Court overturns state bank tax

Court overturns state bank tax
A King County Superior Court judge has ruled a 2019 state bank tax unconstitutional for violating the federal Commerce Clause. Photo: freepik.com

A King County Superior Court judge has ruled a 2019 state bank tax unconstitutional for violating federal law after it was initially upheld regarding its title-only status prior to passage. The  , approved just before the end of the 2019 legislative session, imposed a tax on out-of-state financial institutions. The court found this violates the U.S. Constitution’s dormant Commerce Clause that prohibits states from discriminating between in-state and out-of-state commerce.

After its passage and approval by Governor Jay Inslee despite calls to veto itSHB 2167 was eventually challenged in court by the Washington Bankers Association (WBA). WBA President and CEO Glen Simecek said in a statement that “we have always contended this tax violates the Commerce Clause of the Constitution. We are pleased that the Court agreed and granted our motion for summary judgment.”

The constitutional issue was raised not only by WBA, but also by key committee chairmen who protested the hasty process with which the law was written, discussed, debated and approved.

During debate, Sen. Steve O’Ban (R-28) said “we’re buying a lawsuit” with SHB 2167. O’Ban was one of several lawmakers during this year’s session to introduce legislation prohibiting title-only bills, but none of them received public hearings.

The bill then went from title-only to passage within 50 hours.

Senate Financial Institutions, Economic Development & Trade Committee Chair Mark Mullet (D-5) noted on the chamber floor that legislators weren’t even able to get a legal opinion from state Attorney General Bob Ferguson before SHB 2167 was voted on because his office was closed for the weekend. The bill narrowly cleared the Senate 25-24.

Title-only  bills are introduced at the beginning of session with no bill language, allowing lawmakers to circumvent a constitutional requirement that bills be introduced at least 10 days before the end of session. The practice has been criticized by some legislators, Olympia observers and policy analysts.

Although the court ruled the title-only aspect of the law was legal, Washington Policy Center Government Reform Director Jason Mercier said that if the state appeals the latest decision, the question could be reexamined. “I don’t know if they plan to do that.”

Because it was struck down for violating federal law, Mercier added that a definitive ruling could be years away. In the meantime, the use of title-only bills could be used in the future.

“Had there been any actual time to do a real analysis, it would have become clearer what a perilous path it was,” he said. “You should never pass a tax this way.”

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