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Ban on local income taxes gaining traction

Ban on local income taxes gaining traction

The Washington State Court of Appeals struck down the city of Seattle’s graduated income tax two years ago, but at the same time overturned a 1984 state law prohibiting local income taxes. Since that time, six charter and code cities have either passed resolutions against an income tax or voted for a ballot measure allowing voters to decide.

The latest to do so is the Union Gap City Council, which voted in favor of its resolution at an Aug. 9 meeting. Just a week earlier, the Yakima City Council voted to send a proposed charter amendment to voters that would prohibit a local income tax. The first charter city to do so was Spokane, where voters approved the income tax ban by 72 percent. Other cities to also pass resolutions against the tax are Battle Ground, Granger, and Spokane Valley.

The driving force behind efforts depends on who you ask. For some local policymakers and other advocates for the bans, it provides reassurance to residents and the business community that existed prior to the 2019 Court of Appeals ruling.

“After a year of shutdowns caused by Covid-19 this (a local income tax) would be tragic for our business community and its citizens,” Greater Yakima Chamber of Commerce CEO/President Verlynn Best told the City Council at its Aug. 2 meeting. “It allows us to have a competitive edge in the future of development and business. If we fail placing this in our charter to serve our citizens, it’s safe to say this council will be telling our community it is open to a local income tax in the future.”

Yakima Mayor Patricia Byers said at the meeting that she proposed the charter amendment as a way for the voters to decide, but added that it offers certainty to employers. “Our businesses are trying to rebuild in the community. To even say that we’re open to having an income tax would be a deterrent to other businesses looking to come into the community.”

Yet, detractors argue that it’s only intended for political purposes. Councilmember Kay Funk told colleagues the amendment was driven by “hysteria” and intended to create “chaos” in local elections, adding that it’s “just really another step in the silliness which a certain voice in our local community has embraced.”

“No one is talking about imposing an income tax,” she said. “We have a rule in council – we don’t make motions or rules that we’re not going to do something. We make motions that we are going to do something. When we endorse their false flag issue, we give them more legitimacy from the council and we shouldn’t do that.”

A similar view was shared even among amendment supporters such as Yakima City Councilmember Brad Hill, who seconded the motion for the charter amendment and ultimately voted for it. “It’s politically motivated, it’s red meat for the voters…and it is silly, but I’m not for a local income tax.”

However, Washington Policy Center Government Reform Director Jason Mercier says the claim that these measures aren’t necessary due to a lack of political support right now ignores the full context and history of the debate. During the lawsuit against the city of Seattle’s 2017 income tax, the Association of Washington Cities (AWC) filed a brief claiming local governments have existing authority to impose a local income tax, though it’s unclear to what extent AWC’s board members were aware of the brief’s content.

In its decision, the Court of Appeals ruled in favor of AWC’s argument, declaring that any jurisdiction with authority to impose a property tax, including school districts, also have authority to impose a local flat-rate income tax.

“Up until 2017 you had no grant of authority from the legislature, and it was explicitly prohibited,” Mercier said. “This was a nonstarter. The city of Seattle opened the door. It is a clear and present danger in every city, in every county, in every school district in Washington state with property tax authority.”

This reversal in statewide tax policy means that without these bans, residents and businesses must continually rely on elections to ensure the city council will maintain a stance against it, he added.

While the charter amendments make it illegal to impose the tax without voter approval, the code city resolutions can be repealed by a city council vote. However, Mercier believes these resolutions are still useful because “you’re putting them on the record saying ‘We don’t want to go down this road. This is not something we’re clamoring to have.’”

Local taxing authority could also be expanded further depending on the outcome of the ongoing lawsuit against the state’s capital gains income tax enacted during this year’s legislative session, as proposed amendments to the law preempting local capital gains taxes were rejected. For many of its supporters, the legislation and subsequent lawsuit are a way to allow the State Supreme Court to overturn eight decades of prior decisions declaring income to be property, which under the state constitution prohibits a graduated tax rate.

The vote for the capital gains income tax came four years after a Republican-controlled Senate considered a constitutional amendment prohibiting an income tax in the state; many opponents of the amendment on the Senate floor argued that it was a waste of time, claiming no one was in favor of an income tax.

That state capital gains income tax vote also comes after repeated rejection by voters, the latest in 2010 via Initiative 1098. Rep. Chris Corey (R-14) told the Yakima City Council at its Aug. 2 meeting that “Washington state citizens have routinely and repeatedly voted against an income tax in this state,” noting that the state Department of Commerce has also touted its absence as a “selling point” to prospective business moving to the state.

“Unfortunately, that may change with the income tax we’ve passed this year,” he said.

TJ Martinell is a native Washingtonian and award-winning journalist. Born and raised in Bellevue, he’s been involved in the news industry since working at his high school newspaper.

His investigative reporting for various community newspapers in the Puget Sound region has been recognized by the Washington Newspaper Publishers Association and the Society for Professional Journalists.

A graduate of Eastern Washington University, he has a B.A. in journalism and was the news editor of EWU’s student university newspaper.

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