Freedom Foundation Asks for Summary Judgment in Capital Gains Tax Lawsuit

Freedom Foundation Asks for Summary Judgment in Capital Gains Tax Lawsuit

Freedom Foundation Asks for Summary Judgment in Capital Gains Tax Lawsuit

After a Douglas County judge in November denied a motion to dismiss the Freedom Foundation’s lawsuit challenging the state of Washington’s new capital gains tax, the organization fired back on Dec. 6 with a motion to expedite the proceedings with a summary judgment.

Douglas County Superior Court will hear arguments on Feb. 4.

The tax in question is a 7 percent assessment on capital gains in excess of $250,000, with numerous loopholes carved out to favor certain groups. 

The gains are based on an individual’s federal personal income tax return — which must be fully disclosed to the state — and it taxes transactions wholly outside Washington, merely because the individual resides within the state. 

The measure is styled as a tax on the “privilege” of selling property, even though the Washington Supreme Court in 1935 rejected a similar legislative attempt to tax the “privilege” of receiving income.

No one can accuse the Left of lacking chutzpah.

In its motion to dismiss, the Freedom Foundation argues that three propositions are indisputable:

  • capital gains are income;
  • income is property; and,
  • a tax on property that is either non-uniform, or at a rate exceeding 1 percent, violates Article VII, Section 1 of the Washington State Constitution. 

The tax also violates the U.S. Constitution because of its effects on interstate commerce.

What’s more, it affects transactions that happen entirely in other states, including those with no nexus to Washington.

It is also unfairly apportioned between Washington and other states, discriminating against interstate commerce, and is imposed on transactions unrelated to any service Washington provides.

Lastly, the tax discriminates against the state constitution’s fundamental right of state residents to be exempt from taxes from which other persons also are exempt.

In this case, the tax is imposed on individuals who report capital gains on their personal federal income tax form, while other “persons” — a designation the tax code generally applies to partnerships, LLC’s, corporations and the like — are exempt. 

The Washington State Legislature, which passed the tax last year, stated its sole purpose is to raise revenue, and there is no justification to treat persons differently.

Just as with its successful fight to defeat Seattle’s income tax in 2020, the Freedom Foundation is working with attorneys at Lane Powell representing 10 plaintiffs.

Chief Litigation Counsel
Eric Stahlfeld has practiced law in Washington State for 25 years, after graduating from the Marshall-Wythe School of Law at the College of William and Mary in Virginia. He previously worked in the administration of President Ronald Reagan. He lives outside Seattle with his wife Susan. They have two children, Marta and Karl.