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A Washington judge has ruled in Walsh v. Hobbs that the ballot description of a measure that would repeal the state’s capital gains tax should include a description of its possible impact on state spending.

A Washington judge has ruled that the ballot description of a measure that would repeal the state’s capital gains tax should include a summary of its possible impact on state spending.

Thurston County Superior Court Judge Allyson Zipp's June 7 bench opinion in Walsh v. Hobbs held that the state's 2022 Public Investment Impact Disclosure (PIID) law applies to I-2109 and to two other ballot measures going before voters in November.

A copy of the ruling was not available by press time.

Attorney General Bob Ferguson (D) was one of the defendants involved in preparing the disclosures for the initiatives, and he called the outcome a “victory for democracy, and for transparency in elections” in a comment emailed to Tax Notes on June 10.

Supporters of the ballot measures, including state GOP party chair Rep. Jim Walsh, filed the suit to oppose the inclusion of public investment impact disclosures for them on the ballot, asserting that the disclosures would be biased and that the PIID didn't apply. They argued that I-2109 wouldn’t have a fiscal impact because lawmakers had already repealed the capital gains tax by implication when the State Legislature approved I-2111, another measure backed by Republicans, in March. I-2111 formally bans any tax on personal income defined as "gross income" in the federal tax code. The capital gains tax falls under that definition and thus was repealed by implication, the plaintiffs argued.

But Zipp rejected that argument, saying that I-2111 didn’t repeal the capital gains tax and that I2109’s ballot description must include the disclosure.

“The Legislature as a whole understood that if I-2111 were enacted, it would not affect any existing taxes, but rather would prospectively prohibit personal income taxes from being imposed going forward,” Zipp told the parties when making her ruling. The initiative “did not operate to repeal the capital gains excise tax,” she said, negating the plaintiffs’ argument that the tax was already repealed.

Zipp also held that two other ballot measures backed by Republicans — I-2117, an initiative to repeal the state’s cap-and-trade law, and I-2124, an initiative to allow workers to broadly opt out of the state’s employment tax-funded long-term care program — must also include disclosures.

Plaintiffs had noted that the disclosure law applies specifically to measures that impact taxes and fees. They argued that the cap-and-trade program’s levy is a commodity charge for allowances to emit carbon dioxide and the long-term care program’s assessment on workers’ pay is a premium. Thus, I-2117 and I-2124 don’t affect taxes or fees, they argued.

Zipp rejected those arguments as well. “Applying the broad understanding of fees that the term warrants when used in connection with the [public investment impact disclosure] statute, the capand-invest allowances qualify as fees,” she said of the cap-and-trade program. She also said that the statute's criteria are broad enough to capture the long-term care program's assessment.

I-2109, I-2117, and I-2124 were among six initiatives filed by Walsh and qualified via signature gathering earlier this year by Let’s Go Washington, a conservative campaign backed by Republican millionaire Brian Heywood. Lawmakers approved three of the six measures legislatively during the 2024 session that ended in March, including I-2111.

‘Partisan Rhetoric’

Proponents of the capital gains tax praised Zipp's ruling.

No I-2109, the coalition opposing the capital gains tax repeal measure, said in a June 7 news release that the lawsuit represented an effort to “hide ‘Public Investment Impact Disclosures’ from voters.” Misha Werschkul, executive director of the Washington State Budget and Policy Center, said in the release that voters have a “right to know these initiatives cost too much and will have massive impacts on our state’s ability to provide critical services to all Washingtonians.”

But in a statement emailed to Tax Notes, Walsh said that he and the other backers of the initiatives “don’t mind the idea of more information. What we’re concerned about is it won’t be impartial information. It will be partisan rhetoric, weaponized to make the initiatives sound bad.”

The disclosure law requires “a description of the investments that will be affected if the measure is adopted,” according to the text of the PIID. The law requires the attorney general to use neutral language that “cannot reasonably be expected to created prejudice for or against the measure.” The disclosure is limited to 10 or 15 words, depending on the impact of a measure on the general fund.

But Paul Guppy with the conservative Washington Policy Center, which supports repeal of the capital gains tax, told Tax Notes in a June 10 email that the disclosure law frames the impact of measures from the government's perspective, and thus doesn't promote neutrality. He said fiscal impact statements give the "partisan attorney general state-funded monopoly access to the largest platform for influencing voters there is — a direct statement printed on the ballot.”

Although the plaintiffs haven’t yet decided whether to appeal the ruling, Walsh said supporters of the capital gains tax repeal initiative will continue to fight for unbiased descriptions of the measures.  

In Walsh v. Hobbs, Walsh is represented by Joel B. Ard of Ard Law Group PLLC.