A recent Douglas County superior court decision found that the state’s capital gains tax that took effect on January 1 is unconstitutional. The court found that the tax was an income tax, not an excise tax, and that it violated the property tax uniformity clause of the Washington State Constitution because it only taxes gains over $250,000. The case is expected to be appealed to the Washington State Supreme Court.

In 2021 the Legislature created a 7% tax on the gains over $250,000 per year from the sale or exchange of long-term capital assets such as stocks and bonds (SB 5096).

The court’s ruling will not affect the state budget writers as they seek to finalize the supplemental operating budget this session. The projected $400 million per year in revenue from the capital gains tax was not expected to impact the budget until 2023.

Revenues from the new tax were dedicated to funding for education, early learning, and childcare programs. The first capital gains tax collections for 2022 were scheduled to occur in April 2023.