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"Ludicrous" Washington income tax ruling will impact other states

Updated: Jul 21, 2023

The exodus from Washington state may just be getting started. Today, the Washington State Supreme Court upheld the state's new 7% income tax on capital gains - essentially claiming the income tax wasn't an income tax because the legislature didn't call it that.

Jared Walczak at the Tax Foundation calls the ruling "ludicrous."

The justices seemed to focus more on the political arguments rather than the actual law. Consider this excerpt:

The ruling takes away one of the last economic advantages Washington had over other states.

While Idaho and Montana have sought to lower their income tax burdens, Washington has done everything possible to create a new income tax - and it has finally succeeded.

Business leaders who had chosen Washington state for its tax climate say just the talk of a new income tax is hurting. Tanium CEO Orion Hindawi says:

“This is becoming a huge PR issue for Washington state even though nothing has substantively changed. It’s not just who are we losing who’s not coming, it’s also who are we losing who's currently here that won’t stay. People need to be fully aware, there are a lot of people who currently call themselves Seattle residents or Washington residents, who don’t have to be tomorrow.”

In our previous study recommending income tax triggers to lower rates in Montana and Idaho, we mentioned the enormous opportunity that now exists for nearby states to attract major businesses frustrated with Washington's new income tax.

We recommended state policymakers show their commitment to lowering the income tax rates in their states. That has clearly already begun.

In 2010, former Idaho Governor Butch Otter invited businesses to come to Idaho following the implementation of another controversial tax. Thirteen years later, maybe it's appropriate for Governors Little and Gianforte to pick up a pen and write again.

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