Washington Capital gets a tax update: State tries to collect tax before Washington Supreme Court decides case – capital gains tax

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Eight months ago, the Supreme Court agreed with our argument and struck down Washington’s capital gains tax as unconstitutional, as fully described here. As expected, the state appealed directly to the Washington Supreme Court, which accepted the case. Oral argument on the merits is scheduled for January 26, 2023 at 9:00 a.m.

Not content with waiting for the Washington Supreme Court to hear the controversy, let alone rule on the merits, Washington state recently took the extraordinary step of asking the Washington Supreme Court to “stop” the Supreme Court’s ruling. In other words, the state has asked the Supreme Court to overturn the lower court’s finding that the tax is unconstitutional—thus allowing the tax to go into effect before the Supreme Court has even heard our oral argument on the state’s appeal. The Supreme Court is expected to hear the state’s request, as well as our opposition to it, at the court’s next conference this month.

We hope, of course, that the Supreme Court will reject the state’s request and maintain the status quo, leaving the tax unenforceable. In fact, since the Supreme Court’s decision found that the Washington capital gains tax violated the Washington state constitution, that court didn’t even need to consider our argument that the tax also violates the US constitution.

If the Supreme Court approves the state’s motion and upholds the Supreme Court’s ruling, anyone earning Washington capital gains in 2022 may need to take steps to pay Washington capital gains tax when they file their 2022 federal income tax returns. Taxpayers will also have to follow Steps to seek a refund if the Supreme Court ultimately agrees with the Supreme Court that the tax is unconstitutional. On the other hand, if a state’s request for a stay is denied, the assessment of compliance and reporting obligations for 2022 will need to await the court’s final decision on the merits – when that happens.

We are ready to help with any questions you may have or help you prepare for tax if this becomes necessary.

The content of this article is intended to provide a general guide to the subject. It is advised to take the advice of specialists in such circumstances.

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