SEATTLE

The Washington Supreme Court on Thursday unanimously upheld a new tax on large banks aimed at providing essential services and improving the state’s regressive tax system.

The 1.2% surtax on businesses and professions – a tax on top of other taxes – was passed by the Legislative Assembly in 2019. It applies to banks that make more than $ 1 billion in annual profits , but it is evaluated only on their economic activity in Washington. .

The banking industry sued, claiming the tax discriminated against banks engaged in interstate commerce, in violation of the U.S. Constitution, which gives Congress the right to regulate interstate commerce.

The judges ruled that the tax does not discriminate against out-of-state banks.

“This also applies to all financial institutions reaching the billion dollar income threshold, whether they are based inside or outside Washington,” Judge Barbara Madsen wrote.

The ruling overturned a ruling last year by King County Superior Court Judge Marshall Ferguson who found the tax was discriminatory.

In their challenge, the Washington Banking Association and the American Banking Association noted that of the 153 financial institutions that had to pay the tax in the first quarter of 2020, 150 were based out of state. Entities outside the state paid more than 99.7% of the $ 34 million raised during that period, groups attorney, former Washington attorney general Rob McKenna, told judges during a report. arguments in May.

But state solicitor general Noah Purcell said that argument would lead to absurd results: if Washington couldn’t impose taxes that are worded neutrally but end up affecting more outside companies able to tax. the tobacco.

Lawmakers said they designed the surtax to help make state taxes more progressive by targeting the businesses best able to pay. Washington’s middle class and poor residents pay two to six times more of their income in taxes than the rich, lawmakers have found.

The case drew a friend of the court brief from labor and community activists, including the Washington Black Lives Matter Alliance, who argued that the tax was a legitimate way for lawmakers to target Washington’s regressive tax system. .

“This unanimous decision correctly applies the law and is a victory for those who fight to make Washington’s tax system fairer,” Washington Attorney General Bob Ferguson, a Democrat, said in an emailed statement.

Banking sector groups did not immediately respond to the decision. Given the potential problem with interstate commerce, they could ask the U.S. Supreme Court to review the decision.

Another effort by Democratic lawmakers to get the wealthy to pay more taxes – a capital gains tax due to go into effect in January – also faces a legal challenge. The measure creates a 7% tax on capital gains from stocks, bonds and other assets over $ 250,000, with exemptions for retirement accounts, real estate and certain other assets. It is expected to raise about $ 445 million per year for early learning and child care programs.

McKenna also represents groups challenging the tax, claiming it is an income tax prohibited by the state’s constitution.