Capital gains tax already being challenged

OLYMPIA — Washington’s new tax on capital gains above $250,000 isn’t even law yet, but it’s already being challenged in the courts.

Supporters and opponents of the tax have long known the policy would become grist for a legal challenge that could go up to the state Supreme Court.

That clash kicked off Wednesday with the conservative group Freedom Foundation, working in conjunction with a Seattle law firm, filing suit on behalf of seven state residents in Douglas County Superior Court. The suit was filed against the state of Washington, as well as the state Department of Revenue and its director, Vikki Smith.

It comes in response to Senate Bill 5096, which creates a 7 percent tax on the capital gains of the sale of assets — such as stocks and bonds — above $250,000.

The bill passed the Legislature on Sunday, the final day of this year’s 105-day session. The law would begin to take effect in January 2022, with the first state tax returns due in 2023, according to an analysis of the bill.

The lawsuit filed Wednesday contends that, among other things, the new bill imposes a tax on income and thus violates the state constitution’s mandate that taxes must be applied uniformly across the same class of property.

In a statement, Freedom Foundation CEO Aaron Withe said, “Capital gains are clearly income. And when you tax them, it’s an income tax — no matter what you choose to call it.”

The bill exempts retirement accounts and sales of real estate, timber, livestock, some agricultural property and some auto dealerships.