Supreme Court Declines to Review the Washington 7% Excise Tax on Long-Term Capital Gains

Since the law’s enactment, the Washington 7% excise tax on long-term capital gains (“excise tax”) has faced a tremendous amount of opposition from Washingtonians. In May 2021, Jay Inslee, Governor of Washington State, signed into law a bill that created the Washington excise tax. It's important to understand the tax landscape in Washington State to understand how critical this is. Washington State has never levied a personal income tax since the formation of the state, which was in 1889. In the 1930s, Washington attempted to pass a personal income tax, but the effort failed. When the excise tax came out, many taxpayers thought the excise tax was more akin to an income tax than an excise tax. In March 2022, a group of individuals in Washington State went to the Douglas County Superior Court to oppose the excise tax and won. The excise tax was deemed unconstitutional. Then Washington state appealed the decision to the Washington Supreme Court. In late January 2023, hearings were held at the Washington State Supreme Court. On March 24, 2023, in a 7-2 decision, the Washington Supreme Court ruled the excise tax on long-term capital gains is constitutional. In November 2023, Quinn, et al, the petitioners, brought the Washington State Supreme Court decision to the U.S. Supreme Court for review. The petitioners contended the excise tax violates the dormant commercial clause by taxing certain out-of-state sales. On January 16, 2024, the U.S. Supreme Court declined to review the Washington State Supreme Court’s decision. 

The excise tax continues to spur opposition. Challengers of the excise tax have proposed two initiatives to add to the November 2024 ballot measures for voters to repeal the excise tax and to disallow the state to implement an individual income tax. Stay tuned. In the meantime, as we approach the 2023 tax filing deadline, Washingtonians as well as nonresidents should prepare to comply with the capital gains tax due April 15, 2024.

More information on the Washington Supreme court decision.

More information on the Washington Excise tax.

On-Demand Webinar on the Washington Excise Tax.