Earlier this month, a group of Democrat state lawmakers submitted a brief in the lawsuit over the city of Seattle’s income tax ordinance arguing that the city had the statutory authority to do so. Now, another Democrat legislator is making a separate argument; local income taxes are illegal, but they should be allowed if they’re revenue neutral – at first.
That is the underlying premise for SB 5928, sponsored by Senate Majority Caucus Vice Chair Bob Hasegawa (D-11). He is also the sponsor of a bill calling for a work group to study the state tax structure and recommend reforms, which might include a graduated income tax.
Washington Policy Center Government Reform Director Jason Mercier told Lens “I can only imagine what’s going to happen in caucus, because he is totally undercutting their amicus brief.”
The bill would repeal a 1984 state law explicitly prohibiting counties and cities from enacting income taxes. That law was the basis for a 2017 ruling by a King County Superior Court judge, which struck Seattle’s ordinance down on statutory grounds and did not address the constitutional question – whether income is property and therefore subject to the state constitution’s uniformity requirement for property taxes.
However, the Feb. 4 brief filed by 17 state lawmakers cites the “broad taxing authority” in RCW 35A.11.020 and RCW 35.22.570. Although it acknowledges RCW 36.65.030, the brief insists that the ordinance was a tax on “total income,” rather than “net income.” A joint brief filed last year by the Association of Washington Cities along with the city of Olympia also claimed Seattle was within its statutory authority but also said there was no explicit restriction on local income taxes.
Meanwhile, Rep. Brandon Vick (R-18) has introduced a bill restating the legislature’s original intent in the 1984 state law, in part to clear up any legal ambiguity that has led to lawsuits such as the one filed against Seattle. The bill has been referred to the Finance Committee, but no public hearing has yet been scheduled.
SB 5928 would allow counties and cities to enact graduated income taxes on individuals or businesses, provided they first make a comparable reduction in the local sales and use taxes, public utility taxes, business and occupation tax or property taxes. Priority would be given for the sales tax, followed by the public utility tax and then property taxes.
Although repeated State Supreme Court rulings have ruled graduated income taxes illegal, a flat one percent income tax is permissible. However, SB 5928 would require the income tax approved by local governments be graduated. Also, once the initial tax reduction required is completed, the income tax rate could be raised without first requiring a similar reduction in any of the other tax rates.
Yet, Mercier says the law will still run afoul of the state’s uniformity clause concerning property because of the graduated tax structure. Had the bill simply repealed the 1984 law, it wouldn’t violate the constitutional provision. “He (Hasegawa) should have just stopped there. Seattle could then do a flat one percent (income tax). But they can’t. That is never what they’ve wanted, which is why they’ve never run that ballot measure.”
SB 5928 has been referred to Senate Ways and Means Committee, but no public hearing has been scheduled.