Will the Washington State Constitution’s broad property protections remove capital gains tax? | Local

The Washington State Constitution has the broadest definition of “property” of any state in the nation.

So argues Jason Mercier, director of the Center for Government Reform of the Washington Policy Center’s free market think tank, in a recent Publish and press release.

According to Article VII, Section 1 of the State Constitution, “All taxes shall be uniform on the same class of property within the territorial limits of the authority collecting the tax and shall be levied and collected at public purposes only. The word “property” as used herein means and includes everything, whether tangible or intangible, subject to ownership. »

This definition of property was the result of a constitutional amendment passed by nearly 61% of voters in 1930 and may be a factor in the state Supreme Court’s upcoming direct review decision on the constitutionality of the new tax. on state capital gains.

Last year, the Legislature passed — and Governor Jay Inslee signed into law — a capital gains tax aimed at the state’s wealthiest residents.

The measure adds a 7% tax on capital gains over $250,000 a year, such as profits from stocks or business sales. Exceptions include the sale of real estate, livestock and small family businesses.

On March 1, Douglas County Superior Court Judge Brian Huber ruled that the capital gains tax was “properly characterized as an income tax…rather than an excise tax as supported him the state” and therefore shot him downbecause the Uniformity Clause of the Washington Constitution does not permit income to be taxed at different rates.

State Attorney General Bob Ferguson then asked the state Supreme Court to hear the case on direct appeal, the high court to agree do this.

Mercier criticized what he sees as an attempt to circumvent the state’s definition of income as property.

“The right way to impose a progressive income tax in Washington is through a constitutional amendment,” he said. “To seek an income tax is more like an ‘excise tax’ to set up litigation in the hope that the state supreme court will now say we don’t own our income is dishonest and highly despicable at best. voters and standards of governance.”

Mercier backed up his claim by noting that for nearly a century, the state Supreme Court has consistently ruled that income is property.

He quoted the one-page decision from 1960, Association of Apartment Operators of Seattle, Inc. v. Schumacher, in which the high court advised “the constitution may be amended by vote of the people” to impose a progressive income tax in Washington.

Washington state voters rejected six constitutional amendments allowing for progressive income tax, Mercier said, as well as four income tax initiatives.

Hugh Spitzer, a law professor at the University of Washington, has a different opinion, though he agrees with Mercier on one thing.

“Yes, it’s a very broad definition,” he said of the state’s stance on “property.”

Spitzer went on to note, “But there are still a number of cases where the state Supreme Court has ruled that taxes were NOT property taxes. These include the case confirming the old excise tax on motor vehicles and another confirming the excise tax on real estate.

In the case of 1937 ex rel. Hansen vs. SalterWashington’s highest court has ruled that a motor vehicle tax, measured annually on the value of the vehicle at registration, is a valid excise tax.

In its 1952 decision in Mahler vs. Tremper, the state Supreme Court ruled that a county tax on the sale of real estate is an excise tax and not a property tax because it is a tax on the transaction rather than on the single property. Since property tax is an excise tax and not an income tax, it can be graduated.

“In each case, the court found that the tax was in relation to a transaction (sale of real estate) or an action (having a car with the right to drive on public roads),” Spitzer explained.

He predicted that the state Supreme Court would do the same with respect to capital gains tax.

“I think the court will uphold this tax on the act of selling securities and realizing a one-time capital gain,” he said. “It’s a tax on the sale, not on the property.”

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