Quinn v. State

• Court: Washington Supreme Court
• Decided: March 24, 2023
• Docket: 100,769-8
• Status: Published

Opinion

NOTICE: SLIP OPINION (not the court’s final written decision)

The opinion that begins on the next page is a slip opinion. Slip opinions are the written opinions that are originally filed by the court. A slip opinion is not necessarily the court’s final written decision. Slip opinions can be changed by subsequent court orders. For example, a court may issue an order making substantive changes to a slip opinion or publishing for precedential purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits (for style, grammar, citation, format, punctuation, etc.) are made before the opinions that have precedential value are published in the official reports of court decisions: the Washington Reports 2d and the Washington Appellate Reports. An opinion in the official reports replaces the slip opinion as the official opinion of the court. The slip opinion that begins on the next page is for a published opinion, and it has since been revised for publication in the printed official reports. The official text of the court’s opinion is found in the advance sheets and the bound volumes of the official reports. Also, an electronic version (intended to mirror the language found in the official reports) of the revised opinion can be found, free of charge, at this website: https://www.lexisnexis.com/clients/wareports. For more information about precedential (published) opinions, nonprecedential (unpublished) opinions, slip opinions, and the official reports, see https://www.courts.wa.gov/opinions and the information that is linked there. FILE For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. THIS OPINION WAS FILED FOR RECORD AT 8 A.M. ON IN CLERK’S OFFICE MARCH 24, 2023 SUPREME COURT, STATE OF WASHINGTON MARCH 24, 2023 ERIN L. LENNON SUPREME COURT CLERK

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CHRIS QUINN, an individual; CRAIG No. 100769-8 LEUTHOLD, an individual; SUZIE BURKE, an individual; LEWIS and MARTHA RANDALL, as individuals EN BANC and the marital community comprised thereof; RICK GLENN, an individual; NEIL MULLER, an individual; LARRY Filed: March 24, 2023 and MARGARET KING, as individuals and the marital community comprised thereof; and KERRY COX, an individual,

Respondents,

v.

STATE OF WASHINGTON; DEPARTMENT OF REVENUE, an agency of the State of Washington; VIKKI SMITH, in her official capacity as Director of the Department of Revenue,

Appellants,

EDMONDS SCHOOL DISTRICT, TAMARA GRUBB, MARY CURRY, and WASHINGTON EDUCATION ASSOCIATION,

Appellants. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

APRIL CLAYTON, an individual; KEVIN BOUCHEY, an individual; RENEE BOUCHEY, an individual; JOANNA CABLE, an individual; ROSELLA MOSBY, an individual; BURR MOSBY, an individual; CHRISTOPHER SENSKE, an individual; CATHERINE SENSKE, an individual; MATTHEW SONDEREN, an individual; JOHN MCKENNA, an individual; WASHINGTON FARM BUREAU; WASHINGTON STATE TREE FRUIT ASSOCIATION; and WASHINGTON STATE DAIRY FEDERATION,

STATE OF WASHINGTON; DEPARTMENT OF REVENUE, an agency of the State of Washington; VIKKI SMITH, in her official capacity as Director of the Department of Revenue,

EDMONDS SCHOOL DISTRICT, TAMARA GRUBB, MARY CURRY, and WASHINGTON EDUCATION ASSOCIATION,

Appellants.

STEPHENS, J.—In 2021, the Washington Legislature enacted a capital gains

tax, levied at a rate of seven percent on the sale or exchange of certain long-term

capital assets. Ch. 82.87 RCW. Two groups of plaintiffs, the Quinn and Clayton

2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

plaintiffs (Plaintiffs), brought suit to facially invalidate the tax on three independent

constitutional grounds. They principally claim the tax is a property tax on income,

in violation of the uniformity and levy limitations on property taxes imposed by

article VII, sections 1 and 2 of the Washington Constitution. They also claim the

tax violates the privileges and immunities clause of the Washington Constitution and

the dormant commerce clause of the United States Constitution. WASH CONST. art.

I, § 12; U.S. CONST. art. I, § 8, cl. 3. In defending the tax, the State argues that it is

a valid excise tax not subject to article VII’s uniformity and levy requirements, and

that it is consistent with other state and federal constitutional requirements.

The court below concluded the tax is a property tax that violates article VII’s

uniformity requirement. In light of this ruling, the court did not address Plaintiffs’

additional constitutional challenges. We accepted direct review and now reverse.

The capital gains tax is appropriately characterized as an excise because it is levied

on the sale or exchange of capital assets, not on capital assets or gains themselves.

This understanding of the tax is consistent with a long line of precedent recognizing

excise taxes as those levied on the exercise of rights associated with property

ownership, such as the power to sell or exchange property, in contrast to property

taxes levied on property itself. Because the capital gains tax is an excise tax under

Washington law, it is not subject to the uniformity and levy requirements of article

VII. We further hold the capital gains tax is consistent with our state constitution’s

3 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

privileges and immunities clause and the federal dormant commerce clause. We

therefore reject Plaintiffs’ facial challenge to the capital gains tax and remand to the

trial court for further proceedings consistent with this opinion.

BACKGROUND AND PROCEDURAL HISTORY

Taxation in Washington is unique. Unlike most other states, we have no state

personal or corporate income tax and instead generate revenue primarily through a

combination of sales taxes, property taxes, and the business and occupation (B&O)

tax—a tax on the privilege of doing business in Washington as measured by gross

receipts. See INST. ON TAX’N & ECON. POL’Y, WHO PAYS? A DISTRIBUTIONAL

ANALYSIS OF THE TAX SYSTEMS IN ALL 50 STATES 127 (6th ed. 2018) (hereinafter

ITEP), https://www.itep.sf02.digitaloceanspaces.com/whopays-ITEP-2018.pdf

[https://perma.cc/E6GN-U29Z]. Washington’s tax system has earned the regrettable

title of most regressive in the nation. Id. at 7-8; see also RCW 82.87.010. The

poorest individuals bear the greatest tax burden due in large part to our heavy

reliance on sales taxes and the lack of a graduated income tax, with low wage earners

paying nearly six times more in state taxes as a percentage of personal income than

Washington’s wealthiest residents. ITEP, supra, at 126. This burden falls

disproportionately on Black, Indigenous, and People of Color (BIPOC), who are

overrepresented in low income brackets. See, e.g., WASH. FUTURE FUND COMM., A

REPORT TO THE LEGISLATURE 17 (2022), https://www.tre.wa.gov/wp-

4 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

content/uploads/2022-WFF-Committee-Report_Submitted-11.30.22.pdf

[https://perma.cc/7QFG-3BNX].

Much of our modern taxation landscape can be traced to the 1930s—an era of

rapid socioeconomic change and accompanying tax reform efforts, and related state

Supreme Court decisions challenging those efforts. This court’s decisions from that

era still shape Washington tax law today. The capital gains tax must be understood

in the context of history, so we provide a historical overview of taxation in

Washington since early statehood before turning to the underlying facts and

procedural history of this case.

Background on Washington’s Tax System

Beginning in territorial days and through early statehood, Washington relied

almost exclusively on ad valorem property taxes to fund the government.1 DON

BURROWS, THE ECONOMICS AND POLITICS OF WASHINGTON’S TAXES FROM

STATEHOOD TO 2013, at 82, 87-88 (2013) (in 1891, 95 percent of state and local tax

revenues came from property taxes). During this early period, Washington’s

economy was driven by farming, logging, mining, fishing, and like industries, a

reflection of the state’s abundance of land and natural resources. BURROWS, supra,

1 An “ad valorem tax” is “imposed proportionally on the value of something (esp[ecially] real property), rather than on its quantity or some other measure.” BLACK’S LAW DICTIONARY 1758 (11th ed. 2019); see also “property tax,” id. at 1760 (“A tax levied on the owner of property (esp[ecially] real property), usu[ally] based on the property’s value.”).

5 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

at 87; see also Culliton v. Chase, 174 Wash. 363, 385, 25 P.2d 81 (1933) (Blake, J.,

dissenting) (“In 1889 the major portion of the wealth of the state lay in its lands and

their produce . . . .”). Property taxes proved a fairly equitable and effective way to

fund government because “in those days the value of tangible property was great and

the cost of government little.” Culliton, 174 Wash. at 385 (Blake, J., dissenting).

Things changed, however, as the population expanded and the state urbanized.

Washington’s population more than tripled between 1890 and 1910. BURROWS,

supra, at 88. This fueled a greater need for government services and programs,

especially education and roads. Id. at 88, 90-91. From the 1891–1893 biennium to

the 1909–1911 biennium, government expenditures increased by over 600 percent.

Id. at 88. In that same period, multiple national recessions stalled the Washington

economy, causing widespread unemployment and a decrease in property values. Id.

Population growth combined with declining property values translated to greater real

property tax rates in order to meet the burgeoning demand for revenue. Id. Rates

more than doubled from 1890 to 1912—from 0.7 percent to 1.6 percent—then

climbed to 2.5 percent by 1924. Id. at 88, 121. Meanwhile, Washington

industrialized, and individual wealth increasingly shifted to intangible forms of

property like stocks and bonds, which largely evaded taxation because intangibles

were easy to hide. Id. at 94, 131; Culliton, 174 Wash. at 385 (Blake, J. dissenting).

6 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Banks also successfully lobbied for a property tax exemption for intangible personal

property, exacerbating existing tax inequities. BURROWS, supra, at 122, 129.

The increasingly onerous and unfair property tax burden spurred a popular

movement for tax reform, which gained steam in the 1920s. See Hugh D. Spitzer, A

Washington State Income Tax—Again?, 16 U. PUGET SOUND L. REV. 515, 523-28

(1993). The most vocal organization supporting tax reform was the Washington

State Grange, a coalition of farmers who felt the acute effects of economic

depression and burdensome property taxes. PHIL ROBERTS, A PENNY FOR THE

GOVERNOR, A DOLLAR FOR UNCLE SAM: INCOME TAXATION IN WASHINGTON 61, 64

(2002). The Grange became a driving force behind efforts to enact new tax

legislation and to reform constitutional provisions governing taxation. Id.

Washington’s 1889 constitution did not limit property tax rates and it contained a

strict uniformity clause requiring that property taxes be uniform on all forms of

property. Spitzer, supra, at 522. Tax reformers sought to liberalize constitutional

constraints on taxation and to introduce an income tax. Id. at 522-24.

In 1929, the legislature enacted the first state income tax: a five percent

corporate “franchise tax” on the net income of banks and financial institutions.

BURROWS, supra, at 130; ROBERTS, supra, at 66-67. The tax included liberal

exemptions for large urban commercial banks, and it quickly faced legal challenges.

Spitzer, supra, at 526. In Aberdeen Savings & Loan Ass’n v. Chase, 157 Wash. 351,

7 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

289 P. 536 (1930), this court voided the tax on federal law grounds.2 ROBERTS,

supra, at 67. Specifically, the court found an equal protection violation because the

tax applied to corporate banks but not to unincorporated entities or natural persons

engaged in the savings and loan business. Aberdeen, 157 Wash. at 364-65.

Even as the franchise tax in Aberdeen fell, other tax reforms continued to take

shape. In 1929, the legislature proposed constitutional amendment 14, which voters

approved the following year. Spitzer, supra, at 524. Amendment 14 struck the first

four sections of article VII and enacted a new section 1:

The power of taxation shall never be suspended, surrendered or contracted away. All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. . . .

LAWS OF 1929, ch. 191, § 1 (approved Nov. 1930) (emphasis added). This

amendment allowed for different rates of taxation between different classes of

property and expanded the constitutional definition of “property” to capture

intangibles that had previously evaded taxation.

By 1932, the Great Depression was in full swing in Washington. BURROWS,

supra, at 137. Calls for tax relief remained steady as unemployment rates soared,

taxes went unpaid, and citizens lost their homes due to tax delinquency. Id. That

2 Aberdeen was the lead of two cases challenging the franchise tax. Its companion case was Burr, Conrad & Broom, Inc. v. Chase, 157 Wash. 393, 289 P. 551 (1930).

8 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

year, the people took matters into their own hands and overwhelmingly approved

two tax-related popular initiatives, I-64 and I-69, each by a vote of 70 percent. Id.

The first initiative, I-64, imposed a 40-mill property tax rate limit. 3 The second

initiative, I-69, enacted a graduated personal and corporate income tax. Id. at 138.

But before the state collected any income tax revenues, I-69 faced court challenges.

Id. This legal uncertainty, combined with the new 40-mill limit on property taxes,

led the legislature to enact a B&O tax in order to meet the state’s short-term fiscal

needs. Spitzer, supra, at 529.

In 1933, the litigation challenging the I-69 income tax reached this court in

the case of Culliton v. Chase, 174 Wash. 363. BURROWS, supra, at 138-39. That

term, the court had only eight justices as Justice Parker had fallen ill, and historical

records relay that the first vote was deadlocked, four to four. Id. at 138. The

governor appointed a new justice who appeared to favor the tax, but, as the story is

told, one justice changed his position while the case was pending, resulting in a five

to four vote to void the tax. Id. at 138-39. The five justices joining that result agreed

3 “Mill rate” is “[a] tax applied to real property whereby each mill represents $1 of tax assessment per $1,000 of the property’s assessed value.” BLACK’S LAW DICTIONARY, supra, at 1190. For example, if the mill rate is 40 mills and a home is valued at $100,000, the owner will pay $4,000 in property taxes. See id. The 40-mill limit was later incorporated into the state constitution through amendment 17 in 1944. H.R.J. Res. 1, 28th Leg., Reg. Sess. (Wash), LAWS OF 1943, at 936 (approved Nov. 1944); see also BURROWS, supra, at 159. Article VII, section 2’s maximum levy rate of one percent as we know it today was enacted in 1972 through amendment 55. Engrossed S.J. Res. 1, 42d Leg., Reg. Sess. (Wash.), LAWS OF 1971, at 1827 (approved Nov. 1972); see also Belas v. Kiga, 135 Wn.2d 913, 922, 959 P.2d 1037 (1998).

9 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

that income falls within amendment 14’s broad definition of property as everything

“subject to ownership,” so the graduated features of the tax violated the

constitutional requirement that all taxes be uniform on the same class of property.

Culliton, 174 Wash. at 378 (Holcomb, J., lead opinion), 381-82 (Mitchell, J.,

concurring), 383-84 (Steinert, J., concurring).

The same day the court decided Culliton, it also issued State ex rel. Stiner v.

Yelle, upholding the B&O tax as a constitutional excise tax on the privilege of

engaging in business, and not a property tax. 174 Wash. 402, 407, 25 P.2d 91 (1933).

Washington was thus left with the B&O tax but no income tax. “Recognizing that

the interim B&O tax measure passed in 1933 would not provide for the total cost of

state government operations over the long term, the next legislature thoroughly

overhauled the tax system with the Revenue Act of 1935 . . . .” Spitzer, supra, at

538. The Revenue Act of 1935 drew various legal challenges, with this court

upholding retail sales and use taxes pursuant to Stiner, and voiding personal and

corporate income taxes (which the legislature had labeled as “privilege” taxes)

pursuant to Culliton. Id. at 538-41. In the years since, various attempts to enact a

graduated income tax through legislation or constitutional amendment have all

failed. BURROWS, supra, at 5.

By the end of the 1930s, the voters, legislature, and judiciary had carved the

basic state tax structure that remains today. See Spitzer, supra, at 538. As noted,

10 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

we still have no graduated income tax, instead funding the state through a

combination of other taxes such as the B&O tax, sales taxes, and real property taxes.

Ours has been recognized as a uniquely regressive tax system that “asks those

making the least to pay the most as a percentage of their income.” RCW 82.87.010;

see also ITEP, supra, at 127. The wealthiest households in Washington are

disproportionately white, while the poorest households are disproportionately

BIPOC. See, e.g., WASH. FUTURE FUND COMM., supra, at 17; see also Br. of Amicus

Curiae (Equity in Educ. Coal. et al.) at 8-16. As a result, Washington’s upside-down

tax system perpetuates systemic racism by placing a disproportionate tax burden on

BIPOC residents.

The 2021 Legislature Enacts a Capital Gains Tax

Forty-one other states and the District of Columbia tax capital gains.

Elizabeth McNichol, State Taxes on Capital Gains, CTR. ON BUDGET & POL’Y

PRIORITIES (June 15, 2021), https://www.cbpp.org/research/state-budget-and-

tax/state-taxes-on-capital-gains. During the 2021 session, the Washington

Legislature followed suit and enacted Engrossed Substitute Senate Bill (ESSB)

5096, imposing a seven percent tax on the sale or exchange of certain long-term

capital assets beginning January 1, 2022. LAWS OF 2021, ch. 196 (codified as ch.

82.87 RCW); see also RCW 82.87.040(1). Washington’s capital gains tax was

11 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

passed by a narrow one-vote majority in the state senate in April 2021, and Governor

Inslee signed the tax into law the following month. See LAWS OF 2021, ch. 196.

In enacting the tax, the legislature made specific findings that “it is the

paramount duty of the state to amply provide every child in the state with an

education” and that “high quality early learning and child care is critical to a child’s

success in school and life.” RCW 82.87.010; see also WASH. CONST. art. IX, § 1

(“It is the paramount duty of the state to make ample provision for the education of

all children residing within its borders, without distinction or preference on account

of race, color, caste, or sex.”). The legislature further found that “Washington’s tax

system today is the most regressive in the nation because it asks those making the

least to pay the most as a percentage of their income.” RCW 82.87.010. The

legislative objective of the tax is thus twofold: “[t]o help meet the state’s paramount

duty” to amply fund public education, while “making material progress toward

rebalancing the state’s tax code.” Id.

All revenues from the capital gains tax are dedicated to public education in

Washington. The first $500 million collected from the tax each year will be

deposited into the education legacy trust account, which supports K-12 education,

expands access to higher education, and provides funding for early learning and

child care programs. RCW 82.87.030(1)(a); see also RCW 83.100.230 (education

legacy trust account). All annual revenue beyond $500 million will be deposited

12 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

into the common school construction account, which funds the construction of

facilities for common schools. RCW 82.87.030(1)(b); see also RCW 28A.515.320

(common school construction fund).

In order to meet the legislative goal of raising new revenue without

exacerbating existing tax inequities, the capital gains tax contains numerous

exemptions and deductions, including for transactions involving real estate,

retirement accounts, agriculture, certain family-owned businesses, and charitable

donations. RCW 82.87.050, .060(4), .070(1). The tax applies only to individuals,

not businesses. RCW 82.87.040(1). And it applies only to the sale or exchange of

long-term capital assets, meaning the taxpayer has held the asset for longer than one

year. Id.; RCW 82.87.020(6). The legislature also included a standard deduction of

$250,000, so the tax applies only to nonexempt long-term capital gains that exceed

$250,000 beginning January 1, 2022. RCW 82.87.060(1). For example, if a

Washington resident made $260,000 from selling stocks in 2022, that person would

owe the seven percent tax on $10,000 of that amount, or $700.

The legislature established an allocation process in order to avoid taxing

capital gains attributable to another state. The statute allocates to Washington only

those gains from the sale or exchange of tangible personal property located in-state

and intangible property owned by individuals domiciled in-state. RCW

82.87.100(1)(a)-(b). The statute also identifies circumstances when tangible

13 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

personal property located out-of-state at the time of sale is allocated to Washington,

for example, if the owner is a Washington resident at the time of sale. RCW

82.87.100(1)(a). To further avoid the risk of taxation by multiple states, the statute

offers a tax credit “equal to the amount of any legally imposed income or excise tax

paid by the taxpayer to another taxing jurisdiction on capital gains derived from

capital assets within the other taxing jurisdiction.” RCW 82.87.100(2)(a).

To calculate the total amount owed in a given tax year, taxpayers must identify

their “Washington capital gains,” using federal tax reporting as a starting point.

RCW 82.87.020(1), (13). Then, specific adjustments are made to account for

statutory exemptions, deductions, and allocations before arriving at the Washington

taxable amount. The first payments are due from taxpayers on April 18, 2023. See

RCW 82.87.110(1) (tax due on or before federal tax day). The Department of

Revenue anticipates approximately 7,000 individuals will pay the tax in its first year.

Over its first six years, the tax is projected to generate nearly $2.5 billion in revenue.

Procedural History

Plaintiffs separately filed suit in Douglas County Superior Court, seeking to

facially invalidate the capital gains tax. All plaintiffs are individuals who own, or

are entities whose members own, capital assets, the gains on which are potentially

subject to the tax. They alleged the tax is a property tax, not an excise tax, and that

it violates the uniformity and levy limitations on property taxes set forth in article

14 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

VII, sections 1 and 2 of the Washington Constitution, as well as the privileges and

immunities clause of the Washington Constitution. They further alleged the tax

violates the dormant commerce clause of the United States Constitution.4 The

superior court consolidated the two cases and granted a motion by the “Education

Parties” 5 (Intervenors) to intervene to defend the constitutionality of the tax.

Plaintiffs and the State filed cross motions for summary judgment on the facial

constitutionality of the capital gains tax. The superior court denied the State’s

motion and granted summary judgment to Plaintiffs. The court characterized the tax

as a property tax on income pursuant to Culliton, listing eight features of the tax it

viewed as “hallmarks” of an income tax. Am. Clerk’s Papers (ACP) at 869-72. It

voided the tax as unconstitutional under article VII, sections 1 and 2 because (1) the

$250,000 deduction violates the uniformity requirement and (2) the seven percent

rate exceeds the constitutional maximum of one percent for property taxes. The

court declined to address Plaintiffs’ remaining claims.

Intervenors sought direct review under RAP 4.2(a)(2) because this case

pertains to the constitutionality of a tax. They also sought direct review under RAP

4 The Quinn Plaintiffs also pleaded a claim under article I, section 7 of the Washington Constitution (right of privacy), but they did not move for summary judgment on that claim and it is not before the court on appeal. 5 The “Education Parties” include the Edmonds School District, Tamara Grubb (a teacher), Mary Curry (an early learning and childcare provider), and the Washington Education Association.

15 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

4.2(a)(4), arguing the case raises fundamental and urgent issues of broad public

import, including the viability of the Culliton decision. We granted review and

accepted amici curiae briefs from various groups: four supporting the State in favor

of the capital gains tax 6 and three supporting Plaintiffs in opposing the tax. 7

ANALYSIS

This challenge to the capital gains tax is before the court on cross motions for

summary judgment. We review summary judgment decisions de novo, viewing all

facts in the light most favorable to the nonmoving party. Wash. Bankers Ass’n v.

Dep’t of Revenue, 198 Wn.2d 418, 427, 495 P.3d 808 (2021), cert. denied, 142 S.

Ct. 2828 (2022).

Plaintiffs seek to facially invalidate the capital gains tax on three separate

grounds. They first argue that the tax is a property tax on income pursuant to

Culliton and that it violates the uniformity and levy limitations on property taxes set

forth in article VII, sections 1 and 2 of the Washington Constitution. They also argue

the tax violates our state constitution’s privileges and immunities clause and the

federal constitution’s dormant commerce clause. The State maintains that the capital

gains tax is an excise tax, not a property tax, and that each of Plaintiffs’ constitutional

6 Br. of Amicus Curiae (Equity in Educ. Coal. et al.); Amicus Curiae Br. of Law Professors; Amici Curiae Br. of Mary Ann Warren et al.; Wash. State Lab. Council et al. Br. of Amici Curiae. 7 Br. of Amici Curiae Ass’n of Wash. Bus. et al.; Br. of Amici Bldg. Indus. Ass’n of Wash. et al.; Br. of Amici Curiae Nat’l Taxpayers Union Found. et al.

16 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

challenges fails. Separately, Intervenors challenge the wisdom of Culliton. If the

court were to hold the capital gains tax comes within the purview of Culliton’s

holding that an income tax is a property tax subject to article VII, sections 1 and 2,

Intervenors urge the court to overturn Culliton as incorrect and harmful or because

its legal underpinnings have eroded. 8

We hold the capital gains tax is an excise tax under Washington law. We

decline to reexamine Culliton because article VII’s uniformity and levy limitations

on property taxes do not apply. We further conclude the capital gains tax survives

constitutional scrutiny under our state privileges and immunities clause and the

federal dormant commerce clause. We therefore reverse the superior court’s grant

8 We will overrule precedent only upon a showing that (1) an established rule is incorrect and harmful or (2) the legal underpinnings of our precedent have changed or disappeared. State v. Pierce, 195 Wn.2d 230, 240, 455 P.3d 647 (2020) (plurality opinion). We have treated these standards as independent of each other, so satisfying one may provide justification to overrule a prior case. See id. (both standards met); State v. Crossguns, 199 Wn.2d 282, 290, 505 P.3d 529 (2022) (incorrect and harmful); W.G. Clark Constr. Co. v. Pac. Nw. Reg’l Council of Carpenters, 180 Wn.2d 54, 66, 322 P.3d 1207 (2014) (legal underpinnings). Our decisions to date have not explained why no showing of harm is required to overturn a precedent whose legal underpinnings have eroded, but our reasoning demonstrates this is a historically driven inquiry, as opposed to a reassessment that a precedent is legally incorrect. To determine if the legal underpinnings of a precedent have eroded, we generally look to whether the foundation of the legal principle at issue no longer exists, such as when a United States Supreme Court opinion we relied on is overturned. Requiring an additional showing of social harm in such circumstances would seem unnecessary, given that the very foundation of the rule we announced has eroded. In contrast, a determination that a precedent is legally incorrect generally involves a critical reassessment of the principles on which it rests. As an added protection against a later majority second-guessing the wisdom of a prior majority of the court and thereby creating instability in the rule of law, we require an additional showing that the prior court’s interpretation has resulted in demonstrable harm.

17 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

of summary judgment to Plaintiffs and remand to the superior court for further

proceedings consistent with this opinion.

I. The Capital Gains Tax Is a Valid Excise Tax Not Subject to the Requirements of Article VII, Sections 1 and 2 “The Legislature possesses a plenary power in matters of taxation except as

limited by the Constitution.” Belas v. Kiga, 135 Wn.2d 913, 919, 959 P.2d 1037

(1998). The burden to prove a legislative act is unconstitutional rests on the statute’s

challenger—here, Plaintiffs—and is sometimes expressed as requiring proof beyond

a reasonable doubt.9 Id. at 920.

Plaintiffs’ first constitutional argument is that the capital gains tax is a

property tax that violates the uniformity and levy limitations imposed by article VII

of the Washington Constitution. Article VII, section 1 requires that “[a]ll taxes shall

be uniform upon the same class of property.” Section 2 provides that “the aggregate

of all tax levies upon real and personal property . . . shall not in any year exceed one

percentum of the true and fair value of such property in money.” These uniformity

and levy requirements apply only to property taxes, not to excise taxes. See, e.g.,

Harbour Vill. Apts. v. City of Mukilteo, 139 Wn.2d 604, 605, 608, 989 P.2d 542

9 As used in this context, “‘beyond a reasonable doubt’” is not an evidentiary standard but a reflection of “respect for the legislature.” Sch. Dists.’ All. for Adequate Funding of Special Educ. v. State, 170 Wn.2d 599, 606, 244 P.3d 1 (2010). It signifies that we will not invalidate a statute unless the challenger, “by argument and research, convince[s] the court that there is no reasonable doubt that the statute violates the constitution.” Island County v. State, 135 Wn.2d 141, 147, 955 P.2d 377 (1998).

18 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

(1999) (municipal tax on rental property was not an excise, but a property tax

violative of article VII, sections 1 and 2). The central question we must answer is

whether the capital gains tax constitutes a property tax within the meaning of our

state constitution.

As the superior court correctly observed, this inquiry is “‘guided by nearly a

century of case law.’” ACP at 867 (internal quotation marks omitted) (quoting

Kunath v. City of Seattle, 10 Wn. App. 2d 205, 216, 444 P.3d 1235 (2019), review

denied, 195 Wn.2d 1013 (2020)). However, the superior court erred in its

application of our precedent, which firmly indicates this tax is an excise. A steady

line of cases beginning with Culliton defines a “property tax” as a tax on the mere

ownership of property, while an “excise tax” applies to the exercise of rights in and

to property or the exercise of a privilege. The capital gains tax is an excise tax

because taxpayers do not owe the capital gains tax merely by virtue of owning capital

assets or capital gains, like a property tax. Instead, the tax relates to the exercise of

rights “in and to property”—namely, the power to sell or transfer capital assets—

like an excise. Mahler v. Tremper, 40 Wn.2d 405, 410, 243 P.2d 627 (1952). And

the “‘incidents’” of this tax do not make it a property tax, as the superior court

concluded, but rather confirm that it is an excise. ACP at 869. Because the capital

gains tax is appropriately characterized as an excise under our precedent, the tax is

not subject to the uniformity and levy requirements of article VII.

19 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

A. Background on Property and Excise Tax Precedent

This court once remarked there is no “precise line” separating property and

excise taxes. Morrow v. Henneford, 182 Wash. 625, 628, 47 P.2d 1016 (1935). But

over the course of decades, that line has sharpened. A survey of our cases reveals

we have articulated and consistently applied certain key principles for distinguishing

property taxes from excise taxes. Applying those principles here, the capital gains

tax falls squarely on the excise side of the line because it taxes transactions involving

capital assets—not the assets themselves or the income they generate.

As noted above, much of Washington’s modern taxation landscape stems

from reform efforts and related court decisions challenging those efforts in the early

twentieth century. In 1930, this court ruled in Aberdeen that a corporate income tax

violated federal equal protection guaranties. 157 Wash. at 365. Three years later,

the court issued its landmark decision in Culliton, addressing the constitutionality of

a newly enacted graduated personal income tax passed by voters through popular

initiative. Relying in part on Aberdeen, the court held that income is “property”

within the meaning of our state constitution, so an income tax must comply with the

uniformity and levy requirements of article VII, sections 1 and 2 of the Washington

Constitution. Culliton, 174 Wash. at 376 (invalidating graduated personal income

tax for lack of uniformity). Since Culliton, Washington appellate courts have

reaffirmed that holding, consistently striking down graduated net income taxes as

20 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

unconstitutional, nonuniform property taxes. See Jensen v. Henneford, 185 Wash.

209, 211, 215, 53 P.2d 607 (1936) (plurality decision) (personal net income tax);

Petrol. Navigation Co. v. Henneford, 185 Wash. 495, 495-96, 55 P.2d 1056 (1936)

(corporate net income tax); Power, Inc. v. Huntley, 39 Wn.2d 191, 193-95, 235 P.2d

173 (1951) (corporate net income tax); Kunath, 10 Wn. App. 2d at 211, 232

(personal net income tax). What all of these taxes had in common was that they

imposed a broad-based net income tax, capturing “almost any income from almost

every source.” Power, Inc., 39 Wn.2d at 197.

The same day this court decided Culliton, it also issued Stiner. 174 Wash.

402. That decision upheld Washington’s first B&O tax, which assessed a tax on

“‘the privilege of engaging in business activities’” in this state, as measured by

“‘gross proceeds of sales, or gross income, as the case may be.’” Id. at 404 (quoting

LAWS OF 1933, ch. 191). The Stiner court held the B&O tax is an excise, reasoning

it “does not concern itself with income which has been acquired” and instead relates

to the privilege of citizens to pursue “gainful occupation with the expectation that

[they] will be by the state fully protected and made secure . . . in [their] gains

therefrom.” Id. at 406-07. “[T]hat the amount of the tax is measured by the amount

of the income in no way affects the purpose of the act or the principle involved.” Id.

at 407. Stiner therefore distinguished between a property tax on income and an

excise tax on a particular activity or privilege, which tax is measured by income.

21 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Just two years later, in 1935, this court had an opportunity to apply the

distinction drawn in Culliton and Stiner in a case challenging the constitutionality of

a retail sales tax. We first noted that a tax’s true character “‘must be determined by

its incidents,’” not by its name. Morrow, 182 Wash. at 628 (quoting Wiseman v.

Phillips, 84 S.W.2d 91, 96 (Ark. 1935)). A property tax is “‘a tax which falls upon

the owner merely because [they are an] owner, regardless of the use or disposition

made of [their] property.’” Id. at 631 (quoting Bromley v. McCaughn, 280 U.S. 124,

137, 50 S. Ct. 46, 74 L. Ed. 226 (1929)). In contrast, an excise tax is levied “upon

licenses to pursue certain occupations, and upon corporate privileges,” like the B&O

tax. Id. at 627 (citing 1 THOMAS M. COOLEY, A TREATISE ON THE LAW OF TAXATION

§ 42 (4th ed. 1924)). And relevant to the present case, “‘a tax imposed upon a

particular use of property or the exercise of a single power over property incidental

to ownership, is an excise.’” Id. at 630 (quoting Bromley, 280 U.S. at 136). The

Morrow court upheld the retail sales tax as an excise, emphasizing it applies “‘only

to a limited exercise of property rights”’ and is “‘clearly distinguishable from a tax

which falls upon the owner merely because [they are an] owner.’” Id. at 631 (quoting

Bromley, 280 U.S. at 137).

In the decades since, this court has continued to apply the principles set forth

in Culliton, Stiner, and Morrow to determine whether a tax constitutes an excise or

property tax. For example, in Mahler this court upheld the real estate sales tax as an

22 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

excise. 40 Wn.2d at 406-07. Though that tax clearly concerned property, we held

it is a valid excise because it taxes the sale of property. Id. at 409-10. Imposition of

the tax is “not upon each and every owner merely because [they are] the owner of

the property involved” but instead “relates to an exercise of one of several rights in

and to property.” Id. (“[a] sales tax . . . is a tax upon the act or incidence of transfer”

and “not a tax upon the subject matter of that sale”); accord Black v. State, 67 Wn.2d

97, 99, 406 P.2d 761 (1965) (excise on the transaction of leasing personal property);

High Tide Seafoods v. State, 106 Wn.2d 695, 700, 725 P.2d 411 (1986) (excise on

the use, possession, and transfer of food fish for commercial purposes); Wash. Pub.

Ports Ass’n v. Dep’t of Revenue, 148 Wn.2d 637, 652, 62 P.3d 462 (2003) (excise

on the transaction of leasing public property); Covell v. City of Seattle, 127 Wn.2d

874, 889-91, 905 P.2d 324 (1995) (property tax labeled a “street utility charge” but

levied solely based on one’s status as a residential homeowner), abrogated on other

grounds by Chong Yim v. City of Seattle, 194 Wn.2d 682, 451 P.3d 694 (2019);

Harbour Vill. Apts. 139 Wn.2d at 608 (property tax on all residential properties

offered for rent, regardless of whether they were rented). Most recently, we applied

these principles in In re Estate of Hambleton, 181 Wn.2d 802, 335 P.3d 398 (2014).

There, we unanimously upheld the estate tax as an excise “because the tax is ‘not

levied on the property of which an estate is composed. Rather it is imposed upon

the shifting of economic benefits and the privilege of transmitting or receiving such

23 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

benefits.’” Id. at 832 (quoting West v. Okla. Tax Comm’n, 334 U.S. 717, 727, 68 S.

Ct. 1223, 92 L. Ed. 1676 (1948)).

Amidst this collection of precedent, there is one case reflecting a narrow

expansion of Culliton and a limited departure from Stiner, Morrow, Mahler, and

similar excise tax cases. In Apartment Operators Ass’n of Seattle, Inc. v.

Schumacher, this court considered a challenge to a state tax imposed “‘[u]pon every

person engaging within this state in the business of . . . the renting or leasing of real

property.’” 56 Wn.2d 46, 47, 351 P.2d 124 (1960) (quoting LAWS OF 1959, ch. 5, §

4). The tax was measured by gross rental business income exceeding $300 per

month. Id. At the time of Apartment Operators, the “right to levy an excise tax on

the privilege of doing business or exercising corporate franchises and to base that

tax on income” was well established. Power, Inc., 39 Wn.2d at 197; see also, e.g.,

Stiner, 174 Wash. at 407 (B&O tax is a valid excise measured by income).

Nonetheless, in a brief per curiam opinion, the court invalidated the rental tax as an

unconstitutional, nonuniform property tax under Culliton. Apt. Operators, 56 Wn.2d

at 47 (stating “a tax on rental income is a tax on property, and not an excise tax”). 10

10 The sum total of the court’s reasoning is captured in the following passage: “[A] tax on rental income is a tax on property, and not an excise tax. Furthermore, a tax upon rents from real estate is a tax upon the real estate itself, and is, thus, a second tax upon real estate. There is no tax levied by the act upon unrented real estate. For such reasons (the exclusion of gross income of under three hundred dollars and the second tax upon rental realty), the instant tax lacks the uniformity required by [article VII].” Apt. Operators, 56 Wn.2d at 47.

24 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Importantly, our subsequent cases concerning taxation of rental profits appear

to recognize Apartment Operators was flawed, and we expressly limited the holding

in that case to its facts. For example, just five years later the court examined a retail

sales tax as applied to the lease of a ship used as a floating hotel. Black, 67 Wn.2d

at 98. Citing both Morrow and Mahler, the court upheld the tax as an excise “on the

transaction of leasing tangible personal property.” Id. at 99-100. It further noted,

“To the extent that the per curiam opinion in Apartment Operators may seem to make

statements inconsistent with the above outlined principles, it is hereby deemed not

controlling in the instant case.” Id. at 100 (citation omitted). When the case was

cited nearly 40 years later, we again found Apartment Operators “not controlling”

and upheld the leasehold excise tax (LET), concluding the LET is an excise because

it applies to rental transactions for the use and occupancy of public property. Wash.

Pub. Ports Ass’n, 148 Wn.2d at 650-52. This retreat from Apartment Operators

evidences a recognition that it is out of step with the well-established rule that a tax

measured by income remains an excise so long as it relates to the exercise of a

privilege granted by the State or rights “in and to property,” such as the power to

lease or sell. Mahler, 40 Wn.2d at 410. Such excise taxes stand in contrast to taxes

assessed on property by virtue of ownership itself. See Harbour Vill. Apts., 139

Wn.2d at 607-08 (municipal per-unit “residential dwelling unit” fee was an

unconstitutional property tax because it applied to every property offered for rent

25 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

regardless of whether property was actually rented, and thus “it is not the rental

transaction which is taxed . . . it is the fact of ownership of rental property which is

taxed”); Covell, 127 Wn.2d at 889-91 (municipal “street utility charge” levied on all

residential property owners was an unconstitutional property tax because “liability

for the charge ar[ose] from [the taxpayers]’ status as property owners and not from

their use of a city service”).

This background on excise and property taxes establishes the foundation for

our conclusion that the capital gains tax is properly considered an excise tax under

Washington law and is therefore not subject to the strictures of article VII, sections

1 and 2.

B. The Capital Gains Tax Is an Excise Because It Relates to the Exercise of Rights in and to Property

The capital gains tax is an excise levied on capital transactions. Indeed,

Plaintiffs concede the tax does not apply unless “assets are sold or exchanged for

gain.” Quinn Resp’ts’ Resp. to State of Wash. Opening Br. (Quinn Br.) at 17; see

also RCW 82.87.040(1) (tax “imposed on the sale or exchange of long-term capital

assets”). No one owes the tax merely by virtue of asset ownership, as is

characteristic of property taxes. Morrow, 182 Wash. at 631 (a property tax “falls

upon the owner merely because [they are an] owner”). One can own capital assets

without ever owing the tax. One owes the tax only when they sell or exchange

qualifying long-term capital assets, as is characteristic of an excise. Mahler, 40

26 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Wn.2d at 409-10 (“a tax upon the sale of property is not a tax upon the subject matter

of that sale” and is instead an excise). It is well established that a tax relating to

rights “in and to property,” such as the power to sell capital assets, constitutes an

excise. Id. at 410.

This tax is wholly unlike the broad-based net income taxes we previously

invalidated under Culliton. Those taxes applied to the taxpayer’s aggregate net

income and were untethered to any specific taxable activity; rather, the taxable

incident was the receipt of income itself. See, e.g., Jensen, 185 Wash. at 218-19 (net

income tax purporting to tax “‘the privilege of receiving income’” was an

unconstitutional property tax because taxing “the right to receive . . . income” is

functionally equivalent to taxing income ownership (quoting LAWS OF 1935, ch.

178)); Kunath, 10 Wn. App. 2d at 222-24 (municipal tax on aggregate of net income

sources amounted to an unconstitutional property tax under Culliton). Here, the

capital gains tax does not capture net income sources but instead narrowly applies

to capital transactions resulting in realized gains. Unlike the taxes considered in

Culliton, Jensen, and similar cases involving net income taxes, this tax specifically

targets an activity long recognized as subject to excise taxation—the sale or

exchange of property.

The tax here is comparable to the real estate and rental excises we upheld in

Mahler, Black, and Washington Public Ports Ass’n. Each of those cases involved

27 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

taxes that were measured by income derived from real estate sales or rentals, but we

recognized those taxes were excises because they applied to real estate transactions.

The taxable incident is the transaction. The same is true here: the capital gains tax

is measured by gains (income) stemming from capital transactions—and it applies

when “assets are sold or exchanged for gain.” Quinn Br. at 17. Mahler, Black, and

Washington Public Ports Ass’n are controlling. To the extent Apartment Operators

supports a contrary conclusion, our later cases have limited Apartment Operators to

its facts, and we decline to expand it now.

Plaintiffs vigorously argue the taxable incident is not the transaction but the

realization of capital gains beyond $250,000. Plaintiffs confuse the tax’s subject

matter with its measure. The tax is not levied on capital gains; rather, it is measured

by capital gains. Our cases unequivocally hold that excise taxes levied on a

particular privilege or incident of property ownership may be measured by income,

and this does not transform the fundamental nature of the tax. E.g., Stiner, 174

Wash. at 407 (measuring an excise tax by income “in no way affects the purpose of

the act or the principle involved”). We have upheld many excise taxes measured by

income. See generally, e.g., Mahler, 40 Wn.2d 405 (real estate sales excise

measured as percentage of sale price); Wash. Pub. Ports Ass’n, 148 Wn.2d 637 (LET

measured as percentage of rent); Hambleton, 181 Wn.2d 802 (estate excise measured

as percentage of estate value). That this tax applies only when one realizes gains

28 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

beyond $250,000 speaks to the legislative choice to create certain deductions

establishing a threshold at which the tax applies—it does not change the taxable

incident, which remains the transaction, not the ownership of property. Indeed,

many valid excise taxes contain similar features. See, e.g., RCW 82.32.045(5)(a)

(B&O tax exempts businesses that gross $125,000 or less annually); Estate Tax

Tables, WASH. STATE DEP’T OF REVENUE (2023) (under RCW 83.100.020(1)(a)(iii),

estate tax exempts estates worth $2,193,000 or less), https://dor.wa.gov/taxes-

rates/other-taxes/estate-tax-tables [https://perma.cc/LX6G-VNXL]; RCW

82.08.0293(1) (retail sales tax exempts transactions for sale of food). Exemptions

and deductions are pervasive features of excise and property taxes alike. None of

our cases appear to suggest the presence of these features bears on the subject or

nature of the tax, which, again, relates to rights “in and to property,” as an excise.

Mahler, 40 Wn.2d at 410.11

Plaintiffs argue the capital gains tax cannot be an excise because it lacks

certain distinctive features of a classic excise tax, but they are incorrect. First,

11 Like Plaintiffs, the dissent misses this point with respect to the $250,000 deduction. The dissent views the taxable incident here as the realization of gains beyond $250,000, stating that “the financial outcome of the capital transaction determines whether the tax applies.” Dissent at 14. But the same is true of the B&O excise, which exempts businesses whose profits fall below a certain dollar threshold. In those circumstances, the financial outcome similarly determines whether the tax applies—but the B&O tax is still an excise. The legislature may permissibly establish exemptions or deductions fixing a particular threshold that triggers the tax, and the choice to do so does not alter the fact that the transaction is the taxable incident.

29 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Plaintiffs misconstrue prior cases indicating that excise taxes apply only to purely

“voluntary” conduct. They maintain a true “excise tax is ‘imposed upon a voluntary

act of the taxpayer, which affords the taxpayer the benefits of the occupation,

business, or activity that triggers the taxable event’ . . . .” Quinn Br. at 15 (quoting

Sheehan v. Cent. Puget Sound Reg’l Transit Auth., 155 Wn.2d 790, 800, 123 P.3d

88 (2005)); see also id. at 18-19 (identifying possible scenarios where “individuals

will be subject to the capital gains tax even if they do not deliberately, intentionally,

or voluntarily take any action to cause the sale or exchange of long-term capital

assets”). In Plaintiffs’ view, the capital gains tax is not an excise because one owes

the tax even in circumstances where the taxpayer does not “voluntarily” sell an asset,

for example, where a trust sells capital assets on behalf of trust beneficiaries. To be

sure, voluntariness is a distinctive feature of excise taxes, but Plaintiffs take too

narrow a view. The State correctly notes that most transactions subject to this tax

will have been voluntarily made by the taxpayer, and we are unpersuaded that the

nature of the tax changes under the circumstances proffered by Plaintiffs, where the

taxpayer does not personally undertake the transaction from which they realize a

gain. Plaintiffs’ logic falters when considered in the context of other taxes we have

held to be valid excises based on voluntary transfers of property. For example, we

unanimously upheld the estate tax as a valid excise though it is triggered by death—

an event not usually associated with individual voluntary choice. Hambleton, 181

30 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Wn.2d at 831-33 (“taxing [qualified terminable interest property] assets upon the

death of a surviving spouse qualifies as an excise tax”). And in the context of real

estate transactions, a minority owner of property would still owe the real estate

excise even if they personally objected to the majority owner’s decision to sell jointly

held property. “Voluntariness” in this context is best understood as pertaining to

some action that results in a sale or transfer of property as the taxable event, whether

or not reflecting the individual will of the taxpayer. That there may not be a personal,

deliberate decision to engage in a transaction by the taxpayer in some situations does

not transform this tax from an excise into a property tax.

Next, Plaintiffs argue the capital gains tax cannot be an excise because it does

not rest on the exercise of any taxable privilege, as with the B&O tax. Moreover,

they argue, the tax is not measured by the extent that an individual engages with any

privilege. As to the first point, the State is not always required to identify a taxable

privilege in order for a tax to constitute an excise. While that was the case with the

B&O tax at issue in Stiner, there are different flavors of excise taxes under our

precedent. Some regulate a particular privilege granted by the State, whereas others

relate “to an exercise of one of several rights in and to property,” such as purchases,

sales, and use. Mahler, 40 Wn.2d at 409-10; see also, e.g., P. Lorillard Co. v. City

of Seattle, 83 Wn.2d 586, 588-90, 521 P.2d 208 (1974) (holding municipal privilege

tax on business of wholesaling cigarettes and state tax on “sale, use, [and]

31 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

consumption” of cigarette products “are not of the same nature” for preemption

purposes, though both are excise taxes related to cigarettes). We have upheld many

taxes relating to the exercise of property rights as excise taxes without specifying a

particular privilege that is being taxed. See generally, e.g., Morrow, 182 Wash. 625

(retail sales excise); Mahler, 40 Wn.2d 405 (real estate sales excise); Black, 67

Wn.2d 97 (retail sales excise applied to lease of floating hotel); High Tide Seafoods,

106 Wn.2d 695 (excise on transfer and possession of enhanced food fish for

commercial purposes). The capital gains tax belongs to this distinct category of

excise taxes relating to incidents of property ownership, so the lack of any taxable

privilege is immaterial. As to the second point, Plaintiffs are correct that excise taxes

typically have some degree of connection between the subject matter and the

measure of the tax. See, e.g., Sheehan, 155 Wn.2d at 801 (excise taxes require a

“nexus between the privilege and the taxation method,” though the state constitution

does not demand an entirely precise fit). But when the capital gains tax is properly

viewed as a tax on the exercise of rights in and to property, there is an obvious nexus

between the subject of the tax (transactions involving capital assets) and the measure

of the tax (gains realized from capital transactions).

More broadly considered, Plaintiffs’ arguments concerning the ways in which

the capital gains tax differs from other excise taxes rests on their view of the

“incidents” of the tax. The superior court accepted these arguments, concluding that

32 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

the capital gains tax bears certain “hallmarks” of property taxes. We take this

opportunity to more specifically address the superior court’s analysis and to provide

clarity on our precedent concerning tax “incidents.”

C. The Superior Court Misapplied Our Precedent Concerning Tax “Incidents,” Which Confirm the Tax Is an Excise

In concluding the capital gains tax is a property tax on income, the superior

court relied almost exclusively on the principle that courts determine the true nature

of a tax based on “‘its incidents, not by its name.’” Harbour Vill. Apts. 139 Wn.2d

at 607 (quoting Jensen, 185 Wash. at 217); see also ACP at 869-71. The superior

court listed eight “incidents” it viewed as “hallmarks” of an income tax, then it

voided the tax for violating the uniformity and levy requirements of article VII,

sections 1 and 2.

This approach is flawed because it treats the term “incidents” as encompassing

all the various facets of a tax, ranging from exemptions and deductions, to reliance

on federal reporting mechanisms, calculation methods, and more. Though it is true

that we look beyond legislative labels and characterize a tax based on its “incidents,”

Jensen, 185 Wash. at 217, the plural term “incidents” as used in our cases describes

specific elements of a tax. We have explained that any tax statute has three basic

elements: (1) the “taxable incident,” or the activity that triggers the tax, (2) the tax

measure, or the “base that represents the value of the taxable incident,” (3) and the

tax rate, which, “when multiplied by the tax measure, determines ‘the amount of tax

33 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

due.’” Ford Motor Co. v. City of Seattle, 160 Wn.2d 32, 39, 156 P.3d 185 (2007)

(quoting 1B KELLY KUNSCH ET AL., WASHINGTON PRACTICE: METHODS OF PRACTICE

§ 72.3, at 449 (1997)). When we determine the nature of a tax, we examine the first

two elements: the subject of the tax (the “taxable incident”) and the measure. P.

Lorillard Co., 83 Wn.2d at 589 (“We approve of and adopt the criteria for

determining the incidence of a tax . . . that is, the subject matter and measure of the

tax.”); Harbour Vill. Apts. 139 Wn.2d at 607 n.1 (“The nature of a tax is revealed by

examining the subject matter of the tax and . . . ‘the measure of the tax.’” (quoting

Reed v. City of New Orleans, 593 So. 2d 368, 371 (La. 1992)). Here the taxable

incident is the sale or exchange of qualifying capital assets. The measure is the

resulting gain. Consistent with our case law, the incidents of this tax confirm it is

an excise. See generally, e.g., Mahler, 40 Wn.2d 405 (excise on sale of real property

measured by sale proceeds).

Rather than focusing on these elements, the superior court appears to have

analogized between the capital gains tax and the federal individual income tax,

drawing comparisons between the two. This is the wrong constitutional lens.

Because the federal individual income tax is considered an excise tax under federal

law, comparing various facets of the federal income tax and the capital gains tax

does not support characterizing the capital gains tax as a property tax under article

VII. See Brushaber v. Union Pac. R.R. Co., 240 U.S. 1, 16-17, 36 S. Ct. 236, 60 L.

34 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Ed. 493 (1916) (income taxes do not come “within the class of direct taxes on

property,” and “taxation on income [is] in its nature an excise entitled to be enforced

as such”). To determine whether a tax is a property tax within the meaning of the

Washington Constitution, we must look to Washington cases, which have articulated

clear principles for distinguishing property and excise taxes. The superior court

erred in its application of those principles here, instead identifying several

“hallmarks” that find little or no support in our precedent delineating quintessential

features of a property tax and that can be found in taxes we have upheld as excises.

The first such “hallmark” states the capital gains tax “relies upon federal IRS

income tax returns that Washington residents must file and is thus derived from a

taxpayer’s annual federal income tax reporting.” ACP at 869 (citing Kunath, 10 Wn.

App. 2d at 215). A related “hallmark” states the tax “is based on an aggregate

calculation of an individual’s capital gains over the course of a year from all sources,

taking into consideration various deductions and exclusions, to arrive at a single

annual taxable dollar figure.” Id. at 870. Reliance on federal tax reporting

mechanisms does not transform the capital gains tax into a property tax. For

example, we unanimously upheld the estate tax as an excise despite our express

acknowledgement that Washington’s Estate and Transfer Tax Act, ch. 83.100 RCW,

“is based” on “federal estate tax law.” Hambleton, 181 Wn.2d at 832. As with the

estate tax, there are legitimate administrative reasons why the legislature would

35 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

implement aspects of federal tax law to collect the capital gains tax, including the

use of federal forms and an aggregate calculation method. See In re Est. of Bracken,

175 Wn.2d 549, 583, 290 P.3d 99 (2012) (Madsen, J., concurring/dissenting) (by

relying on federal estate tax law, our “legislature avoided having to duplicate

congressional effort” in establishing an effective reporting system and “also helped

to avoid the complication and confusion that a different set of state rules might

create”).

Reliance specifically on federal income tax reporting makes no difference

here, either. Power is this court’s sole case suggesting that reliance on federal

income tax reporting may be relevant to the question whether a tax is an excise or

property tax on income. 39 Wn.2d 191. But federal reporting alone was not

determinative in Power, nor is it here. Power involved a corporate net income tax

the legislature levied on every bank and corporation purportedly for “‘the privilege

of exercising its corporate franchise’” in Washington. Id. at 193 (quoting LAWS OF

1951, ch. 10). In ruling this tax was an unconstitutional, nonuniform property tax

on income, the Power court noted, “It is geared throughout to the Federal income

tax legislation as it relates to corporations.” Id. at 196. But equally if not more

important was that the tax had “no reference to income from the various business

activities on which the [B&O] tax, a true excise tax, is based” but instead taxed

“almost any income from almost every source.” Id. at 196-97. The tax plainly was

36 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

not an excise because it was a broad-based levy on net income, lacking any nexus to

a taxable privilege or incident of property ownership. See id.; see also Jensen, 185

Wash. at 218-19 (privilege of receiving income is not a taxable privilege). In

contrast, the capital gains tax targets an activity long recognized as subject to excise

taxation (the sale or exchange of property), and the clear nexus between the tax’s

subject matter (capital transactions) and its measure (capital gains) distinguishes it

from the unconstitutional income tax in Power.

Another putative “hallmark” states the capital gains tax “is levied annually

(like an income tax), not at the time of each transaction (like an excise tax).” ACP

at 870. But an annual or periodic levy is not a “hallmark” of a property tax under

our precedent. Many valid excise taxes are levied in this same way. See, e.g.,

Sheehan, 155 Wn.2d at 795 (motor vehicle excise tax due annually); RCW

82.32.045(1)-(3) (excise taxes under chapters 82.04 (B&O), 82.08 (retail sales),

82.14 (local retail sales and use), and 82.16 (public utility) RCW can be reported and

paid on monthly, quarterly, or annual basis). An additional “hallmark” is that the

tax “includes a deduction for certain charitable donations the taxpayer has made

during the tax year.” ACP at 870. But Washington’s estate tax, which we

unanimously upheld as an excise in Hambleton, also contains deductions for

charitable donations. WAC 458-57-115(2)(c). These features tell us nothing about

whether the tax is an excise or property tax.

37 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

The superior court also distinguished the measure of the capital gains tax from

the real estate excise tax. ACP at 870 (identifying “hallmark” that the tax “is levied

not on the gross value of the property sold in a transaction (like an excise tax . . .),

but on an individual’s net capital gain (like an income tax)).” We find no authority

for the proposition that an excise tax on property transactions must be measured by

gross property value, or that a property tax must be measured by net gain. Indeed,

property taxes, not excises, are quintessentially measured on an ad valorem basis.

And we have upheld other transaction-related excises measured in some other

manner than by gross property value. See, e.g., Wash. Pub. Ports Ass’n, 148 Wn.2d

at 650-52 (LET assessed against amount of taxable rent). This measure of the tax

does not constitute a hallmark that defines the capital gains tax as a property tax.

As with the Plaintiffs’ analysis of taxable “incidents,” the superior court’s

reliance on certain “hallmarks” of the capital gains tax drifts from the relevant

distinctions drawn in our precedent. The principles developed in the line of cases

from Culliton and Stiner through Hambleton support the conclusion that the capital

gains tax is in the nature of an excise tax, not a property tax subject to the strictures

of article VII, sections 1 and 2. In light of this holding, we need not address the

uniformity and levy limitations of article VII, and we decline to reexamine the

Culliton decision, as the capital gains excise tax falls outside the scope of Culliton’s

holding related to property taxes on income. We next turn to Plaintiffs’ remaining

38 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

challenges to the tax under the state privileges and immunities clause and the federal

dormant commerce clause.

II. Plaintiffs’ Remaining Constitutional Challenges Fail

Separate from their article VII claim, Plaintiffs seek to facially invalidate the

capital gains tax on two additional constitutional grounds. They argue the tax

violates (1) the privileges and immunities clause of the state constitution and (2) the

dormant commerce clause of the federal constitution. We hold the capital gains tax

does not violate either constitutional provision.

A. The Capital Gains Tax Does Not Violate the Privileges and Immunities Clause of the Washington Constitution

As the party challenging the constitutionality of the capital gains tax, Plaintiffs

bear the burden of proving a privileges and immunities violation. Woods v. Seattle’s

Union Gospel Mission, 197 Wn.2d 231, 239, 481 P.3d 1060 (2021). Plaintiffs’

privileges and immunities claim fails because they have not established that the

capital gains tax implicates a fundamental right of state citizenship, and even if it

did, reasonable grounds support the tax.

“No law shall be passed granting to any citizen, class of citizens, or

corporation other than municipal, privileges or immunities which upon the same

terms shall not equally belong to all citizens, or corporations.” WASH. CONST. art.

I, § 12. In some contexts, the Washington Constitution’s privileges and immunities

clause provides substantially similar protections to the federal equal protection

39 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

clause. Schroeder v. Weighall, 179 Wn.2d 566, 571, 316 P.3d 482 (2014); U.S.

CONST. amend. XIV. However, we conduct an independent state constitutional

analysis where a challenged law implicates a fundamental right of state citizenship,

which rights are well defined in our cases. Id. at 572. We first ask whether the

challenged law grants a “privilege” or “immunity” and, if so, whether there is a

“reasonable ground” for granting that immunity. Id. at 573.

Plaintiffs’ claim fails at both steps of the analysis. They first claim the capital

gains tax implicates the fundamental right to be exempt from taxes from which other

Washingtonians are exempt. Quinn Br. at 33 (quoting Grant County Fire Prot. Dist.

No. 5 v. City of Moses Lake, 150 Wn.2d 791, 813, 83 P.3d 419 (2004)). But we have

never recognized such a right. Plaintiffs root their argument in a misreading of Grant

County and State v. Vance, 29 Wash. 435, 70 P. 34 (1902). In those cases, we listed

examples of fundamental rights recognized under the federal privileges and

immunities clause, which included the right “to be exempt . . . from taxes or

burdens which . . . citizens of some other state are exempt from.” Grant County,

150 Wn.2d at 813 (emphasis added) (quoting Vance, 29 Wash. at 458). This

privilege relates to the federal right of nonresidents to enter a state, compete for

business, and pay taxes on equal footing with residents of that state. See Lunding v.

N.Y. Tax Appeals Tribunal, 522 U.S. 287, 296, 118 S. Ct. 766, 139 L. Ed. 2d 717

(1998) (federal privileges and immunities clause protects “the right of a citizen of

40 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

any State to ‘remove to and carry on business in another without being subjected in

property or person to taxes more onerous than the citizens of the latter State are

subjected to’” (quoting Shaffer v. Carter, 252 U.S. 37, 56, 40 S. Ct. 221, 64 L. Ed.

445 (1920))). Neither Grant County nor Vance recognized a fundamental right of

Washington residents to enjoy the same tax exemptions enjoyed by all other

Washington residents.

Even assuming the capital gains tax grants a privilege or immunity implicating

a fundamental right, Plaintiffs’ claim still fails because reasonable grounds support

the legislature’s classification choices. We have recognized that “the level of

scrutiny applied when determining whether a ‘reasonable ground’ exists in

distinguishing between classifications has differed depending on the issues

involved.” Grant County Fire Prot. Dist. No. 5 v. City of Moses Lake, 145 Wn.2d

702, 731-32, 42 P.3d 394 (2002), vacated in part on other grounds, 150 Wn.2d 791.

Because the legislature has broad discretion when making classifications for taxation

purposes, we will not void a tax under article I, section 12 if “‘any state of facts can

reasonably be conceived that would sustain the classification.’” Id. at 732 (quoting

United Parcel Serv., Inc. v. State, 102 Wn.2d 355, 369, 687 P.2d 186 (1984)).

The capital gains tax meets this standard. We have previously recognized that

“the equalization of the burdens of taxation” is a “lawful taxing policy of the state.”

Tex. Co. v. Cohn, 8 Wn.2d 360, 387, 112 P.2d 522 (1941). And the funding of public

41 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

education is plainly a lawful taxing purpose, indeed it is the State’s “paramount

duty.” WASH. CONST. art. IX, § 1; see also McCleary v. State, 173 Wn.2d 477, 529,

269 P.3d 227 (2012) (holding State failed in its affirmative constitutional duty to

amply fund K-12 education). The legislature’s express purpose in enacting the

capital gains tax is to help meet the State’s paramount duty to amply fund public

education and to make “material progress toward rebalancing the state’s tax code.”

RCW 82.87.010. Through targeted exemptions, this tax will generate substantial

new revenue for public education without exacerbating existing inequities as

between individuals by requiring Washington’s wealthiest to pay a greater share of

their overall income in state taxes. Plaintiffs may disagree with the legislative policy

behind the capital gains tax, but they fall short of demonstrating that policy is

unreasonable under article I, section 12. The State is therefore entitled to summary

judgment on Plaintiffs’ privileges and immunities claim.

B. The Capital Gains Tax Does Not Violate the Dormant Commerce Clause of the United States Constitution

Finally, we hold that Plaintiffs’ dormant commerce clause claim fails because

the capital gains tax satisfies federal constitutional requirements. The commerce

clause grants Congress the power to “regulate commerce . . . among the several

states.” U.S. CONST. art. I, § 8, cl. 3. Implicit in this affirmative grant lies “a further,

negative command, known as the dormant Commerce Clause, prohibiting certain

state taxation even when Congress has failed to legislate on the subject.” Okla. Tax

42 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 179, 115 S. Ct. 1331, 131 L. Ed. 2d

261 (1995). Over the decades, the United States Supreme Court has construed the

dormant commerce clause to protect the flow of interstate commerce and to prevent

states from “retreating into economic isolation or jeopardizing the welfare of the

Nation as a whole.” Id. at 180. The Court’s dormant commerce clause jurisprudence

has evolved over the years, rejecting a formalistic approach in favor of a practical

one. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 278-79, 97 S. Ct. 1076, 51

L. Ed. 2d 326 (1977) (rejecting formalistic Spector Motor Serv. Inc. v. O’Connor,

340 U.S. 602, 71 S. Ct. 508, 95 L. Ed. 573 (1951), rule that believed “interstate

commerce should enjoy a sort of ‘free trade’ immunity from state taxation”); see

also Goldberg v. Sweet, 488 U.S. 252, 259-60, 109 S. Ct. 582, 102 L. Ed. 2d 607

(1989) (noting that Complete Auto sought to resolve tension by “specifically

rejecting the view that the States cannot tax interstate commerce, while at the same

time placing limits on state taxation of interstate commerce”); Commonwealth

Edison Co. v. Montana, 453 U.S. 609, 615-16, 101 S. Ct. 2946, 69 L. Ed. 2d 884

(1981) (holding that courts must apply a “‘consistent and rational method of

inquiry,’” which we get from Complete Auto (quoting Mobil Oil Corp. v. Comm’r

of Texas, 495 U.S. 425, 100 S. Ct. 1223, 63 L. Ed. 2d 510 (1980)).

Since Complete Auto, courts have consistently applied a four-part test to

determine whether a state tax violates the dormant commerce clause. See, e.g.,

43 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Wash. Bankers Ass’n, 198 Wn.2d at 429. The Complete Auto test “requires a tax to

be (1) ‘applied to an activity with a substantial nexus with the taxing State,’ (2)

‘fairly apportioned,’ (3) nondiscriminatory with respect to interstate commerce, and

(4) ‘fairly related to the services provided by the State.’” Id. (quoting Complete

Auto, 430 U.S. at 279). “If a tax fails any one of these requirements, it is invalid.”

Id. (citing Ford Motor Co., 160 Wn.2d at 48). The State urges us to abandon the

Complete Auto test and instead reject Plaintiffs’ dormant commerce clause claim “if

there are any circumstances where the statute can constitutionally be applied.”

Wash. State Republican Party v. Pub. Disclosure Comm’n, 141 Wn.2d 245, 282

n.14, 4 P.3d 808 (2000). Because the State has cited no authority explaining why

we should abandon the Complete Auto test, and we can see no basis to depart from

it now, we adhere to Complete Auto.

The parties agree that the capital gains tax meets the fourth prong of the

Complete Auto test and that Washington may tax capital gains derived from the sale

or exchange of tangible property within its borders without violating the dormant

commerce clause. We must therefore determine whether the statute’s two other

allocation methods—capital gains derived from the sale or exchange of (a)

intangible property or (b) tangible property located out-of-state at the time of the

transaction but owned by a taxpayer domiciled in-state—violate the first, second, or

third prong of the Complete Auto test. See RCW 82.87.100(1).

44 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

The first prong of the Complete Auto test asks whether there is a substantial

nexus between the taxing state and the taxable event. South Dakota v. Wayfair, Inc.,

585 U.S. __,138 S. Ct. 2080, 2099, 201 L. Ed. 2d 403 (2018). A nexus exists when

taxpayers avail themselves of “[t]he substantial privilege of carrying on business in

[the State].” Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444-45, 61 S. Ct. 246, 85

L. Ed. 267 (1940); see also Commonwealth Edison Co., 453 U.S. at 626 (“[I]t is the

activities or presence of the taxpayer in the State that may properly be made to bear

a ‘just share of state tax burden.’” (emphasis added) (quoting W. Live Stock v. Bureau

of Revenue, 303 U.S. 250, 254, 58 S. Ct. 546, 82 L. Ed. 823 (1938))). Long-standing

precedent holds the taxpayer’s domicile state has tax jurisdiction over the sale or

exchange of intangible goods. Curry v. McCanless, 307 U.S. 357, 368-69, 59 S. Ct.

900, 83 L. Ed. 1339 (1939).

A substantial nexus exists to support Washington’s taxation of capital gains

derived from the sale or exchange of tangible property located out-of-state.

Plaintiffs argue a taxpayer’s Washington residency cannot satisfy the nexus

requirement. We reject this argument because it erroneously assumes that the capital

gains tax is levied on the property rather than on the incidents and rights associated

with the property. As explained, the capital gains tax is levied on capital

transactions—not mere ownership of capital assets or gains—and the taxable

incident is the taxpayer’s exercise of their power to dispose of capital assets. That

45 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

power is exercised in the state where the taxpayer is domiciled. Curry is illustrative.

There, the Supreme Court determined a decedent’s domicile state (Tennessee) had

jurisdiction to tax the transfer of an interest in stocks and bonds held in trust by an

Alabama trustee. Curry, 307 U.S. at 370-71. It concluded Tennessee could tax the

transaction because

[t]he decedent’s power to dispose of the intangibles was a potential source of wealth which was property in her hands from which she was under the highest obligation, in common with her fellow citizens of Tennessee, to contribute to the support of the government whose protection she enjoyed. Exercise of that power, which was in her complete and exclusive control in Tennessee, was made a taxable event by the statutes of the state.

Id. Like the inheritance tax in Curry, the capital gains tax relates to the taxpayer’s

exercise of rights in and to property, including the power to dispose of that property.

Washington also has a nexus to the taxpayer’s intangible property. The

Supreme Court has held that a domicile state can tax intangibles even when the

intangibles exist outside the state or when the taxpayer expands their activities

outside of their domicile state. Specifically, the Court stated:

[I]t is undeniable that the state of domicile is not deprived, by the taxpayer’s activities elsewhere, of its constitutional jurisdiction to tax [intangibles], and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer’s intangibles.

Curry, 307 U.S. at 368; see also In re Est. of Plasterer, 49 Wn.2d 339, 341-42, 301

P.2d 539 (1956) (domicile state had jurisdiction to impose inheritance tax on the

46 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

heirs’ right to receive payments from the sale of the decedent’s real property located

in another state because “[i]ntangible personal property has its situs at the domicile

of the owner at the time of [their] death”). We hold that the taxpayer’s in-state

domicile provides a sufficient nexus between Washington and capital gains derived

from the sale or exchange of intangible property.

The second question in the Complete Auto test asks whether a tax is fairly

apportioned “to ensure that each State taxes only its fair share of an interstate

transaction.” Goldberg, 488 U.S. at 260-61. To assess any threat of

malapportionment, we must ask whether the tax is internally consistent, and, if so,

whether it is externally consistent as well. Jefferson Lines, 514 U.S. at 185. A tax

is internally consistent when it is “structured so that if every State were to impose

an identical tax, no multiple taxation would result.” Goldberg, 488 U.S. at 261.

Internal consistency looks to the structure of the tax, not its economic reality.

Jefferson Lines, 514 U.S. at 185. “The external consistency test asks whether the

State has taxed only that portion of the revenues from the interstate activity which

reasonably reflects the in-state component of the activity being taxed.” Goldberg,

488 U.S. at 262. External consistency pertains to “the economic justification for the

State’s claim upon the value taxed.” Jefferson Lines, 514 U.S. at 185. “[T]he threat

of real multiple taxation (though not by literally identical statutes) may indicate a

State’s impermissible overreaching.” Id.

47 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

We hold the capital gains tax is internally consistent. The statute allocates to

Washington long-term capital gains or losses from the sale or exchange of (1)

tangible personal property located in-state, (2) tangible personal property located

out-of-state if (i) the property was in-state any time during the present or previous

taxable year, (ii) the taxpayer was a resident at the time of sale, or (iii) another

jurisdiction does not subject the taxpayer to payment of an income or excise tax on

those capital gains, and (3) intangible property if the taxpayer was domiciled in

Washington. RCW 82.87.100(1). The statute also includes a tax credit to prevent

any possible multiple taxation. RCW 82.87.100(2)(a) (tax credit allowed “equal to

the amount of any legally imposed income or excise tax paid by the taxpayer to

another taxing jurisdiction on capital gains derived from capital assets within the

other taxing jurisdiction”). The United States Supreme Court has repeatedly held

that a tax credit is an acceptable method of avoiding dormant commerce clause

infirmity. See, e.g., Comptroller of Treasury v. Wynne, 575 U.S. 542, 567-68, 135

S. Ct. 1787, 191 L. Ed. 2d 813 (2015) (suggesting “Maryland could remedy the

infirmity in its tax scheme by offering” tax credit); Goldberg, 488 U.S. at 264 (“To

the extent that other States’ [taxing schemes] pose a risk of multiple taxation, the

credit provision contained in the Tax Act operates to avoid actual multiple

taxation.”); D.H. Holmes Co. v. McNamara, 486 U.S. 24, 31, 108 S. Ct. 1619, 100

48 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

L. Ed. 2d 21 (1988) (Louisiana taxing scheme fairly apportioned because it provides

tax credit). 12

In addition, we reject Plaintiffs’ argument that the tax fails internal

consistency merely because another taxing jurisdiction could tax the capital

transaction. The “limited possibility of multiple taxation . . . is not sufficient to

invalidate” an entire tax scheme. Goldberg, 488 U.S. at 264. Multiple states may

have an interest in taxing an activity related to intangible property without raising

apportionment concerns. See Mobil Oil Corp., 445 U.S. at 444-45. Plaintiffs have

failed to demonstrate how the statute would result in multiple taxation if all states

adopted the same tax. Hypotheticals are not sufficient to facially invalidate the tax,

and an as-applied challenge is the best remedy for a taxpayer if any of those

hypothetical circumstances materialize and in fact result in multiple taxation.

12 Plaintiffs claim the tax credit cannot save the capital gains tax because it extends only “to capital gains paid by the taxpayer to another state ‘from capital assets within the other taxing jurisdiction.’” Quinn Br. at 56-57 (quoting ESSB 5096, § 11(2)(a)); see also RCW 82.87.100(2)(a). They offer a hypothetical where a taxpayer with multiple residencies, such as Washington and California, could experience multiple taxation. Id. But the statutory definition of “residency” ensures that an individual can have only one residency. RCW 82.87.020(10) (residency relates to domicile). Moreover, it appears Washington’s capital gains tax would not apply in Plaintiffs’ example because California taxes capital gains as income. RCW 82.87.100(1)(a)(iii) (gains allocated to Washington if “[t]he taxpayer is not subject to the payment of an income or excise tax legally imposed on the long-term capital gains or losses by another taxing jurisdiction” (emphasis added)).

49 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

Goldberg, 488 U.S. at 264 (remote possibility of multiple taxation insufficient to

facially invalidate tax).

We also hold the capital gains tax is externally consistent. Plaintiffs complain

that a taxpayer’s residency does not give Washington an economic justification for

taxing capital gains derived from the sale or exchange of intangible property or

personal property located out-of-state. But, as explained, Washington does have a

valid interest in taxing these gains. Plaintiffs also argue the capital gains tax lacks

“any principles of apportionment” and potentially subjects individuals to multiple

taxation. Quinn Br. at 60 (emphasis omitted). Plaintiffs have “exaggerated the

extent to which the [capital gains tax] creates a risk of multiple taxation.” Goldberg,

488 U.S. at 262-63. The allocations found in RCW 82.87.100 detail when capital

gains are attributed to Washington, and the tax credit prevents any real risk of

multiple taxation. RCW 82.87.100(2)(a); D.H. Holmes, 486 U.S. at 31. The statute

also permits taxpayers to deduct from their Washington capital gains “[a]mounts that

the state is prohibited from taxing under the Constitution of this state or the

Constitution or laws of the United States.” RCW 82.87.060(2). Because the tax is

internally and externally consistent, it satisfies Complete Auto’s second prong

requiring fair apportionment.

As to Complete Auto’s third prong, we hold the capital gains tax does not

discriminate against interstate commerce. “A tax may be discriminatory on its face,

50 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

in purpose, or by having the effect of unduly burdening interstate commerce.” Wash.

Banker’s Ass’n, 198 Wn.2d at 429. “A facially discriminatory law textually

identifies out-of-state persons or entities and grants them unfavorable treatment.”

Filo Foods, LLC v. City of SeaTac, 183 Wn.2d 770, 809, 357 P.3d 1040 (2015)

(citing Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 568 &

n.2, 117 S. Ct. 1590, 137 L. Ed. 2d 852 (1997)). A tax has a discriminatory effect if

it subjects “‘interstate commerce to the burden of ‘multiple taxation.’” Wynne, 575

U.S. at 549-50 (internal quotation marks omitted) (quoting Nw. States Portland

Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S. Ct. 357, 3 L. Ed. 2d 421 (1959)).

In this respect, “the anti-discrimination principle has not in practice required much

in addition to the requirement of fair apportionment.” Container Corp. of Am. v.

Franchise Tax Bd., 463 U.S. 159, 171, 103 S. Ct. 2933, 77 L. Ed. 2d 545 (1983).

The capital gains tax is not facially discriminatory because the plain text of the

statute does not treat out-of-state individuals unfavorably. And as discussed, the

capital gains tax does not subject an individual to multiple taxation because it

provides a method for allocating capital gains to Washington and the tax credit

removes any risk of actual multiple taxation.

Because the capital gains tax satisfies all four elements of the Complete Auto

test, Plaintiffs have failed to demonstrate a dormant commerce clause violation and

the State is entitled to summary judgment on this claim. While Plaintiffs’ facial

51 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

challenge fails, we note that our holding today does not foreclose future as-applied

challenges under the dormant commerce clause should factual circumstances arise

in which the tax cannot be constitutionally applied.

CONCLUSION

The capital gains tax is a valid excise tax under Washington law. Because it

is not a property tax, it is not subject to the uniformity and levy requirements of

article VII, sections 1 and 2 of the Washington Constitution. In light of this holding,

we decline to interpret article VII or to reconsider our decision in Culliton. We

further hold the tax is consistent with our state constitution’s privileges and

immunities clause and the federal dormant commerce clause. We reverse the

superior court order invalidating the capital gains tax and remand for further

52 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Quinn v. State, No. 100769-8

WE CONCUR:

___________________________ ____________________________

____________________________ ____________________________

53 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

No. 100769-8

GORDON McCLOUD, J. (dissenting)—“Capital gains” are income. 1

In Washington, income is property. 2

A Washington “capital gains tax”3 is therefore a property tax.

1 A “capital gain” is “[t]he profit realized when a capital asset is sold or exchanged.” BLACK’S LAW DICTIONARY 259 (11th ed. 2019); see also U.S. INTERNAL REVENUE SERV. (IRS), Tax Topic No. 409: Capital Gains and Losses, https://www.irs.gov/taxtopics/tc409 (last updated Jan. 26, 2023). A “capital-gains tax” is therefore “[a] tax on income derived from the sale of a capital asset.” BLACK’S LAW DICTIONARY, supra, at 1758. All 41 other states that tax capital gains treat such a tax as an income tax. See Elizabeth McNichol, State Taxes on Capital Gains, CTR. ON BUDGET & POL’Y PRIORITIES (June 15, 2021), https://www.cbpp.org/research/state-budget-and- tax/state-taxes-on-capital-gains [https://perma.cc/TN7N-7EPR]. So does the IRS. IRS, Tax Topic No. 409, supra. 2 As the United States Supreme Court has said, state law defines property rights: “‘[p]roperty interests . . . are not created by the [United States] Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.’” Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 161, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980) (most alterations in original) (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972)). Washington Constitution article VII, section 1 has one of the broadest definitions of “property” in this country: “The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.” Since “income” is obviously “subject to ownership” (as recognized by states defining everything from “theft” to “forfeiture” recognize), income obviously constitutes property. 3 The code reviser creates the titles for new chapters of the Revised Code of Washington “without changing the meaning of any such law.” RCW 1.08.015(2)(l). The title the code reviser gave to this law is “Capital Gains Tax.” See ch. 82.87 RCW.

1 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

The problem is that in Washington, our constitution limits any such property

tax to one percent annually. 4 The Washington Legislature nevertheless enacted a

new law, Engrossed Substitute Senate Bill (ESSB) 5096, 67th Leg., Reg. Sess.

(Wash. 2021), codified at ch. 82.87 RCW, which taxes “capital gains” at seven

percent annually. That’s more than one percent. This new “capital gains” tax

therefore constitutes a property tax that violates the Washington Constitution’s

“one percent” annual limit on such a “property” tax.

In a contest between a Washington statute and the plain language of the

Washington Constitution, the judicial branch has the duty to uphold the

constitution.

I therefore respectfully dissent.

FACTUAL AND PROCEDURAL HISTORY

The history and the language of this new law show that it taxes the net

income received from capital gains.

The 2021 legislature enacted ESSB 5096. It imposes a seven percent annual

tax on an individual’s “Washington capital gains” beginning January 1, 2022.

4 WASH. CONST. art. VII, § 2 (“the aggregate of all tax levies upon real and personal property by the state and all taxing districts . . . shall not in any year exceed one percent of the true and fair value of such property in money”).

2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

LAWS OF 2021, ch. 196 (codified as ch. 82.87 RCW). The new statute defines the

term “Washington capital gains” as “an individual’s adjusted capital gain.” RCW

82.87.020(13). It then defines “an individual’s adjusted capital gain” as the

individual’s “net long-term capital gain reportable for federal income tax

purposes,” with some exceptions for losses carried forward or back. RCW

82.87.020(1), (3). The statute exempts certain long-term capital gains 5 and gains

not attributable to Washington from the reach of this new tax. RCW

82.87.020(1)(d), (e). Thus, the resulting “adjusted capital gain” represents the net

income realized by the taxpayer from the sale of qualifying long-term capital

assets.

After determining the amount of “Washington capital gains,” the taxpayer

may take a standard deduction of $250,000, or a total of $250,000 for spouses and

domestic partners; an adjusted deduction for gains derived from the sale or transfer

of certain family-owned small businesses; and a $100,000 deduction for charitable

donations over $250,000 made to certain Washington-based nonprofit

5 RCW 82.87.050 exempts certain categories of long-term capital gains, including real estate transactions, assets held in retirement accounts, assets pursuant to or under imminent threat of condemnation proceedings, certain depreciable property, certain livestock, timber and timberland, commercial fishing privileges, and goodwill received from the sales of auto dealerships.

3 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

organizations. RCW 82.87.060. The final amount of “Washington capital gains” is

multiplied by seven percent to determine the total tax liability. RCW 82.87.040(1).

“The tax applies when the Washington capital gains are recognized by the

taxpayer in accordance with this chapter.” RCW 82.87.040(4)(a) (emphasis added).

“If an individual’s Washington capital gains are less than zero for a taxable year,

no tax is due under this section.” RCW 82.87.040(3).

As detailed by the majority, the Quinn and Clayton Plaintiffs separately filed

suit in Douglas County Superior Court, challenging the new tax. See majority at

14-16. They argued (among other things) that the new tax constitutes a property

tax and that it therefore violates the state constitution’s one percent and uniformity

limits on property taxes. WASH. CONST. art. VII, §§ 1, 2. After consolidating the

cases and granting a motion to intervene by Edmonds School District, Tamara

Grubb, Mary Curry, and the Washington Education Association (“Intervenors”),

the trial court ruled in favor of the plaintiffs on cross motions for summary

judgment. Majority at 15; Clerk’s Papers at 862. We granted direct review of the

case and accepted amicus briefing from numerous parties.

STANDARD OF REVIEW

This case asks us to interpret both a statute and the constitution. We review

issues of statutory interpretation de novo. Dep’t of Ecology v. Campbell & Gwinn,

4 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). When interpreting a statute, we begin with

“the plain language enacted by the legislature, considering the text of the provision

in question, the context of the statute in which the provision is found, related

provisions, amendments to the provision, and the statutory scheme as a whole.”

Lenander v. Dep’t of Ret. Sys., 186 Wn.2d 393, 403, 377 P.3d 199 (2016) (citing

Campbell & Gwinn, 146 Wn.2d at 10-11). If a statute is ambiguous, we may turn

to other tools of statutory interpretation, such as legislative history. Campbell &

Gwinn, 146 Wn.2d at 12.

We also review issues of constitutional interpretation de novo. Wash. State

Legislature v. Inslee, 198 Wn.2d 561, 569, 498 P.3d 496 (2021). “The ultimate

power to interpret, construe and enforce the constitution of this State belongs to the

judiciary.” Seattle Sch. Dist. No. 1 v. State, 90 Wn.2d 476, 496, 585 P.2d 71 (1978)

(citing cases); see also Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L. Ed.

60 (1803) (“It is emphatically the province and duty of the judicial department to

say what the law is.”). “When interpreting constitutional provisions, we look first

to the plain language of the text and will accord it its reasonable interpretation.”

Wash. Water Jet Workers Ass’n v. Yarbrough, 151 Wn.2d 470, 477, 90 P.3d 42

(2004) (citing Anderson v. Chapman, 86 Wn.2d 189, 191, 543 P.2d 229 (1975)).

“In construing constitutional language, words are given their ordinary meaning

5 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

unless otherwise defined.” Zachman v. Whirlpool Fin. Corp., 123 Wn.2d 667, 670,

869 P.2d 1078 (1994) (citing State ex rel. O’Connell v. Slavin, 75 Wn.2d 554, 557,

452 P.2d 943 (1969) (citing State ex rel. Albright v. Spokane, 64 Wn.2d 767, 394

P.2d 231 (1964))). If a constitutional provision is ambiguous, we may “rely on

principles of statutory construction” to determine meaning. Id. at 671. Such

principles may include examining the historical context of the constitutional

provision. Id.; Wash. Water Jet Workers Ass’n, 151 Wn.2d at 477 (citing Yelle v.

Bishop, 55 Wn.2d 286, 291, 347 P.2d 1081 (1959)).

I. The Washington constitution contains an extremely broad definition of “property” as anything capable of “ownership”—and that includes income

We begin with the language of our state constitution. Article VII, sections 1

and 2 provide, in relevant part:

All taxes shall be uniform on the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. . . .

. . . Except as hereinafter provided . . . the aggregate of all tax levies upon real and personal property by the state and all taxing districts . . . shall not in any year exceed one percent of the true and fair value of such property in money.

6 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

(Emphasis added.)

In sum, the state constitution says that the word “property,” as used in the

property tax limitation provision, means “everything . . . subject to ownership.”

That’s pretty broad. It does not limit that definition—instead, it provides enlarging

examples: “everything, whether tangible or intangible.” Again, that’s pretty broad.

The only possible limiting factor is that the piece of “everything” being

considered must be “subject to ownership.” The parties do not seriously deny that

income is subject to ownership. Income is certainly treated as something that is

capable of ownership by the law, in every context from criminal statutes to civil

forfeiture statutes.

We therefore start with the axiom that income is subject to ownership and,

hence, subject to article VII, sections 1 and 2 of the Washington Constitution.

II. The new “capital gains tax” taxes income; since income is a species of property, the new capital gains tax constitutes a property tax—not an excise tax

The key question in this case is whether the capital gains tax taxes capital

gains or taxes something else.

As discussed above, every state that taxes “capital gains” treats such gains as

income. In Washington, income is property. It necessarily follows that a

7 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

Washington “capital gains tax” constitutes a property tax that is subject to our

constitution’s article VII, section 1 one percent limit.

The majority tries to avoid this conclusion by advancing one main argument:

that the new “capital gains tax” is really a “capital transactions” tax that just

coincidentally happens to be measured by the amount of income it generates. One

way the majority does this is by calling the taxable incident of the new law the

capital transaction, rather than the “recognized” gain from the transaction, as the

text of the statute says. Majority at 20. Another way the majority does this is by

describing this new law as an “excise tax” exempt from the state constitutional

limit on property taxes—despite the fact that this court has never before treated a

tax on net income as an excise tax. Id. at 19-20.

I agree with the majority’s starting point: the character of a tax is

“‘determined by its incidents,’” not by the label the legislature uses. Majority at 22

(internal quotation marks omitted) (quoting Morrow v. Henneford, 182 Wash. 625,

628, 47 P.2d 1016 (1935)). And I agree with the majority that an excise tax is one

that “tax[es] ‘a particular use or enjoyment of property or the shifting from one to

8 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

another of any power or privilege incidental to the ownership or enjoyment of

property.’” 6

The majority takes these rules and concludes that the capital gains tax

constitutes an excise tax because “it taxes transactions involving capital assets—

not the assets themselves or the income they generate.” Majority at 20.

But that’s not what the statute says. The plain language, context, and

practical impact of the statute all compel the opposite conclusion: RCW 82.87.040

taxes the “gains” or income “recognized” by the transferrer of a qualifying capital

asset. The statute does not tax the transfer itself.

First, let’s define some terms. As outlined above, the statute imposes a tax

on certain long-term capital gains. The statute says the starting point for calculating

the tax is the “net long-term capital gain reportable for federal income tax

6 In re Est. of Hambleton, 181 Wn.2d 802, 811, 335 P.3d 398 (2014) (quoting Fernandez v. Wiener, 326 U.S. 340, 352, 66 S. Ct. 178, 90 L. Ed. 116 (1945)); see also Morrow, 182 Wash. at 627, 630 (defining excise tax as a tax imposed “upon licenses to pursue certain occupations, and upon corporate privileges” or “‘upon a particular use of property or the exercise of a single power over property incidental to ownership’” (quoting Bromley v. McCaughn, 280 U.S. 124, 136, 50 S. Ct. 46, 74 L. Ed. 226 (1929))); Jensen v. Henneford, 185 Wash. 209, 218, 53 P.2d 607 (1936) (plurality opinion) (“When a tax is, in truth, levied for the exercise of a substantive privilege granted or permitted by the state, the tax may be considered as an excise tax and sustained as such.”); BLACK’S LAW DICTIONARY, supra, at 1759 (defining “excise tax” as a tax “imposed on the manufacture, sale, or use of goods (such as a cigarette tax), or on an occupation or activity (such as a license tax or an attorney occupation fee)”).

9 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

purposes.” RCW 82.87.020(3). Federal law defines “net long-term capital gain” as

“the excess of long-term capital gains for the taxable year over the long-term

capital losses for such year.” 26 U.S.C. § 1222. In other words, a “capital gain” is

“[t]he profit realized when a capital asset is sold or exchanged.” BLACK’S LAW

DICTIONARY, supra, at 259; see also U.S. INTERNAL REVENUE SERV. (IRS): Tax

Topic No. 409: Capital Gains and Losses, https://www.irs.gov/taxtopics/tc409 (last

updated Jan. 26, 2023). A “capital-gains tax,” then, is “[a] tax on income derived

from the sale of a capital asset.” BLACK’S LAW DICTIONARY, supra, at 1758.

Though not dispositive of this issue of state statutory interpretation, it is worth

noting that the IRS and all 41 states that tax capital gains treat such gains as

income and a tax on them as an income tax. 7

7 McNichol, supra; IRS, Tax Topic No. 409, supra; see also, e.g., Capital Gains and Losses, STATE OF CAL. FRANCHISE TAX BD. (“All capital gains are taxed as ordinary income.”), https://www.ftb.ca.gov/file/personal/income-types/capital-gains-and- losses.html; Capital Gains, IDAHO STATE TAX COMM’N (“A capital gain can be short- term (one year or less) or long-term (more than one year), and you must report it on your income tax return.”), https://tax.idaho.gov/taxes/income-tax/individual- income/filing/capital-gains/; M ICH . DEP ’T OF TREASURY , 2022 TAX TEXT 122, https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/MISC/Tax- Professionals/2022_Tax_Text.pdf#page=122; Individual Income Tax FAQs: What Is the Mississippi Tax Treatment of Long-Term Capital Gains?, M ISS. DEP ’T OF REVENUE , https://www.dor.ms.gov/individual/individual-income-tax-faqs; Capital Gains, N.J. D IV . OF T AX ’N , N.J. TREASURY, https://www.state.nj.us/treasury/taxation/njit9.shtml#:~:text=If%20you%20are%20a%20 New,your%20basis%20in%20the%20property.

10 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

What is dispositive in determining the nature of the tax is the plain language

of the tax statute. Ford Motor Co. v. City of Seattle, 160 Wn.2d 32, 40, 156 P.3d

185 (2007). I agree with the majority that to determine the nature of the tax, we

look at the “‘taxable incident,’” or “the activity that triggers the tax,” and the

measure of the tax, or the “‘base that represents the value of the taxable incident.’”

Majority at 33-34 (quoting Ford Motor Co, 160 Wn.2d at 39).

But I disagree with the majority’s analysis of what constitutes the taxable

incident in this case. The plain language of the statute shows that taxable incident

is not the sale or transfer of the capital asset itself. Rather, the taxable incident is

the realization of income derived from the sale of qualifying capital assets.

Because the taxable incident or event is the realization of income—not the mere

transfer of the asset—the tax is an income tax, regardless of the label placed on it

by the legislature. Jensen v. Henneford, 185 Wash. 209, 217, 53 P.2d 607 (1936)

(plurality opinion). The measure of the tax is indisputably the amount of income

gained from the transaction. The fact that the tax is measured by the amount of net

income only reinforces the conclusion that the taxable incident is receipt of income

and that the capital gains tax is an income tax.

11 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

A. The taxable incident is the realization of profit following the transfer of a qualifying capital asset—not the transfer itself

The first step in determining the nature of the tax is determining the “taxable

incident,” or the activity that triggers the tax. Ford Motor Co., 160 Wn.2d at 40.

The State and the majority repeatedly assert that the taxable incident is the sale or

exchange of a qualifying capital asset. But the language of the statute makes clear

that that assertion is not accurate—or at least that it is incomplete.

The statute’s plain language provides that “[t]he tax applies when the

Washington capital gains are recognized by the taxpayer in accordance with this

chapter.” ESSB 5096, § 5(4)(a) (emphasis added). That is quite different from

saying that the transfer itself is the taxable incident. If there’s no recognized gain,

there’s no tax: “If an individual’s Washington capital gains are less than zero for a

taxable year, no tax is due under this section.” ESSB 5096, § 5(3). Thus, the

taxable incident is the sale or transfer of a qualifying asset only if that transaction

results in a “capital gain.” The taxable incident is the recognition of income.

The majority appears to concede this at times. For instance, the majority

must acknowledge that the capital gains tax “narrowly applies to capital

transactions resulting in realized gains.” Majority at 27 (emphasis added). But the

majority fails to acknowledge that a tax triggered by a “capital transaction” is not

12 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

the same as a tax triggered by a capital transaction resulting in profit. That is a

critical distinction showing that the incident of this tax is the receipt of income.

Indeed, we previously emphasized the importance of this distinction when

analyzing a “net corporate income tax” in 1951. In Power, Inc. v. Huntley, a statute

purported to impose an excise tax on corporations for “‘the privilege of doing

business in this state.’” 39 Wn.2d 191, 193, 235 P.2d 173 (1951) (quoting LAWS OF

1951, 1st Ex. Sess., ch. 10, § 7). After examining the statute, we concluded that the

tax was “a mere property tax ‘masquerading as an excise.’” Id. at 196. We came to

this conclusion because the tax applied only if the corporation realized net

income—in other words, only if the corporation realized a gain. We explained that

“the tax is levied because the corporation has net income, not because it does any

business in this state or exercises its corporate franchise; conversely, if it has done

a million dollars[’] worth of business in this state but has no net income, it would

not be subject to taxation under this act.” Id. at 196-97.

We have the exact same situation with the new capital gains tax. If an

individual engages in a million dollars’ worth of qualifying capital asset

transactions but realizes no gain, they are not subject to the tax. That weighs

heavily in favor of concluding that the incident of this tax is not really “capital

transactions” but rather realization of gain—income. See also Jensen, 185 Wash.

13 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

209 (holding that personal net income tax purportedly levied upon “the privilege of

receiving income” was actually levied on the property (income) on which the

amount of the tax was to be calculated, not on the abstract privilege of receiving

income).

When we compare the capital gains tax with taxes we’ve previously found to

be excise taxes, the same conclusion applies: the capital gains tax is not an excise

because the incident of the tax is something more than a transaction per se.

Consider, for example, retail sales taxes, which we have repeatedly upheld as

excise taxes. The incident of a retail sales tax is a transaction involving the relevant

good or service, regardless of whether the transaction resulted in net income or

profit to the seller. See, e.g., Morrow, 182 Wash. 625; Vancouver Oil Co. v.

Henneford, 183 Wash. 317, 49 P.2d 14 (1935); Klickitat County v. Jenner, 15

Wn.2d 373, 130 P.2d 880 (1942); Mahler v. Tremper, 40 Wn.2d 405, 243 P.2d 627

(1952). That makes sense. If the real incident of the tax is the transaction—if the

state is truly taxing the exercise of a privilege or the specific use of property—then

the financial outcome of that transaction should not logically determine whether

the tax applies. The tax applies to all relevant transactions.

But that’s not what we have here. Here, the financial outcome of the capital

transaction determines whether the tax applies. The capital gains tax applies only

14 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

when the seller realizes a profit. Thus, there is no sense in which the “activity that

triggers the tax” is a capital transaction per se. Contra majority at 33.

Under our controlling cases, the taxable incident of this capital gains tax is

the capital gain, meaning the income (or property) realized by the transferrer—not

the transaction itself.

B. The measure of the tax is the net income received following the transfer of the asset—not the gross income or value of the transaction, as is typical of excise taxes

The majority recognizes—as it must—that the measure of the capital gains

tax is income. Majority at 28. This obviously militates in favor of considering this

new capital gains tax to be a tax on capital gains.

But the majority counters that “[o]ur cases unequivocally hold that excise

taxes levied on a particular privilege or incident of property ownership may be

measured by income, and this does not transform the fundamental nature of the

tax.” Id. (citing State ex rel. Stiner v. Yelle, 174 Wash. 402, 407, 25 P.2d 91

(1933)).

I agree that our cases have held that an excise tax may be measured by some

kind of income. But in every case where this court upheld an excise tax that was

measured by income, the tax was measured by gross income—not by net income,

such as capital gains. E.g., Stiner, 174 Wash. at 404 (excise tax measured by

15 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

“‘values, gross proceeds of sales, or gross income’” (quoting LAWS OF 1933, ch.

191, § 2); Supply Laundry Co. v. Jenner, 178 Wash. 72, 34 P.2d 363 (1934)

(same); Morrow, 182 Wash. 625 (excise tax measured by gross sale price of

tangible personal property); Vancouver Oil Co., 183 Wash. 317 (same); P.

Lorillard Co. v. City of Seattle, 83 Wn.2d 586, 521 P.2d 208 (1974) (excise taxes

measured by gross proceeds of wholesale cigarette sales and by set price per

cigarette, respectively).

Similarly, this court has upheld excise taxes measured by the gross value of

a transaction, item, or contract, not by the value of net income such as capital

gains. State ex rel. Hansen v. Salter, 190 Wash. 703, 70 P.2d 1056 (1937) (excise

tax measured by fair market value of vehicle); Mahler, 40 Wn.2d 405 (excise tax

measured by gross sales price of real estate); St. Paul & Tacoma Lumber Co. v.

State, 40 Wn.2d 347, 243 P.2d 474 (1952) (excise tax on certain products

measured by value of product); Black v. State, 67 Wn.2d 97, 406 P.2d 761 (1965)

(excise tax measured by contract price of lease); High Tide Seafoods v. State, 106

Wn.2d 695, 725 P.2d 411 (1986) (excise tax measured by value of enhanced food

fish at the point of landing); Wash. Pub. Ports Ass’n v. Dep’t of Revenue, 148

Wn.2d 637, 62 P.3d 462 (2003) (excise tax measured by contract price of lease);

Sheehan v. Cent. Puget Sound Reg’l Transit Auth., 155 Wn.2d 790, 123 P.3d 88

16 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

(2005) (excise tax measured by fair market value of motor vehicle); In re Est. of

Hambleton, 181 Wn.2d 802, 335 P.3d 398 (2014) (excise tax measured by total

value of estate).

I can find no Washington case upholding a tax as an excise where the

measure of the tax was net income or gain. Instead, such taxes have consistently

been invalidated as nonuniform property taxes. Culliton v. Chase, 174 Wash. 363,

25 P.2d 81 (1933) (plurality opinion) (tax on net income was property tax); Petrol.

Navigation Co. v. Henneford, 185 Wash. 495, 55 P.2d 1056 (1936) (same); Jensen,

185 Wash. 209 (same); Power, Inc., 39 Wn.2d 191 (same); Kunath v. City of

Seattle, 10 Wn. App. 2d 205, 221, 444 P.3d 1235 (2019) (same).

All of this makes sense when considering the nature of an excise. An excise

tax is supposed to be a tax on the privilege of undertaking certain transactions or

exercising certain rights in property. There is a logical nexus between exercising

the privilege of engaging in that entire transaction (or exercising that entire

property right) and using the value of that entire transaction (or the full value of the

property) to measure the tax on that privilege. As we recently explained, an excise

tax is “directly imposed based upon the extent to which the taxpayer enjoys the

taxable privilege.” Sheehan, 155 Wn.2d at 800 (citing Harbour Vill. Apts. v. City of

Mukilteo, 139 Wn.2d 604, 611, 989 P.2d 542 (1999) (Talmadge, J., dissenting));

17 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

Black, 67 Wn.2d at 99 (if a tax is “‘measured by the amount of business done or

the extent to which the conferred privileges have been enjoyed or exercised by the

taxpayer, irrespective of the nature or value of the taxpayer’s assets, it is regarded

as an excise’” (quoting 103 A.L.R. 18 (1936))). Gross income or value is a

reasonable proxy for the amount of business done or the extent to which a taxpayer

has enjoyed a privilege.

But the new capital gains tax statute taxes only net income or gain. It

therefore looks much more similar to the taxes we’ve invalidated as property taxes

that fail to comply with article VII, sections 1 and 2.

To summarize, “capital gains” means income. This capital gains tax is not

triggered by each and every sale of a qualifying capital asset, as one might expect

of an excise tax. And this capital gains tax is not measured by gross income or by

the full value of the asset, as one might expect of an excise tax. Rather, the new

capital gains tax is triggered only if the taxpayer realizes a gain from the sale of the

asset, and the measure of the tax is the amount of gain realized. Under our

controlling cases, the new capital gains tax is an income tax—not an excise tax.

18 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

III. The capital gains tax violates the constitutional limitations on property taxes

To repeat, our constitution states that the term “property” “shall mean and

include everything, whether tangible or intangible, subject to ownership.” WASH.

CONST. art. VII, § 1 (emphasis added). Our previous cases interpreting this

provision, beginning with Culliton, consistently hold that “income” falls within the

category of property as defined in article VII. 174 Wash. at 381. In Culliton, we

noted the “comprehensive” nature of the constitutional definition of “property” and

held that an income tax is a property tax. Id. at 374. We reasoned that “[i]ncome is

either property under our fourteenth amendment, or no one owns it.” Id. Since

Culliton, this court has consistently held that income is property for purposes of

article VII, section 1. E.g., Jensen, 185 Wash. at 217; Power, Inc., 39 Wn.2d at

194.

As the majority notes, we will overrule precedent only upon a showing that

(1) an established rule is incorrect and harmful or (2) the legal underpinnings of

our precedent have changed or disappeared. Majority at 17 n. 8 (citing State v.

Pierce, 195 Wn.2d 230, 240, 455 P.3d 647 (2020) (plurality opinion)). The

Intervenors, but not the parties, argue that we should overrule Culliton on both of

these bases. Intervenors’ Opening Br. at 16-18. To be sure, I agree with the

19 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

Intervenors that some of Culliton’s factual assertions were incorrect. Specifically,

Culliton incorrectly asserted that Aberdeen Savings & Loan Ass’n v. Chase, 157

Wash. 351, 289 P. 536 (1930), had already decided the issue whether an income

tax is a property tax under the state constitution. 174 Wash. at 376; see

Intervenors’ Opening Br. at 25-27. Culliton also stated that “[t]he overwhelming

weight of judicial authority is that ‘income’ is property and a tax upon income is a

tax upon property,” a statement that appears to have been inaccurate or at least

overbroad at the time. 174 Wash. at 374; see Intervenors’ Opening Br. at 31-34.

But these errors don’t undermine Culliton’s interpretation of article VII,

section 1’s uniquely broad definition of “property.” That language is plain and

unambiguous: “property” “mean[s] and include[s] everything, whether tangible or

intangible, subject to ownership.” WASH. CONST. art. VII, § 1 (emphasis added);

see also BLACK’S LAW DICTIONARY, supra, at 1470. “Income” is “[t]he money or

other form of payment that one receives, usu[ally] periodically, from employment,

business, investments, royalties, gifts, and the like.” BLACK’S LAW DICTIONARY,

supra, at 912. Whether tangible or intangible, “money or other form of payment” is

20 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

clearly capable of ownership. Therefore, income is property under article VII’s

broad definition. 8

To be sure, this court has clearly held that the constitution was “not intended

to be a static document incapable of coping with changing times. It was meant to

be, and is, a living document with current effectiveness.” Seattle Sch. Dist., 90

Wn.2d at 517. When we deal with broad, general constitutional rights and values

(such as “due process” or “equal protection”), we have a duty to interpret and

apply those rights and values in a way that will protect all Washingtonians, not just

the few whom the framers might have had in mind when drafting them. But in this

case, we are not interpreting such a broad, general term, right, or value. Instead, we

are interpreting a narrow definitional phrase comprising words whose meaning and

context have not drastically changed in the past century. Article VII, section 1

explicitly defines “property” so broadly that it includes income. There is just no

room to say it doesn’t.

Since the capital gains tax is a property tax, it is subject to the one percent

levy cap contained in article VII, section 2. This tax clearly violates that provision

8 I disagree with Intervenors’ argument that Culliton’s legal underpinnings have eroded for the same reason: the constitutional language that the Culliton court considered has not changed since Culliton was decided.

21 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)

because it imposes a seven percent levy on a taxpayer’s Washington capital gains.

I would affirm the trial court’s decision that the tax is unconstitutional on that

ground and decline to reach the other constitutional issues raised by the petitioners.

A tax is determined by its incidents, not by its legislative label. The structure

of the capital gains tax shows that it is a tax on income resulting from certain

transactions—not a tax on a transaction per se. Therefore, the tax is an income tax,

not an excise tax. Under our constitution and case law, an income tax is a property

tax. As enacted, this income tax or “capital gains tax” violates the one percent levy

limitation of article VII, section 2.

Deciding whether to retain our regressive tax structure or to replace it with a

more equitable one is up to the legislature through legislation and the people

through constitutional amendment. The duty of the judiciary when faced with a

direct conflict between a statute and the constitution is to uphold the constitution.

The new capital gains tax violates article VII, section 2 of the Washington

Constitution. I would therefore affirm the trial court.

I respectfully dissent from the majority’s contrary conclusion.

22 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 100769-8 (Gordon McCloud, J., dissenting)