What do mega-billionaire Washington Post owner Jeff Bezos and Daily Wire founder and editor Ben Shapiro have in common?
This week, Bezos announced he was moving from his longtime home in Seattle to join Shapiro and thousands of other ex-pats from high-tax states to settle in Florida.
Officially, Bezos cited a desire to be closer to his parents in Miami, but it can’t be a coincidence that the Washington Supreme Court earlier this year greenlighted a controversial capital gains income tax for the first time in the state’s history while Florida doesn’t tax personal income at all.
Maybe Bezos and other successful Washington residents who’ve fled the state to avoid its confiscatory revenue policies can move back if the U.S. Supreme Court agrees to hear an appeal of a lawsuit challenging the constitutionality of the state’s newly minted capital gains income tax.
On Aug. 21, the Freedom Foundation filed a petition for certiorari asking the court to hear its appeal in Quinn v. Washington, arguing that what started out as a violation of Washington’s state constitution now has federal implications.
The appeal became necessary last March, when the Washington State Supreme Court overturned a 2022 Superior Court ruling siding with the Freedom Foundation’s assertion that the new tax violated requirements in the state constitution that property and income taxes be assessed uniformly.
The court ruled that the tax, which imposes a 7 percent assessment on income from capital gains above $250,000, is exempt from state constitutional restrictions because it is an excise tax on the sale of assets rather than a tax on the income resulting from the transaction.
In its appeal to the U.S. Supreme Court, the Freedom Foundation contends the tax violates the Commerce Clause of the U.S. Constitution, which reserves to Congress the right to regulate interstate commerce, thus depriving states of the ability to do so.
As structured, the tax applies not to the sale of capital assets within Washington’s boundaries but to the sale of capital assets by Washington residents.
Consequently, Washington’s tax could apply to the sale of capital assets held in other states by Washington residents, and the sale could also be taxed by the state in which the sale physically occurs.
If the Supreme Court accepts the case, it could strike down the entirety of the tax and potentially open the door for the refund of taxes previously paid.
While conceding it only affects a relatively small number of residents, critics of the capital gains income tax fear it could open the door to a broadly applicable, graduated income tax.
Washington’s constitution doesn’t ban an income tax per se. What it bans is a tax on property ¾ which is considered income ¾ that treats those paying it differently. The state could have imposed an income tax years ago if its liberal-dominated Legislature had been willing to consider a flat tax that assessed everyone at the same rate.
The framers of the Washington State Constitution recognized that earning should be encouraged, not punished, because economic success benefits everyone. Not only have more than 100 years of court precedent supported that view, but the people of Washington have consistently rejected income taxes at the ballot box through the years.
At a time when Washingtonians are already among the most heavily-taxed American citizens, the state has no business targeting its most successful, job- and tax-generating residents out of envy and vindictiveness. Unless state officials embrace this reality, they can continue to watch Washington most successful residents move their assets elsewhere rather than put up with it.
