2019 bank tax increase ruled unconstitutional

May 9, 2020

A King County Superior Court Judge on Friday ruled the Title Only bill bank tax increase from 2019 (SHB 2167) unconstitutional. An email from the plaintiffs said, “The Judge determined the tax was in violation of the dormant commerce clause as it was discriminatory in its effects on the specified financial institutions.”

This ruling should come as no surprise to lawmakers. They were warned by members of both parties as the tax was rushed to the floor on the last day of the 2019 session that it was constitutionally suspect. The Governor was asked to veto the tax increase by Sen. Braun, Sen. Mullet, Sen. Schoesler, Rep. Wilcox and Rep. Stokesbary. The Governor declined to do so.  

Discussing the court ruling the bankers said:

“The King County Superior Court granted our motion for summary judgment and denied the State’s motion for summary judgment. The Court held that the B&O tax statute (RCW 82.04.29004) violates the federal dormant Commerce Clause by unconstitutionally discriminating against interstate commerce in purpose and effect. As a result, the Court will declare the B&O tax statute illegal, invalid, and unenforceable. We expect the State to appeal the Court’s decision to the Washington Supreme Court. As this case implicates the federal Constitution, the parties may ultimately petition the U.S. Supreme Court for a writ of certiorari to decide the case.”

When SHB 2167 was on the Senate floor, Sen. Braun and Sen. Mullet both spoke to the need to refer the bill back to committee so that a meaningful public vetting and legal analysis could occur. That motion, however, was rejected.

Here are Sen. Braun’s comments on the Senate floor.

Agreeing with Sen. Braun, Sen. Mullet said that due to the rushed process he wasn’t able to get anyone from the Attorney General’s office to provide a legal analysis on if the bank tax violated the U.S. Commerce Clause.

The lack of public process on HB 2167 was so poor that those subject to the tax were provided only a few hours’ notice of the details before the hastily called public hearing.

Testifying on the bill, Trent House with the Washington Banking Association said:

“We found out about it (tax bill) about 3 ½ hours ago. That’s very difficult to process even with the best staff, it’s hard to get information back on a bill of this nature that raises this kind of money in that period of time…We haven’t seen a fiscal note. We don’t know exactly what this bill does or who it applies to. It’s very difficult to even understand how to testify on this bill not knowing that information.”

Along with arguing the bank tax violated the commerce clause, the bankers also sought to challenge the use of a Title Only bill to impose it. On February 13, however, the King County judge dismissed that portion of the legal challenge.

The judge is expected to officially sign a copy of his order ruling SHB 2167 unconstitutional for violating the commerce clause on Monday.  

Additional Information
Governor asked to veto stealth tax increase due to transparency concerns

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