The Washington Supreme Court on Thursday unanimously approved a new tax for major banks aimed at providing basic services and improving the state’s regressive tax system.
The company and professional surcharge of 1.2% – a tax that is levied in addition to other taxes – was passed by the legislator in 2019.
The banking industry sued, saying the tax discriminates against banks engaged in interstate commerce, in violation of the U.S. Constitution, which gives Congress the right to regulate interstate commerce.
The judges ruled that the tax does not discriminate against foreign banks.
“It applies equally to all financial institutions that reach the income threshold of $ 1 billion, regardless of whether they are based in or outside Washington,” wrote Judge Barbara Madsen.
The ruling overturned a ruling by King County Supreme Court Justice Marshall Ferguson last year who found the tax had a discriminatory effect.
In their challenge, the Washington Banking Association and American Banking Association found that of the 153 financial institutions that had to pay the tax in the first quarter of 2020, 150 were based outside of the state. Extra-government agencies paid more than 99.7% of the $ 34 million raised during that period, an attorney for the groups, former Washington attorney general Rob McKenna, told judges during an argument in May.
But Attorney General Noah Purcell said that reasoning would lead to absurd results: If Washington couldn’t levy taxes that are neutrally written but that ultimately affect more companies outside of the state than in the state, the state would not tax tobacco can.
Lawmakers said it designed the supplement to make taxation of the state more progressive by targeting companies that are most solvent. Washington’s middle class and poor people pay two to six times as much income in taxes as the rich, lawmakers found.
The case drew a friend-of-court letter from union and community activists, including the Washington Black Lives Matter Alliance, who argued that the tax was a legitimate way for lawmakers to target Washington’s regressive tax system.
“This unanimous decision applies the law correctly and is of benefit to those struggling to make Washington’s tax system fairer,” said Washington Attorney General Bob Ferguson, Democrat, in an emailed statement.
The banking groups did not immediately respond to the ruling. Given the potential issue of interstate trade, they could ask the US Supreme Court to review the decision.
Another attempt by Democratic lawmakers to make the rich pay more taxes – a capital gains tax due to come into effect in January – also faces a legal challenge. The measure will impose a 7% tax on capital gains on stocks, bonds, and other assets over $ 250,000, with exemptions for retirement accounts, real estate, and a few other assets. It is expected to raise approximately $ 445 million annually for early intervention and childcare programs.
McKenna also represents groups who are contesting this tax, saying it is an income tax that is prohibited by the state constitution.