Throughout the two-year court fight over Seattle’s income tax ordinance, the city has argued that the tax doesn’t violate the state constitution or state law because it is an excise tax, the tax is applied to gross income, and that the city already has the authority to impose an income tax.
And now, the latest argument: Income isn’t money.
After losing in King County Superior Court, the city’s tax ordinance was also ruled against in July by the Court of Appeals on the basis that it violated the state constitutional provision requiring property taxes be uniform in nature. However, the court also declared to be unconstitutional a 1984 state law prohibiting local governments from passing an income tax and claimed that the state legislature has already granted local governments authority to impose a property tax on income. Although the Court of Appeals didn’t address whether it was an excise tax, the 2017 King County Superior Court ruling concluded the city lacked a “valid basis.”
The Court of Appeals has now been asked to reconsider its decision by the plaintiffs; one of their arguments is that the court avoided addressing whether income is intangible property as defined by state law and thus exempt from property taxes. According to the state law, intangible personal property includes “all moneys and credits.”
In its Sept. 23 brief to the court, Seattle argued that “although the statute includes ‘all moneys,’ the legislature specified that ‘moneys’ means ‘coin or paper money issued by the United States government.’ The reference to ‘moneys’ thus refers to coin or paper money held as an asset, as traditional ad valorem taxes are understood, rather than income earned over time.”
The Economic Opportunity Institute (EOI) argued in a separate brief in defense of Seattle’s ordinance that were the court to side with the plaintiffs, it would conflict with the state business and occupation (B&O) tax imposed on gross revenue.
However, the B&O tax was declared to be an excise tax, not a property tax, in a 1933 State Supreme Court decision. As for Seattle’s claim, Washington Policy Center Government Reform Director Jason Mercier simply points to the Webster Dictionary definition of both money and income.
Mercier told Lens the new claim made by the defendants is the result of the Court of Appeals’ decision. “Seattle doesn’t believe income is property, so it is not agreeing with the appellate court decision that it had the authority to tax income as property. This is why they’re all over the place.”
While some proponents of the city’s income tax ordinance hope the lawsuit will eventually lead to a State Supreme Court decision overturning 80 years of high court rulings declaring income to be property, Mercier is confident that won’t happen.
“Washington’s definition of property is the broadest in the country. Washington defines property as everything subject to ownership – both tangible and intangible.”
He added that “the reason we’re playing all these games…is because the people of the state are not cooperating with your (progressive income tax advocates) tax scheme. If you want an income tax, I get it. But you don’t do this through legal games. Make your policy argument and go through the process of amending the constitution.”