When Is Earnings Not Earnings?

When the Washington state Supreme Court docket says it’s not.

However in 2021, the [Washington] state legislature ignored the plain language of the structure, plus many years of precedent, to impose a particular 7 % tax on one kind of earnings, capital good points. That blows by means of the constitutional strictures in two methods.

First, as we just about all realized in first grade if not earlier, seven is larger than one. Second, as a result of the tax is on the a part of a capital achieve that’s above $250,000, it’s not uniform. So you’d suppose the state’s Supreme Court docket would simply bat down that tax. In that case, you’d be incorrect. On March 24, the Supreme Court docket voted, by a lop-sided 7-2 margin, to uphold the constitutionality of the tax.

How did the seven justices—I exploit that phrase loosely—justify their resolution? Easy. They claimed {that a} tax on earnings was actually an excise tax. Debra L. Stephens, one of many justices, wrote, “The tax is constitutional as an excise as a result of it’s levied on the sale or change of capital property, not on capital property or good points themselves.”

Excuse me? If it have been an excise tax, it could be levied on the sale of an asset. However the plain language of the legislation that the justices upheld says that it’s levied on capital good points.

That is from my newest piece for the Institute for Coverage Innovation, “When Is Earnings Not Earnings?” TaxBytes, April 27, 2023.

Learn the entire thing, which isn’t lengthy.