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As we previously covered, the Freedom Foundation has appealed the Washington State Supreme Court decision upholding the capital gains excise tax as constitutional.
In the petition, they offer a rather humorous example of a Washington excise tax that would violate the US Constitution:
“If Washington enacted a law imposing an excise tax on all purchases that Washington residents make at Disneyland, including perishable goods consumed in the park and entrance tickets purchased at the gate, all would agree that the law is unconstitutional. After all, no state may directly regulate transactions wholly outside its borders—and that holds true even if one of the transacting parties is a resident of the state or the form the regulation takes is a tax.”
The petition further notes that the Court has applied this consistently for over a century. Thus, the petition argues that these principles alone should have completed the Washington State Supreme Court to strike the capital gains tax down on the out-of-state sale of out-of-state assets.
Finally, they offer the implications of making this an excise tax, not an income tax:
“Washington has gone to great lengths to make clear that ESSB 5096 is not a tax on the Income derived from the sale of capital assets. That is understandable given the state-law constraints under which Washington must operate. But if Washington prefers to impose excises instead of income taxes, then it must live with the consequences of that choice. And one of those consequences is that it may not impose excise taxes on transactions that occur entirely outside its borders.”
Thus, the churro excise tax would be unconstitutional, much like the Washington State capital gains excise tax.
