Washington's Capital Gains Tax Act: What You Should Do While the Courts Deliberate
Since Washington's legislature enacted the Capital Gains Tax Act in April 2021 (RCW Ch. 82.87), it has been the subject of turbulent debate about implementation and enforcement. Last week, the Washington state Supreme Court added another piece to the mix.
In March of this year, a superior court judge in Douglas County ruled the Act unconstitutional. The Department of Revenue sought direct review in the state Supreme Court, which was granted. While briefing was underway, the Department also filed a motion with the Court, requesting a stay of the lower court's order pending the Supreme Court's review. In other words, the Department asked the Supreme Court whether it can collect taxes until a final decision about the fate of the Capital Gains Tax Act is made.
On November 30, the state Supreme Court responded: The Department's motion is granted. The text of the order, in full, reads:
"The Court voted unanimously in favor of the following result: Now, therefore, it is hereby ORDERED: That the motion for a stay of the lower court's order pending review is granted. The lower court order is stayed pending this Court's final decision in this matter. DATED at Olympia, Washington this 30th day of November, 2022."
The effect of this order means the Department of Revenue will proceed to enforce the Capital Gains Tax effective as of January 1, 2022. But how and when the Department intends to implement the Act has not been confirmed. The Department filed proposed rules on November 2 which may provide a hint about implementation. To our knowledge, the form of tax return has not yet been published.
The state Supreme Court will hear oral arguments in this case, Chris Quinn, et al. v. State of Washington, et al., on January 26, 2023.
At this point, anyone who may have a liability under the statute for tax year 2022 should assume that the full burden of penalties will be assessed if tax is not paid or a return is not filed when due in April 2023 unless the Court issues another order in the matter before then.
Davis Wright Tremaine attorneys will continue to monitor developments related to the Capital Gains Tax Act. For more information about this or other state and local tax issues, please contact a Davis Wright Tremaine tax attorney.
See our previous post, "Washington Enacts New Capital Gains Tax for 2022 and Beyond," for additional details about the Act.