U.S. Supreme Court won’t take up WA capital gains tax challenge

OLYMPIA — The U.S. Supreme Court said Tuesday it would not review Quinn v. Washington, the lawsuit challenging Washington’s capital gains tax.

The Legislature passed the tax in 2021, and payments first came due in April 2023. It’s a 7% tax on profits gained from the sale or exchange of stocks, bonds and other investments or tangible assets above $250,000.

In its first year, the tax brought in almost $900 million in revenue from about 3,700 returns filed, according to the Washington State Department of Revenue. The first $500 million goes toward education, while any revenues above that are earmarked for school construction.

Opponents argued it was a tax on income and thus barred by Washington’s state constitution.

Supporters of the tax celebrated the milestone.

Treasure Mackley, executive director of Invest in WA Now, which backs the capital gains tax, said the decision was “a huge victory for Washington kids and families.”

“This decision could not have come at a more critical time as school districts across the state are facing funding shortfalls,” Mackley said in a statement.

Opponents of the tax had brought a lawsuit challenging it to the nation’s highest court after the Washington Supreme Court upheld it 7-2 in March. The state supreme court had said it was an excise tax and therefore constitutional.

The U.S. Supreme Court declining to hear the case is not the last hurdle the new tax could face — it could be on the ballot in the fall, as a conservative group, Let’s Go Washington, has filed a petition to repeal it. It’s one of several policies passed by the Democrat-controlled Legislature in recent years that could face a challenge on the ballot in November.

“We always knew the odds were long, but we remain disappointed the US Supreme Court did not take the opportunity to correct the flawed direction of our state,” Michael Gallagher, president and CEO of the Washington Policy Center, a conservative think tank, said in a statement. “The good news is that over 400,000 Washington citizens have already seen the damage this tax has done and raised their voices to fellow citizens.”

Democrats in the Legislature celebrated the news Tuesday.

“This is great news for K-12 students in Washington,” said House Majority Leader Joe Fitzgibbon, D-Seattle. “This is great news for students in our two-year and four-year institutions of higher education. This is great news for kids who need child care and for their families who need quality child care for their kids.”

House Republican Leader Drew Stokesbary, R-Auburn, meanwhile, said he was not surprised by the court’s decision.

“It is, of course, disappointing that legislative Democrats essentially got away with the word games they play,” he said. “The IRS and every other state in the country recognizes that a tax on capital gains income is a tax on income, it’s right there in the name.”

Seattle Times reporter Jim Brunner contributed reporting.