The Seattle Times reports that the capital gains tax case will go directly to the state Supreme Court, rather than being heard first by the Court of Appeals. Oral arguments could take place in November. In March, a Superior Court judge ruled that the tax is unconstitutional.

Under the statute, the capital gains tax was imposed beginning Jan. 1, 2022. Individuals owing the tax must file returns with the Department of Revenue by the day the taxpayer’s federal income tax return is due. Thus, capital gains taxes for 2022 won’t be remitted to the state until calendar year 2023.

The first $500 million collected goes to the education legacy trust account, which is a fund subject to the outlook (NGFO). (That ceiling will be adjusted each year for inflation.) Anything on top of that goes to the common school construction account (not part of the NGFO). Additionally, there is a credit against business and occupation taxes, so there is a small reduction to general fund–state revenues (also part of the NGFO).

The enacted 2022 supplemental to the state operating budget assumed that $1.155 billion (NGFO) would be collected from the capital gains tax over the outlook period (through FY 2025). These revenues were used to balance the budget even though the Legislature knew that the tax had been ruled unconstitutional and even though the state had a substantial budget surplus. (Note, though, that the state has enough in reserves to cover the potential loss of the capital gains tax revenues.)

Compared to the February 2022 revenue forecast (on which the 2022 supplemental was based), the June 2022 revenue forecast increased estimated NGFO revenues from the capital gains tax by $15.0 million over the outlook period. Now the capital gains tax is expected to increase NGFO revenues by $238.0 million in 2021–23 and by a net of $932.0 million in 2023–25. (That’s $1.170 billion over the outlook period.) Beginning in FY 2025, the tax is expected to bring in more than $500 million a year.

Capital gains tax revenues account for 1.4% of total NGFO revenues in 2023–25. The chart below shows NGFO revenues with and without the capital gains tax. For example, in FY 2023, revenues from the NGFO less capital gains total $31.411 billion and capital gains NGFO revenues add $238.0 million.