NFIB Joins Legal Challenge to Washington’s new Excise Tax Law

October 16, 2023

NFIB Joins Legal Challenge to Washington’s new Excise Tax Law

In an amicus (friend of the court) brief filed with the United State Supreme Court, October 16, in the Quinn v. State of Washington case, NFIB and partner business groups minced no words about Washington state’s new excise tax, calling it “indefensible” and running “roughshod over our constitutional system’s division of sovereignty among the states.” As with so many sweetest-of-intentions stories that portend the most disastrous of consequences, Senate Bill 5096 from the 2021-2022 session of the Washington State Legislature sought to invest in “the ongoing support of K-12 education and early learning and child care by dedicating revenues from this act to the education legacy trust account and the common school construction account.” The revenues mentioned were to have come from an excise tax on the sale or exchange of certain capital assets. But included in the 16 pages, 21 sections of the law was something that might lead to its undoing, according to the amicus brief. “No state may impose a tax on transactions that occur entirely outside of that state—but that is precisely what ESSB 5096 authorizes. The law is so far afield of the appropriate ‘horizontal separation of powers,’ … the rule that it is ‘beyond the power of the state’ to impose a tax when ‘the taxable event is outside its boundaries[.]’” “In addition, the law will impose massive compliance burdens on taxpayers. For example, although the law purports to exclude small businesses … it will actually affect 95 percent of all businesses because under RCW 82.87.040(4)(b), the law applies to so-called ‘disregarded entities’—all pass-through businesses, including sole proprietorships, partnerships and S-corporations, as well as single-member LLCs.” In a news release issued by Jackson Maynard, executive director of the Citizen Action Defense Fund (CADF), he said, “The state supreme court decided that it is an excise tax. The problem is that states aren’t allowed to tax transactions outside their borders. The bottom line is that because this tax is unconstitutional and negatively effects businesses, the U.S. Supreme Court should grant review and take another look at the state supreme court decision here.” Maynard also added, “CADF is proud to be joined by the Association of Washington Business, the National Federation of Independent Business Small Business Legal Center, Inc., the Washington Trucking Associations, and the Ethnic Chamber of Commerce Coalition in asserting these arguments. In addition, the Opportunity for All Coalition provided financial support for the brief. The Capital Gains Tax case has drawn national attention due to its unconstitutionality and its negative implications for individuals, businesses, and the hardworking employees of Washington State. As pointed out in the brief, this tax not only creates a risk of double taxation, but it is incredibly difficult to implement, especially for the thousands of businesses operating in more than one state.”