A King County Superior Court judge has granted a think tank’s request to help defend the city of Seattle’s progressive income tax that it had a hand in crafting, despite objections from the plaintiffs and unease among city attorneys.
Newly-obtained documents provided to the city by the Economic Opportunity Institute (EOI) hint at legal arguments the city may use in court, while EOI has already stated it plans to make the case that a 1984 state law prohibiting a local income tax is unconstitutional for violating the single-subject rule, an argument that has already been rejected by the Court of Appeals. The Seattle-based think tank was paid $50,000 by the city of Seattle for consultant work on its progressive income tax ordinance.
In granting EOI’s motion to intervene, the judge concluded in its September 20 ruling that “EOI’s claim and the main actions share at least one common question of law, namely, whether RCW 36.65.030 – upon which the Plaintiffs rely in asserting their claims for relief – is valid. EOI and the Plaintiffs assert opposing positions with respect to the same question: the Plaintiffs’ arguments assume that RCW 36.65.030 is valid, while EOI argues that the statute is unconstitutional. EOI argues that the Plaintiffs’ claims cannot succeed if EOI’s claim succeeds.”
The attorney representing the plaintiffs wrote to Lens that they intend to file a motion for reconsideration.
EOI claimed that it needed to intervene to protect its efforts in advocating for a progressive income tax in other local jurisdictions throughout the state. “Elected officials and staff in these code cities believe that their ability to enact an income tax depends upon the success of Seattle’s income tax,” their motion stated.
In its response, the city of Seattle didn’t directly oppose EOI’s request, but noted its “constitutional challenge to the statute can…be heard in a separate, independent lawsuit.” The city cautioned that EOI’s intervention in their lawsuit “could involve the State also moving to intervene in these cases. The State’s potential intervention could result in delay.”
EOI’s involvement is likely to bring State Attorney General Bob Ferguson into the legal fray to defend the state law. Among his duties is to “appear for and represent the state before the supreme court or the court of appeals in all cases in which the state is interested.”
A newly-released legal memo in March regarding a local progressive income tax prepared for EOI offers a variety of legal maneuvers they believe could get the case in front of the State Supreme Court, which “will provide the Supreme Court a good opportunity to revisit and overturn that line of cases” declaring income as property under the State Constitution. However, the memo warns that “nobody can forecast the outcome of the litigation with certainty.”
The legal research as part of EOI’s contract with Seattle was subcontracted to Smith & Lowney, PLLC – the same law firm that representing EOI in its motion to intervene. The law firm also represented Opportunity for Olympia last year in defense of the Measure 1 initiative that proposed to create a local progressive tax in that city.
The legal argument outlined in the memo involves either evading the 1984 state law’s prohibition or successfully arguing it is unconstitutional, as well as proving local jurisdictions do not require specific taxing authority from the legislature. “As long as the ordinance is carefully crafted to present the strongest case for municipal authority, the passage of such a tax law will provide the appellate courts with a solid opportunity to address the issue of whether the Washington Supreme Court’s 1930s cases equating income with property are still good law,” the memo states.
Though the 1984 King County v. City of Algona decision would indicate cities do require authorization, Smith & Lowney’s analysis claims that the 2014 City of Wenatchee v. Chelan Cty. Pub. Util. Dist. No. 1 “clarified” that issue. In that case, the Court of Appeals ruled that “one municipality may tax the revenue of another municipality based on a general rather than specific legislative grant of taxing authority, where the revenue is from activity that is proprietary in character rather than governmental.”
However, the Wenatchee decision has yet to be affirmed by the State Supreme Court, and a Court of Appeals ruling this year also involving local taxing authority indicates the city and EOI will still have to provide specific authorization for the tax. In city of Seattle v. T-Mobile West Corps, the court found “municipalities must have express legislative authority to levy taxes…the city lacked authority to tax roaming charge revenue, but like the superior court, we base that conclusion on the absence of specific statutory authority.”
Another possible claim is that “an income tax is a type of excise tax and therefore authorized under RCW 35A.82.020,” according to the legal memo.
However, the State Supreme Court also rejected this claim in its 1951 decision, Power, Inc. v. Huntley, stating: “The character of a tax is determined by its incidents, not by its name.”
The plaintiffs in the Seattle lawsuit now have 10 days to file a motion for reconsideration of EOI’s intervention. After that, court is expected to make a decision within two weeks.