First Amicus Brief Filed in Capital Gains Tax Case »Publications» Washington Policy Center

The first amicus brief was filed today in the capital gains tax case. The Washington Policy Center has joined the “Tax Economists and Policy Analysts Amicus Brief”. Here are some of the quotes from the national amicus brief:

  • “Roses and ducks have definite characteristics and functions inherent in who they are, and retain them even if a legislature or lawyer chooses to call them by a different name.”
  • “The scope of Washington’s constitutional protections for taxpayers certainly rests with the courts in Washington and to decide the compelling relevance of how other states interpret similar protections to prohibit income taxes or limit property taxes or allow property taxes. excise taxes. But what an income tax is, or how all excise taxes work, are not simple differences between state rules. Words have a meaning, especially in this area of ​​taxation where lawmakers have a political incentive to cover things up. The Washington legislature may call this tax an excise tax, but if it functions like an income tax, it is an income tax and any applicable taxpayer protection for income tax. should apply. “
  • “Excise taxes and income taxes are different things. True, like all taxes, all three collect revenue for the government, and that revenue is ultimately and economically borne by individuals in one way or another. Beyond that, they operate in different ways, affect the economy differently, and as a result have been subject to different taxpayer protections. The meaning of each of these types of taxes has taken on clear definitions that have been consistently applied in the literature on public finance and economics, in court cases, and in common parlance.
  • “Roses are roses, ducks are ducks, and capital gains taxes are income taxes. Excise taxes or transaction taxes do not have exemption levels, they are not imposed on annual totals, nor do they follow filing deadlines and federal income tax requirements. State income taxes do all of these things. Washington taxpayers will complete a return due on the same day as federal income tax, and the tax base will be derived from capital gains taxed under federal income tax and income taxes. income of the states. The IRS, all other states, and all tax experts agree that capital gains are income.
  • “The Washington capital gains tax is not a per unit consumption tax on the individual transactions of those who buy or sell a particular good, but on aggregate total income itself, measured as percentage of income and generally taxed on all economic gains of anyone. in the state. The tax is accompanied by exemptions and deductions to limit the scope of the tax to certain natural persons, with the aim of applying not universally to an activity but to natural persons with levels relatively high income. The tax is not on transactions or activity, much less on the entire selling price of an asset or on all gross receipts of a business, but on the cumulative net capital gains realized by one person over the course of a year. These are all characteristics of income taxes, not excise taxes.
  • “The Washington capital gains tax is an income tax, not an excise tax. To the extent that the Washington Constitution or precedents exclude an income tax, that tax should be excluded.

Tax Foundation expert Jared Walczak also joined today’s national amicus brief. Jared wrote in a blog last week:

“The Washington Capital Gains Tax is designed as a direct tax, not an indirect tax. It taxes income and out-of-state activities. If we accept the state’s argument that this is an excise tax, then it is probably an unconstitutional argument, as it does not meet the linkage requirements established in cases like Complete Auto Transit c. Brady. If, on the other hand, it’s a direct tax, then we have a connection — but we’ve also recognized that it’s an income tax, which Washington can’t afford to recognize. .

Of course, he is an income tax. Let us return to this distinction between an indirect tax on things manufactured, sold or used — or, in other words, on activities and transactions — and a direct tax, which would be on the earnings or possessions of an individual. It is possible to impose an excise tax on Activities surrounding capital gains – bad policy, but possible. If Washington had chosen to levy a tax on sales of stocks or bonds, such a tax on stock transfers would be an excise tax, since it is based on the transaction or activity. Washington tax, however, is not based on the number of transactions, or any activity, but on the net income from capital gains made during the year. The object of the tax is clearly the anybody, focusing on their overall income. It is a direct tax. It is literally denominated in income. It is, in short, an income tax.

The fact that a capital gains tax is an income tax is not contested at the national level. Even Washington state tax experts recognize this clear fact. Earlier this year, I had the opportunity to interview the University of Washington Professor Scott Schumacher, Director, Graduate Program in Taxation for more on his thoughts on Washington’s new capital gains tax. From our conversation:

Professor Schumacher: “A capital gains tax is an income tax. Federal tax laws define the term “income” to include “gains from real estate transactions,” which includes capital gains. Notably, the new Washington state tax determines the amount to be taxed on federal long-term net capital gains reported by the taxpayer. Thus, the Washington Capital Gains Tax levies an amount that is subject to federal income tax and imposes an additional amount of tax on that income. . .

If the capital gains tax is an income tax (and I believe it is), then it would be unconstitutional under the Washington Constitution. The Constitution provides that all property taxes must be applied uniformly and cannot exceed an annual rate of 1%. Here, the capital gains tax does not apply to everyone (and therefore is not “uniformly applied”) and the rate is 7%. “

February 4e next year, we’ll see if the court agrees with the rest of the country that this is clearly an income tax, or rather agrees with those pushing the bizarre tale that a Capital gains income tax is sort of an “excise tax”.

Additional information
Tax economists and policy analysts at a glance Amicus
Briefs filed in capital gains tax lawsuit
Tax Foundation: Why Washington State Cannot Claim Its Capital Gains Tax to Be an Excise Tax
Capital Gains Tax Quotes – Who Said It?
Capital Gains Tax Interview with University of Washington Tax Expert Professor Schumacher

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