(WASHINGTON, D.C) – The Freedom Foundation’s appeal to the U.S. Supreme Court challenging the state of Washington’s new capital gains tax has been rescheduled for a second time.
The appeal in the case, Quinn v. Washington, was originally filed in August. The justices in September requested a response from the defendants and received amicus briefs from more than a dozen organizations supporting the Foundation’s petition.
On Nov. 21, the case was scheduled for a conference on Dec. 8, but that date was later moved back to Jan. 5.
On Jan. 4, the court announced it had again been rescheduled, this time with no date given.
What does it mean?
“It means the Justices are giving more attention to this specific petition,” said Eric Stahlfeld, chief litigation counsel for the Freedom Foundation, which is representing the petitioners. “That’s the main thing. There’s still no guarantee the court will ever agree to hear oral arguments or issue a ruling, but the fact that it wasn’t rejected out of hand is a very hopeful sign.”
Hundreds of cases are appealed to the court every year, he noted, and most are denied with no explanation.
Quinn, Stahlfeld said, seems to have struck a chord with one or more of the justices.
“The easiest thing in the world would be to decline it and move on to something else,” he said. “Maybe in this case there are one or two justices who want to hear our arguments and they think they can convince a couple more the issue is significant.”
It takes only four of the nine justices to grant certiorari.
The Freedom Foundation’s original lawsuit was based on a provision in Washington’s state constitution that unequivocally requires property taxes to be imposed at a uniform rate for everyone paying them. The state’s new capital gains tax, however, assesses a 7 percent tax on income from capital gains above $250,000 a year, such as profits from stocks or business sales.
Washington case law for almost 100 years has recognized income as property, thus a tax on capital gains that treats high earners differently is clearly a violation of the state constitution.
A Superior Court judge agreed with the Freedom Foundation, but his ruling was overturned in 2022 by the reliably liberal Washington State Supreme Court, which agreed with the state’s characterization of the assessment as an excise tax on the capital gains transaction itself rather than the income produced by the sale.
In its appeal to the U.S. Supreme Court, the Freedom Foundation focuses on how this characterization of the capital gains tax conflicts with the U.S. Constitution.
Washington’s tax is written to apply to transactions occurring entirely outside the state, not to the sale of capital assets occurring within Washington state but to the sale of capital assets by Washington residents or those who temporarily live in the state for the minimum number of days.
Consequently, Washington’s tax will be imposed on the sale of capital assets which occur in other states.
The sale could also be subject to taxes in the state where the sale takes place.
“In their haste to ignore the state Constitution and the will of the people, Washington’s lawmakers – with an assist from the state Supreme Court – have imposed a tax that also violates the U.S. Constitution,” Stahlfeld said. States have no power to tax transactions occurring outside their own border, where nothing connects that transaction to the state. Washington cannot impose a sales tax on transactions occurring solely in Oregon, where the goods sold never enter Washington.
States simply have no power to interfere with another state’s power over activities occurring entirely within that sovereign state. Fundamentally, Stahlfeld said, “Washington’s tax interferes with the Constitution’s structure assuring comity among the fifty separate sovereign states.”
