A Washington State Supreme Court ruling issued Thursday may have just added yet another hurdle for any possible appeal by the city of Seattle for its income tax. The 7-2 decision struck down a 2015 local property tax exemption by the city of Spokane for senior citizens and disabled veterans, citing a lack of expressed statutory authority to implement such an ordinance and the violation of the State Constitution’s uniformity clause on property taxes.
However, it’s not the final nail in the coffin that it could have been, says Matthew Davis, who is the attorney for Michael Kunath, one of the plaintiffs challenging Seattle’s income tax. Davis has previously filed a motion for sanctions against the city and a progressive think tank that helped write the ordinance and later intervened in the lawsuit. A decision on that is expected next week.
It remains to be seen how this latest ruling will shape newly-elected Seattle Mayor Jenny Durkan’s decision to move forward with an appeal. In a Facebook live interview with the Seattle Times, she said the income tax should be defended, even though she called its success a “long shot.” Requests for comment from her office was not returned.
Spokane’s legal defense was similar to that made by Seattle during the November legal hearings in King County Superior Court over its high-earner income tax, in which attorneys representing the city cited 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.”
Judge John Ruhl’s decision invalidated Seattle’s ordinance based on a 1984 state law expressly prohibiting it, though he added that “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.”
This legal opinion was reflected in the State Supreme Court’s December 7 decision. “Municipal corporations have no inherent right to levy taxes. However, article VII permits the legislature to delegate tax powers to municipal corporations. Therefore, a local jurisdiction’s taxing authority is derived from legislative grant specified by the Washington Constitution.
“The delegation of powers of taxation under RCW 35A.11.020 is specific and limited by the statute’s express language,” the ruling states further. “The statute provides that code cities have powers of taxation within constitutional limits. It does not, nor could it, expand or vary the constitution’s uniformity requirements.”
As articulated in the State Supreme Court case King County v. City of Algona, cities must have both the authority and power to levy a tax. That means it must be constitutional taxing authority that was first delegated to the legislature, and then explicitly delegated to the city itself.
Yet, Davis says it’s hard to say how a ruling on tax exemption authority will play out should Seattle’s tax ordinance get in front of the high court. “I think the court is still compressing the two-part test into a one-part test.” He points to a recent court decision in which the justices ruled 8-1 in favor of Seattle’s tax on ammunition. The plaintiff had made two arguments; it was a regulation disguised as a tax to circumvent a state ban on gun regulations, and that the city lacked the taxing authority.
Although Seattle is designated as a different type of city than Spokane – Seattle is rated a first-class city under RCW 35.01.010 – it too is limited in its taxing authority. Even if the state’s ban on local income taxes were overturned, as the Economic Opportunity Institute (EOI) attempted to do during the November hearing, the city would still have to prove that the state had delegated such authority from the legislature. Even then, the state legislature would theoretically only have the constitutional authority to delegated authority for a flat-rate income tax.
“They have to win every single one of these arguments, or they lose,” Davis said. “I think the ultimate insanity of the city argument is that…when considering the validity of an ordinance, the courts would never look at anything but the constitution.”
Since the 1930s, the State Supreme Court has unanimously ruled that income is property and thus subject to the State Constitution’s uniformity requirement for property taxes. On top of that, Washington voters have repeatedly rejected a constitutional amendment that would alter that understanding, the most recent of which was the vote on Initiative 1098 in 2010.
Seattle’s lawsuit is part of a larger effort to remove the ban on a progressive income tax through judicial fiat. However, beneath the legal justifications for the tax is the fervent hopes that a friendly Supreme Court will side with them. A 2008 EOI paper states that “highly respected legal scholars believe that if an income tax measure passed today without a constitutional amendment and was challenged in court, there is a good chance that the Supreme Court would reverse its earlier ruling and allow the tax to stand. An alternative – and more politically feasible – route would be to pass an income tax legislatively, either by initiative or by a majority vote in the legislature and ratifying vote of the people. Such legislation would almost certainly be challenged in court, providing the State Supreme Court with the opportunity to review and possibly reverse the ruling from 75 years ago.”
Since the city ordinance was passed in July, significant voices have remained silent. Those include Seattle City Attorney Peter Holmes, who had previously written a legal brief to the city on the tax’s constitutionality. That brief has been exempt from public disclosure, and the city has retained outside counsel for defending its tax proposal.
Attorney General Bob Ferguson also has remained neutral, so far declining to intervene in defense of the 1984 state law.
However, another relatively quiet voice since July has been the income tax’s loudest champion, Councilmember Kshama Sawant. Her last press release concerning the tax was released in July shortly after the measure was passed, and her Twitter account showed no response to the Nov. 22 King County Superior Court ruling. Her public Facebook page shows no posts on the decision following the decision, and no response by her to a commenter leaving a link to a story about the ruling. Requests for comment from Sawant was not returned.