OLYMPIA, Wash. — Washington’s capital gains tax faces a renewed legal challenge from residents who claim it violates the U.S. Constitution by taxing transactions in other states.

The tax’s foes have petitioned the U.S. Supreme Court to take up the case, arguing that allowing Washington to tax out-of-state transactions that result in capital gains will be a bad model for other states.

The court should intervene “to make clear that out-of-state transactions are not sources of up-for-grabs taxable revenue for the state with the longest arms,” the petition argues.

The court has not decided whether to hear the case. Justices have given the Washington attorney general’s office until Nov. 3 to respond to the petition.

Capital gains over $250,000 in a year are subject to the 7% tax. Farmland, timber and livestock are exempt from the tax. However, it applies to capital gains from selling shares in businesses.

Farm groups, seeing potential for their members to be taxed, were among those who unsuccessfully challenged the tax in state courts.

Farm groups are not involved in the petition to the Supreme Court, but eight taxpayers are carrying on the fight, shifting the focus to the sale of out-of-state assets, such as stocks and bonds.

States have wide leeway to tax income and property brought by residents into the state.

The Washington Supreme Court, however, ruled the capital gains tax was not a tax on income or property, which would have run afoul of the state constitution.

Rather, according to the 7-2 decision earlier this year, Washington’s capital gains tax is a tax on transactions, namely selling assets. Capital gains is just the way the tax is calculated, according to the majority.

The ruling solved the state constitutional problem, but created a conflict with the federal Constitution, according to the petition.

States can’t tax their residents for transactions they conduct in another state, the petition claims.

Otherwise, Utah could tax Utah residents who buy alcohol in another state, or California could tax Californians who buy a gun in another state, the petition argues.

“If Washington enacted a law imposing an excise tax on all purchases that Washington residents make at Disneyland … all would agree that the law is unconstitutional,” according to the petition.

The Washington high court addressed the federal issue, ruling the tax was fair, related to activities in the state and did not hinder interstate commerce.

The Democrat-led legislature passed the tax in 2021, arguing it would fund education and make the rich pay their fair share of taxes.

The 2022 tax bills were due last April. The Department of Revenue estimates the tax will raise $833 million in the first year, nearly double what lawmakers anticipated in 2021.