeal the new Income Tax on Capital Gains (SB 5096). This is the second lawsuit against the tax. Plaintiffs are April Clayton (Red Apple Orchards), Kevin and Renee Bouchey (former owners SKD Farms, Inc.), Joanna Cable, Matthew Sonderen (Sonderen Packaging), Rosella and Burr Mosby (Mosby Farms), Christopher and Catherine Senske (Senske Services)) and Washington State Farm Bureau. All plaintiffs are members of the Washington Policy Center.
It is no surprise that so many farmers are suing after lawmakers failed to address concerns raised before the illegal income tax was introduced. A recent legislative record states that farmers can afford to pay income tax on capital gains because they work “less than half the time”.
Former Attorney General Rob McKenna said of the lawsuit earlier this week:
"Our complaint, filed by a group of small business owners and farmers, will argue that capital gains tax is not an excise tax, but an unconstitutional income tax. Even if it is found to be an excise tax, capital gains tax is illegal because the Tax is levied based on where the taxpayer is resident and not where the chargeable event occurs, trying to reach chargeable events outside of Washington, which state excise duties may not.
There is no legal argument that your income is not your property, just a political argument. The Washington Constitution defines property as anything, tangible or intangible, that is property. Income is certainly part of "everything" and it is an intangible form of property that belongs to the people who deserve it. If you suggest otherwise, it means you don't own your income. But how can I pay taxes if I don't have my income? "
The Washington State Supreme Court has consistently ruled that income is property (meaning you own it). For this reason, tiered income tax has been banned without constitutional amendment, and an income tax must comply with constitutional restrictions on property taxes.
Every state in the country, the Congressional Budget Office, and the Internal Revenue Service (IRS) clearly state that a capital gains tax is an income tax. According to the IRS:
“This is in response to your inquiry about the tax treatment of capital gains. Are you wondering whether the capital gains tax is considered an excise tax or an income tax? It's an income tax. In particular, capital gains are treated as income under tax legislation and taxed as such. "
Consumption taxes are levied on price or volume at the point of sale. Here are examples of Washington's excise taxes and how they are levied:
The fact that a capital gains tax is an income tax is beyond dispute outside of Washington state. Why was this tax introduced? These emails from Senator Pedersen discuss the goal of the new capital gains tax:
- April 30, 2018: “In my opinion, the more important advantage of introducing a capital gains tax is on the legal side. The other side will contest it as an unconstitutional property tax. This will give the Supreme Court a chance to re-examine its poor 1934 and 1951 rulings that income is property will make it possible if we manage to pass a progressive income tax by simple majority. " (Emphasis added)
- December 15, 2018: "Personally, I believe that introducing a capital gains tax is one of the best things we can do to promote the possibility of an income tax in our statebecause this could help remove legal uncertainty as to whether an income tax is a "property tax" subject to constitutional restrictions. By then, it would take 2/3 majorities in lawmakers (and a referendum) to pass an income tax, making it very unlikely to happen. "(Emphasis added)
- May 11, 2021: "I am confident that this case will open the door to a broader overhaul of our tax structurewhich many consider to be the most regressive in the United States. I note that there is some irony in the position you are taking. Five men in 1934 ruled that income was property and that significant changes to our tax system could not be made by simple majority. Instead, the stars would have to align the electorate for 2/3 majorities in both chambers of the legislature and a majority of votes. I think that is deeply anti-democratic. "(Emphasis added)
About this legal "uncertainty", the State Supreme Court said the following in 1960:
"The argument is again being pressed on us that these cases were wrongly decided. However, the court is not prepared to step down from the position announced in its repeated decisions. Among other things, the attorney general urges that the result should now be different because the The state is facing a financial crisis. If so, the constitution can be changed by referendum. Such a constitutional amendment was rejected by referendum in 1934. "
Not liking the clear message from the courts does not make the legal facts uncertain.
I am confident that given the consistent history of multiple court rulings invalidating tiered income tax, the simple language of the 14th Amendment, which defines property to include all property, and the fact that voters are already 6th Constitutional amendments to overthrow the tiered income tax restriction that this illegal income tax on capital gains will also be abolished.
additional information
OFAC income tax on capital gains claim
IRS: Capital Gains Tax "is an income tax"
The state tax offices describe capital gains taxes
Legislative emails confirm that the goal of the capital gains proposal is a broad income tax
Public records reveal WA DOR's thoughts on capital gains taxes