Whether the Constitution permits a state to tax out-of-state transactions involving only out-of-state property

QUESTION PRESENTED Upset with what they saw as an unduly regressive tax system, a narrow majority in the Washington legislature recently enacted a 7% long-term capital gains tax that exempts the first $250,000 per year. But the Washington State Constitution mandates that all taxes on “property,” which includes income as a matter of state law, must be uniform and capped at 1%, such that residents with higher incomes cannot be made to pay more as a percentage of their income than those who make less. To get around these state-law limits, the new tax operates as an excise tax—i.e., it is “imposed on the sale or exchange of long-term capital assets,” not on the income generated by it. RCW 82.87.040(1). Yet while that may have solved a statelaw problem, it created a federal-law problem. Seattle is not a hotbed of securities trading, so an excise tax on high-dollar-value transactions would not raise much revenue if it were limited to transactions and property in the state. Not surprisingly, the new excise tax thus reaches far beyond Washington’s borders to tax transactions that occur in other states involving property located out of state. The question presented is: Whether the Constitution permits a state to tax out-of-state transactions involving only out-of-state property.