LITIGATING FREEDOM Court sides with Ferguson, will impose tax now, figure out later whether it’s legal

Washington’s Supreme Court on Nov. 30 agreed the state can begin writing rules to collect its hotly contested capital gains tax before even considering arguments about whether Douglas County Superior Court Judge Douglas Huber was correct in ruling the measure unconstitutional.

In a one-page announcement citing no reasons and accepting the state’s argument it could stay Huber’s ruling without considering its merits, the justices granted a motion filed in November by Washington State Attorney General Bob Ferguson allowing the state’s Department of Revenue to proceed with plans to impose the tax despite a looming Jan. 26 hearing on its merits.

The Democratically controlled Legislature last year passed and Gov. Jay Inslee signed into law a measure that would impose a 7 percent tax on income from capital gains above $250,000 a year, such as profits from stocks or business sales.

Exceptions include the sale of real estate, livestock and small family-owned businesses.

The Washington State Constitution, however, requires that such taxes be applied uniformly and cannot exceed 1 percent without voter approval.

Backers of the tax describe it as an excise tax, but previous court decisions have consistently regarded income as property — which must be taxed at the same rate for everyone.

Freedom Foundation attorneys, working with the Seattle law firm Lane Powell, PC, filed a lawsuit challenging the tax within days of its passage, and Judge Huber last spring issued a ruling siding with their arguments. He wrote:

“As a tax on the receipt of income, ESSB 5096 is also properly characterized as a tax on property pursuant to that same case law. This court concludes that ESSB 5096 violates the uniformity and limitation requirements of article VII, sections 1 and 2 of the Washington State Constitution. It violates the uniformity requirement by imposing a 7 percent tax on an individual’s long-term capital gains exceeding