If the city of Seattle’s message to residents was “you can leave if you don’t like our income tax,” King County Superior Court perhaps had a message of its own for the city: If you don’t like the ban on local income taxes, get state law changed.
In a 27-page ruling, King County Superior Court John Ruhl struck down Seattle’s income tax for violating a 1984 state law that explicitly prohibits it. However, the city and the progressive think-tank Economic Opportunity Institute (EOI) have vowed to challenge the ruling in the Court of Appeals in the hopes the political Hail Mary pass from the stands will reach its intended receiver: an ostensibly friendly State Supreme Court.
During the Nov. 17 court hearing, the city claimed they had a right to tax under a section of the State Constitution that provides “for all corporate purposes, all municipal corporations may be vested with authority to assess and collect taxes.” However, that line of reasoning runs afoul of the State Supreme Court’s decision in Watson v. City of Seattle and King County v. City of Algona; in the latter ruling, the court opinion states “We have consistently held that municipalities must have express authority, either constitutional or legislative, to levy taxes.”
“Unless the City can identify a statute that specifically authorizes it to impose the type of tax described in the Ordinance, the Ordinance cannot withstand the Plaintiffs’ challenge,” Ruhl wrote.
Ruhl also struck down the city’s argument that the income tax was really an excise tax – a defense that has repeatedly failed to stand up to legal scrutiny. “To the extent that the Ordinance purports to impose a tax on the “privilege” of receiving pay for labor, such a “privilege” is not a valid basis for an excise tax.”
Another claim made by EOI was that the 1984 state law violated the state’s single-subject rule requirement, which says “No bill shall embrace more than one subject, and that shall be expressed in the title.” However, Ruhl said this applies to the bill title rather than the chapter title created by the Code Reviser, “because the title of the bill is what the legislators saw and relied upon when they voted on the bill.”
While Ruhl declined to address whether the city’s high-earner income tax violated the State Constitution’s uniformity requirement on property taxes, his invalidation of the city ordinance on statutory grounds means a steep uphill battle for Seattle and EOI in their attempt to overturn the state’s prohibition on a progressive income tax; the appeal will only consider whether Ruhl erred in his ruling concerning the 1984 state law on local income taxes.
Among those involved in the lawsuit was Opportunity For ALL, founded by Seattle venture capitalist Matt McIlwain. In a statement, he called the ruling “a big win, but only another step along the way. We are happy to note that Seattle residents will, at least for the moment, not need to move to Bellevue to avoid this illegal tax, as the City’s lawyer suggested they could do at last Friday’s hearing.”
Despite the setback, EOI Executive Director John Burbank sees reason for long-term optimism. In a Nov. 24 blog post, he wrote that the summary judgment “was not unexpected. This case involves a challenge to an 80-year-old interpretation of the state constitution, and lower courts generally do not overturn state Supreme Court precedent. But this case will go to the Washington State Supreme Court. That’s where we will win.”
He also took the plaintiffs to task for using “a sneaky section of Washington law that prohibits cities from taxing net income” to achieve their legal victory.
“Our constitution and our laws are living documents,” he wrote further. “They change with the needs of our people, and the wisdom we gain over the years.”
However, McIlwain wrote that the appeal “means more taxpayer money will be wasted in the hopes of changing 85 years of court rulings against their arguments.”
It’s also an effort to undermine the constitutional amendment process and the will of the voters who have rejected an income tax since 1934, says Freedom Foundation’s Chief Litigation Counsel David Dewhirst. The state-based think tank represented one of the plaintiffs in the lawsuit.
In a statement, Dewhirst wrote that “if you want to change the existing tax laws, you can ask your legislator to introduce a bill, or you can sponsor a ballot initiative. And if you want to amend the Constitution, there’s a process for that, too. Their problem is, they’ve tried that and it never works because the voters have consistently rejected income taxes of all kinds. So they’re trying a shortcut by asking the courts to legislate from the bench.”
He added: “There’s no way to predict what the Supreme Court will decide, but there are numerous court precedents the justices would have to disregard in order to rule in the city’s favor.”