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SCOTUS declines to hear capital gains tax case, driving more businesses out of Washington

January 16, 2024

OLYMPIA…The Building Industry Association of Washington (BIAW) today expressed disappointment as the US Supreme Court (SCOTUS) declined to hear a case challenging Washington’s capital gains tax as an income tax.

“We are disappointed the court failed to recognize the devastating financial impact this decision will have on Washington businesses and individuals.,” said BIAW General Counsel Ashli Tagoai. “Every jurisdiction in our nation taxes capital gains as income, and rightfully recognizes a capital gains tax as an income tax. Now, Washington is the sole exception.

“The disparity of capital gains treatment complicates bookkeeping, adds to the administrative complexity of interjurisdictional business, and discourages commerce,” Tagoai said. “If Washington doesn’t repeal this tax, it will discourage competition and drive more businesses away from our state.”

BIAW and the Washington Retail Association (WRA) joined several other groups in supporting the capital gains income tax challenge, Quinn v. State of Washington, when it came before Washington’s Supreme Court.

“Washington business owners deserve to have their income taxed fairly, consistently, and constitutionally,” Tagoai said. “This tax introduces uncertainty and inconsistency into Washington’s tax code. We fully support repealing this tax either in the legislature or at the ballot box.”

More than 430,000 Washington residents signed I-2109 to repeal the capital gains tax. Once the Secretary of State certifies the initiative, legislators may either:

  • Adopt the initiative as is, allowing it to become law.
  • Reject or refuse to act on the initiative, putting it on the November 2024 general election ballot for voter approval.
  • Propose an alternative that would appear on the November ballot alongside I-2109 for voter approval.

Washington Supreme Court ruling on capital gains tax

In a 7-2 ruling released on March 24, 2023, Washington’s Supreme Court overturned a lower court ruling invalidating the tax as unconstitutional.

Douglas County Judge Brian Huber previously agreed with the challenge to the state’s new capital gains tax, ruling it was an income tax and, therefore unconstitutional in Washington.

Washington’s Supreme Court, however, rejected that ruling, asserting the new tax is instead an excise tax because it applies to the sale or exchange of property.

Paying Washington’s capital gains tax

Washington’s capital gains tax officially went into effect on Jan. 1, 2022. Individuals must pay a 7 % tax on the sale or exchange of long-term capital assets. This includes stocks, bonds, business interests or other investments and tangible assets. According to the state Dept. of Revenue (DOR) Capital Gains Tax Overview, there are several deductions and exemptions, including an annual standard deduction of $262,000 per individual.

DOR’s frequently asked questions page says the tax exempts sales of real estate, or transactions through retirement savings accounts, including:

  • 401Ks tax-sheltered annuities
  • Deferred compensation plan
  • IRA
  • Employee-defined contribution plan
  • Employee-defined benefit plan
  • Similar retirement savings accounts.

DOR’s “Do you owe capital gains tax” page helps people determine if the tax applies to them.


For media interviews, contact BIAW Communications Director Janelle Guthrie. 

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