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The Supreme Court Should Kill the Washington State Capital Gains Tax

Speaking of dumb moves by blue states, Washington state recently enacted its first-ever capital gains tax. The state Supreme Court in Washington State accepted the dubious argument that the state’s new capital gains tax doesn’t run afoul of the state’s constitutional prohibition on income taxes because the lawmakers mangled the English language and called it “an excise tax” imposed on the transaction that generates a capital gain, not the income itself.

Now the plaintiffs in the case have appealed to the US Supreme Court, arguing that if it is an excise, it’s a federally unconstitutional tax on out-of-state transactions and thus a clear violation of the commerce clause of the constitution, which prohibits one state from imposing a tax on a transaction outside of its borders.

As the WSJ notes:

Allowing interstate excise taxes “threatens to wreak havoc on taxpayers and businesses around the country,” as the Washington Policy Center put it in an amicus brief filed Monday. Washington residents already have a headache in figuring out which sales trigger the tax.

A Supreme Court rebuke would remind states to stay in their lanes with taxes and regulations. Perhaps [governor] Inslee and the Legislature couldn’t help themselves, but creativity and lawmaking rarely go together well, and sometimes they run up against the Constitution.

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