Supreme court refuses to take up Seattle income tax case

Supreme court refuses to take up Seattle income tax case
The Washington State Supreme Court will not take up a lawsuit involving the city of Seattle’s graduated income tax ordinance. Photo: freepik.com

The Washington State Supreme Court has announced it will not hear a legal case regarding the city of Seattle’s graduated income tax ordinance previously struck down by both the King County Superior Court and the Washington State Division 1 of the Court of Appeals. However, the decision means the lower court ruling’s invalidation of a 1984 law prohibiting local income taxes stands.

Washington Policy Center Government Reform Director Jason Mercier wrote in a blog post the decision is a “devastating blow” for efforts to legalize a progressive income tax, which is not permitted in Washington due to a constitutional requirement that property taxes be uniform.

Among those to file a lawsuit against the ordinance was the Freedom Foundation. CEO Tom McCabe wrote in a statement that the decision “respected almost a century of case law — and the repeatedly expressed will of state residents — by slapping down the city of Seattle’s brazenly unconstitutional income tax proposal.”

The State Supreme Court has ruled since 1933 that the state constitution’s broad definition of property includes income; ballot language for the constitutional amendment adding the property definition includes statements by proponents that the measure would allow the state to tax income such as bonds. Voters have also repeatedly rejected a state income tax, the latest in 2010 via Initiative 1098.

Retroactively anticipating the court’s announcement was a 2011 email by former State Supreme Court justice Phil Talmadge to Sen. David Frockt (D-46). The email was obtained through a public records request by WPC’s Mercier.

“The Court had a chance to do so (rule income is not property) a few years ago,” Talmadge wrote in reference to the 1999 decision Harbour Village Apts. v. City of Mukilteo. “It declined to do so. The political fallout for any of the justices going that way will be immense. It opens the door to the income tax and you and I both know how little the voters want that, as Bill Gates, Sr. learned.”

Seattle’s ordinance was first struck down in 2017 in King County Superior Court, then again in the Court of Appeals. However, the appeals decision also ruled that a 1984 state law banning local income taxes was unconstitutional. The court then rejected a request by the plaintiffs to reconsider its decision.

Yet, another court case is possible if the state legislature decides to enact a capital gains tax, which has been proposed in recent sessions. However, while a local graduated income tax could be ruled invalid for statutory reasons, a lawsuit against a state capital gains tax directly addresses the constitutional issue of whether income is property. For advocates, a legal challenge in that case would provide a straightforward path to a State Supreme Court hearing and potential new ruling.

The emails obtained by Mercier leave little doubt as to the intent of some capital gains tax proponents. In a 2018 email, Sen. Jamie Pederson (D-43) wrote “the more important benefit of passing a capital gains tax is on the legal side, from my perspective. The other side will challenge it as an unconstitutional property tax. This will give the Supreme Court the opportunity to revisit its bad decisions from 1934 and 1951 that income is property and will make it possible, if we succeed, to enact a progressive income tax with a simple majority vote.”

Mercier wrote that “extra vigilance will be needed now on efforts to impose a capital gains income tax.”

Also up in the air is how cities and counties will respond to the court ruling’s invalidation of the local income tax. So far, the cities of Spokane Valley, Spokane and Granger have passed bans on a local income tax. State lawmakers this session proposed two bills reinstating the 1984 law, but these failed to clear the legislature.

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