In a new ruling the Washington State Division 1 of the Court of Appeals has struck down the city of Seattle’s 2017 local income tax ordinance. However, the July 15 decision also declared a 1984 state law banning local income taxes to be unconstitutional. It’s a matter now for review by the State Supreme Court, which has been one of the objectives sought by the tax’s supporters.
In an email to Lens, plaintiff attorney Matthew Davis wrote that the court “will wreak havoc” as a result of its ruling. “The Supreme Court will have no choice but to take the case.”
The ruling is the second time the ordinance has been declared illegal, though the latest decision undermines the legal argument put forth in the 2017 ruling in King County Superior Court that invalidated the income tax on statutory grounds. In his 27-page decision, King County Superior Court Judge John Ruhl concluded that the city’s ordinance violated a 1984 state law that holds: “a county, city, or city-county shall not levy a tax on net income.”
Because of that, his ruling did not address the issue of whether income is considered property under the state constitution. The state high court has unanimously held since a 1933 decision that income is property, which can only be taxed at a uniform rate.
The tax’s defenders, including the city of Seattle and the Economic Opportunity Institute, argue that the tax is an excise tax, that it only applies to gross rather than net income, and that the 1984 state law violates the single subject rule as described in Article II, section 19 of the state constitution.
The Court of Appeals ruling struck down Seattle’s income tax for violating the state constitution, while ruling it was a tax on gross and not net income. The court also declined to rule whether it was an excise tax as claimed by Seattle.
However, the court also argued that the tax was invalid only on constitutional grounds. The court diverged from the King County Superior Court by arguing “Seattle has the statutory authority to adopt a property tax on income” under broad powers defined in RCW 35.22.570 as well as RCW 35.22.280 allowing cities to adopt local property taxes. Siding with EOI, the court concluded the 1984 law is unconstitutional for violating the single subject rule.
However, Davis wrote that “In law school, this analysis would be lucky to get a D-.”
Washington Policy Center Research Director Paul Guppy told Lens that the ruling “it gives powerful ammunition to the next group that brings another income tax case.” He added that the ruling goes against accepted practice for courts to keep rulings as narrow as possible.
“Having decided the constitutional question, why did they go further and strike down this 1984 law?” he asked. “Even if the Seattle ordinance is struck down on constitutional grounds, the court seems to be playing a political game in invalidating this 1984 law.”
At the same time, Davis wrote that “courts in theory try not to reach or decide constitutional issues unless they have to.”