Read the full Policy Note here

 Key Findings

1. Last year Governor Inslee signed a bill to impose a new tax on out-of-state banks.
2. The measure was introduced as a “title-only” bill with no text.
3. Bill sponsors added the text two days before the end of the 2019 legislative session.
4. Democrats in the House passed the bill 24 hours later; the Senate passed the bill and sent it to the governor the next day. No Republicans voted for the bill.
5. Those targeted by the tax said it violated the commerce clause of the U.S. Constitution, which protects citizens against discriminatory state laws.
6. In May 2020 a state court struck down the law as unconstitutional. The ruling is on appeal.
7. Analysts noted that, had lawmakers taken the time to critically examine the bill, passage of an unconstitutional law could have been prevented.

 Introduction

On May 21st last year Governor Inslee signed a bill that imposed a new tax on out-of-state banks. Opponents in the legislature argued the bill violated the interstate commerce clause, illegally targeted certain entities and was unconstitutional. It turns out they were right. 

The banks singled out by the tax filed a lawsuit saying it interfered with the right of all Americans to be treated equally when doing business in a particular state. In other words, in normal commerce state law cannot discriminate against the citizens of another state.

Recognizing this principle, the King County Superior Court struck down the bill on May 8th, 2020 just short of one year after the governor signed it. The tax had gone into effect on January 1st, meaning banks that were illegally taxed are owed a refund. The ruling is on appeal.

This Policy Note analyzes of how such a bill could have been passed in the first place, the policy intentions of its sponsors, the arguments presented by legislative opponents, and the legal reasoning of the court that decided the issue. The analysis is a case study in how an unconstitutional law can be enacted at the state level, and the remedy that is available to Americans who are targeted by an unjust law.

Read the full Policy Note here