The Washington State Legislature is considering a bill to retroactively overrule a decision of the Washington State Supreme Court. The decision is commonly known as the Bracken Case where the court held the state of Washington could not tax assets held in QTIP trusts funded prior to May 17, 2005 (the effective date of the Washington estate tax). The state estimates $160 million in lost revenue. The effect of the proposed bill (HB 1920) would be to tax trusts set up by estates of decedents who died as far back as the early 1980s. There are clear constitutional issues with the proposed bill, but as important is that it is bad public policy.
This kind of legislation sets a terrible precedent and undermines the rule of law and the doctrine of separation of powers between the legislative and judicial branches, key foundations of our society at both the state and federal levels of government. It also undermines public confidence in the executive (Department of Revenue) and legislative branches of government.
Our legal system is based on a system where taxpayers and other litigants can have their day in court, and once the highest court rules the parties implement the decision. In many cases, there are other litigants waiting for the court’s final ruling, who stay “on the sidelines” so as not to clog the courts with duplicate cases and issues. How does one have confidence in the legal system when a taxpayer or other litigant prevails in the highest court of the state but the rules are then changed by the Legislature after-the-fact and retroactively?
Another fundamental principal of our legal system is the doctrine of finality or final decision – where there is nothing open to further dispute and which ends the cause of action between the parties. If citizens cannot rely on the finality of decisions rendered by the courts – especially those that have been exhaustively litigated from the trial courts to the state Supreme Court as was the case in Bracken – they may rightfully question whether they have a truly effective means of redress and relief from onerous decisions of the government, in which the courts are in most cases the last place taxpayer may go for relief.
If the legislature can retroactively take away the rights of taxpayers similarly situated to the taxpayers in Bracken, what other rights could be taken away? If Bracken can be overruled retroactively, then the next logical step would be to double the estate tax rate retroactively, or perhaps raise even more revenue by retroactively increasing the state B&O tax rate and requiring all businesses to increase the taxes they have paid for the last five or ten years. Extreme examples, perhaps, but they make the point that retro-activity is a slippery slope.
Finally, the Department of Revenue has been embroiled in costly and unsuccessful estate tax litigation for the last decade. Is it really in the best interests of the citizens of our state to pass legislation that is likely to lead to even more estate tax litigation, which is also likely to go against the state?