Published 4:00 pm Monday, September 13, 2021
The Washington Farm Bureau can challenge the state’s capital gains tax before it takes effect, rather than wait for farmers to be taxed, Douglas County Superior Court Judge Brian Huber has ruled.
Huber rejected claims by the state attorney general that potential taxpayers can’t question the tax’s legality. Some farmers anticipate owing the tax and say it has already lowered the values of capital assets, even though the tax won’t take effect until 2022.
The attorney general argued that farmers were only speculating that they would owe the tax. Huber said farmers weren’t being “unduly speculative.”
“The court finds no basis to suggest that these allegations are unreasonable,” Huber wrote in a ruling Sept. 10.
The ruling did not touch on whether the capital gains tax violates the state constitution. It does, however, allow the suit brought by the Farm Bureau and others to proceed.
The tax’s legality likely will be decided by the state Supreme Court, but the issue will have its fullest hearing in Douglas County, an agricultural area in Central Washington.
Huber denied a motion by the attorney general to move the case to Thurston County, where the capital and most of the state bureaucracy are. The Farm Bureau and a conservative think tank, the Freedom Foundation, chose Douglas County to file separate lawsuits. Huber said the state gave no valid reason for moving the case.
“We were delighted. A win on all counts is a good win,” Farm Bureau CEO John Stuhlmiller said Sept. 13.
Democrats this year passed a 7% tax on income over $250,000 from selling certain capital assets. The tax won’t apply to farmland, but will apply to shares in business partnerships.
Lawsuits claim the capital gains tax violates the state constitution by taxing income unequally. Defenders say it’s not a tax on income, but rather a tax on transactions.
Gov. Jay Inslee’s administration sought to forestall legal challenges to the tax, claiming there was no dispute for courts to review until the tax was collected. Taxpayers could then apply for refunds, the state argued.
Huber said it was well settled that courts have the power to rule on the constitutionality of tax laws.
The Farm Bureau and Freedom Foundation’s lawsuits were merged into one case.
