Seattle’s illegal income tax – Round 3

Jun 5, 2019

The City of Seattle’s illegal income tax will face Round 3 tomorrow morning at Division 1 Court of Appeals. The Seattle income tax was thrown out by King County Court Judge Ruhl in 2017. Seattle subsequently lost its effort to bypass the Court of Appeals when the state Supreme Court in January declined to take the case up on direct review. Should Seattle’s income tax lose Round 3 with the Court of Appeals, there is the possibility the state Supreme Court will again decline to take the case.

What’s at stake is whether the courts will allow income tax proponents to bypass the people and the constitution to allow a graduated income tax. Washingtonians have rejected six proposed income tax constitutional amendments and an additional four ballot measures. In all they have rejected 10 straight income tax proposals at the ballot box.

The state Supreme Court in 1960 made it very clear that proponents of an income tax should stop asking the court to change its mind from its repeated rulings striking down a graduated income tax and instead pursue a constitutional amendment.

Speaking of constitutional amendments, while some in Washington flirt with throwing away the state’s “competitive advantage” of no income taxes, other non-income tax states are taking the opposite approach by making it harder to ever impose an income tax.

Texas lawmakers this year approved sending voters a constitutional amendment to ban any form of personal income tax in Texas. This follows the lead of Tennessee which also cemented its income tax ban in the state’s constitution in 2014.

We continue to advocate for Washington officials to do the same to make the state’s income tax ban court-proof. In 2017 there was an effort to do this (SJR 8204) but it failed with a vote of 27-22 (33 needed) in the Senate with opponents saying that there isn't support for an income tax but voting to ban one was a “waste of time.”

A short time later, however, Seattle adopted its illegal income tax. Efforts to impose a capital gains income tax also continue in the legislature.

I will be attending tomorrow’s Court of Appeals oral arguments and plan to live tweet the hearing (Wi-Fi pending). I’m anxious to hear if Seattle attorneys again tell judges that those who don’t want to pay the Seattle income tax can simply move to Bellevue or if the now disclosed 2014 Seattle legal memo clearly telling the city council a local income tax is against state law and the constitution is referenced.

Legal issues aside, the state Department of Commerce isn’t the only one advertising the lack of an income tax as being a “competitive advantage” for Washington. At our recent Solutions Summit in Spokane, State Treasurer Davidson made an impassioned speech on the need to avoid an income tax and why not having one is a positive thing for Washington.  

Notwithstanding the outcome of the current legal fight, this is an important tax recommendation to remember. Stay tuned for updates from tomorrow’s Court of Appeals hearing on Seattle’s illegal income tax.