Local Income Taxes Are Illegal in Washington state

By JASON MERCIER  | 
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Aug 22, 2017

For eight decades Washington state Supreme Court jurisprudence has found that income is property and that a graduated income tax is unconstitutional. In addition, local governments only have taxing authority by grant of legislative approval. Finally, state law prohibits a local government from imposing a tax on net income. These three facts demonstrate that without a constitutional amendment and express legislative approval, a graduated income tax is illegal at the local level.

State law prohibits local income tax

In order for a local government to impose any type of tax it must first have express authorization from the Legislature. As noted by this unanimous May 22, 2017, Appeals Court ruling invalidating an effort by the City of Seattle to tax beyond its authority:

“Municipalities must have express legislative authority to levy taxes . . . We affirm the hearing examiner’s conclusion that the city lacked authority to tax roaming charge revenue, but like the superior court, we base that conclusion on the absence of specific statutory authority.”

Not only has the Legislature not granted municipalities the authority to impose an income tax, lawmakers have passed a law expressly forbidding this type of tax. Per RCW 36.65.030: “Tax on net income prohibited. A county, city, or city-county shall not levy a tax on net income." Though the phrase “net income” is used, the legislative history of this law makes it clear the Legislature was focused on prohibiting any type of local income tax. As noted by the bill report:            

“City-county consolidation was authorized by the voters in 1972 when they approved Amendment 52 to the State Constitution. An Attorney General’s Opinion in 1975 created some confusion over the powers possessed by a combined city-county. The Legislature had not enacted any statutes clarifying the constitutional authorization for combined city-counties. Summary: The following clarification are made . . . (2) A county, city, or combined city-county is prohibited from enacting an income tax . . .”

Graduated income tax unconstitutional

According to the Washington State Supreme Court (1951): “It is no longer subject to question in this court that income is property.” This common-sense finding that income is property is important because this means an income tax would need to follow the constitutional restrictions for property taxes. This means, as the state Supreme Court has repeatedly ruled, that a graduated income tax is unconstitutional since property must be taxed uniformly and at no more than one percent of its value.

As to whether the state Supreme Court’s numerous rulings prohibiting a graduated income tax are “antiquated,” former state Supreme Court Justice Phil Talmadge addressed this argument with a legal opinion in 2010 on the constitutionality of Initiative 1098 (state income tax ballot measure). Justice Talmadge said:

“The proponents of a graduated net income tax in Washington have vociferously argued that these older cases are no longer viable . . . However, since 1993, the Washington Supreme Court has been confronted with cases in which the continuing validity of the ‘income as property’ cases was questioned and has rejected the argument articulated in the Spitzer law review article . . . Subsequently, in Washington Public Ports Association v. Dep’t of Revenue (2003), the Court re-again affirmed the continuing viability of the cases holding that a tax on income was a property tax.”

Washingtonians have repeatedly rejected efforts to impose an income tax

The voters have been provided multiple opportunities to overturn the numerous rulings by the state Supreme Court declaring a graduated income tax unconstitutional.

Each time, however, the voters have overwhelming rejected those constitutional amendments to allow a graduated income tax (1934, 1936, 1938, 1942, 1970 and 1973). Washington voters have also rejected multiple income tax initiatives (1944, 1975, 1982 and 2010). In total, the people have made it clear on ten straight occasions they do not want an income tax. In addition, voters in Olympia rejected a city-specific income tax proposal in 2016.

It is because of this consistent rejection at the ballot box that income tax proponents no longer are trying to amend the constitution and instead are hoping that five justices will do what the voters won’t and impose an income tax by overturning eight decades of caselaw.

An income tax at the local level is illegal in Washington state. In addition, a graduated income tax is unconstitutional. Those advocating for an income tax should not willfully violate state law and the constitution in hopes of five justices undoing eight decades of caselaw. Income tax proponents instead should attempt to convince the Legislature and citizens to impose an income tax in the only way that is legally possible in Washington state – by passing a constitutional amendment.

Additional Information
More lawsuits filed against Seattle's illegal income tax