Court: Seattle wealth tax unconstitutional but so is tax ban

Associated Press

SEATTLE — The Washington state Court of Appeals ruled Monday that Seattle’s tax on wealthy households is unconstitutional, but so is the state law banning Seattle and other Washington cities from taxing net income.

In doing so, the Court of Appeals declared void a 35-year-old ban enacted by the Legislature and opened the door to a battle at the state Supreme Court, The Seattle Times reported . The court says the ban is unconstitutional because the Legislature made a technical error in 1984.

Matthew Davis, lawyer for one of the Seattle residents opposing the city’s tax on wealthy households, said of the Court of Appeals’ decision to nix the Legislature’s 1984 ban that he was giving that argument “a zero percent chance of success.”

Washington is one of the few states in the country without a graduated income tax or any income tax.

Seattle has faced legal hurdles since adopting a 2.25% income tax in 2017, including several lawsuits. The city’s opponents have argued the tax violates the 1984 law passed by the Legislature banning Washington cities from taxing net income. A King County Superior Court judge sided with the opponents on that point in November 2017, which halted the tax before the city had started collecting the money.

Seattle had estimated the measure would raise about $140 million per year to pay for housing, education and transit and to reduce other, more regressive taxes.

Seattle sought direct review from the Supreme Court, which declined to hear the issues immediately and instead sent the case to the Court of Appeals.

On Monday, the Court of Appeals reached a different conclusion than the lower-court judge. Though Seattle’s measure does violate the ban on cities taxing net income, the ban itself is unconstitutional because the Legislature included the ban in a law that covered multiple other subjects, breaking a constitutional rule that says “no bill shall embrace more than one subject,” according to the Court of Appeals.

“No statutory prohibition limits Seattle’s authority to levy a property tax on income,” Judge James Verellen wrote for the Court of Appeals.

On the questions of whether Seattle’s tax is constitutional, the Court of Appeals deferred to the state Supreme Court, which has several times ruled that income is property and that property must be taxed uniformly.

Seattle’s tax applies a 2.25% rate on total income above $250,000 for individuals and above $500,000 for married couples, meaning households with less money aren’t taxed at all.

“We are constrained . to follow our Supreme Court’s existing decisions that an income tax is a property tax,” Verellen wrote. “Our state constitution’s uniformity requirement bars Seattle’s graduated income tax.”

Seattle intends to again ask the Supreme Court to review the case, said Dan Nolte, spokesman for Seattle City Attorney Pete Holmes.

“We’re pleased that the Court held the City had the statutory authority to enact an income tax,” Nolte said in a statement. “The City has always recognized that ultimately the Washington State Supreme Court is the proper place to overturn the bad precedent holding an income tax is a tax on property.”