Lawsuit to strike capital gains tax lands in Douglas County court

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WATERVILLE — Foes of Washington’s just-passed capital gains tax on major sales of corporate shares or bonds say they’ve filed the first lawsuit in the state seeking to overturn it — in Douglas County Superior Court.

Seven plaintiffs represented by the conservative legal nonprofit the Freedom Foundation filed papers Wednesday, seeking a court injunction to stop implementation of Senate Bill 5096, which passed both houses of the Legislature but hasn’t yet been signed by Gov. Jay Inslee. He is expected to approve it.

The measure would levy a 7 percent tax on the voluntary sale of stocks, bonds and other capital assets that earn profits that exceed $250,000 for both individuals and couples. The plaintiffs include Washingtonians with ample assets: Maryhill Winery owner Craig Leuthold of Spokane, Seattle property magnate Suzie Burke, and Freeland investor and former E*Trade boardmember Lewis E. Randall are among them.

The lawsuit filing states that the case is being filed in the Waterville court “because Douglas County is the county of residence or principal place of business of one or more of the plaintiffs.” Voter registration records identify only one of the plaintiffs, Chris Quinn, as a Douglas County resident. He could not immediately be reached for comment Wednesday evening.

The capital gains measure is designed to affect only about 58,000 Washingtonians in its first year. The lawsuit argues it amounts to an income tax, violating the Washington State Constitution, “because it imposes a non-uniform tax on income of certain Washington residents.” Article VI of the constitution says property must be taxed “uniformly” — at the same rate for everyone — and the state Supreme Court has previously leaned on that article to rule against efforts to impose an income tax in Washington.

The Freedom Foundation spent much of 2020 litigating against Inslee’s emergency measures to stop the spread of the COVID-19 pandemic, including a failed lawsuit on behalf of Chelan’s Slidewaters park against the state Department of Labor and Industries. It has also promoted ordinances to force local governments to hold contract negotiations with unionized employees in public meetings, including in Douglas County.