Key Findings:

• In 1984 the legislature overwhelmingly passed a law making it explicitly clear that local governments in Washington state do not have the authority to impose an income tax.
• The state Court of Appeals, however, in July 2019 issued a shocking ruling that the statewide ban on local income taxes, which has been in force for 36 years, is unconstitutional and violates single subject restrictions.
• On April 2, 2020, the state Supreme Court announced that it would not review the Seattle income tax case, with the result that the Appeals Court’s ruling was allowed to stand.
• Earlier this year majority Democrats in the legislature refused to hear bi-partisan bills that would have re-instated that 36 year old law.
• Based on the 2019 election results in Spokane and in a statewide poll, income taxes are unpopular in Washington state and voter opposition to a local income tax remains strong.
• The 2019 Spokane income tax ban passed with more than 72 percent of the vote. The city council of neighboring Spokane Valley unanimously passed a local income tax ban a few week later, followed in December by the city council in Granger.
• By banning a local income tax, city officials would be honoring the clear message from voters, and would be respecting the popular local income tax ban as it has existed since 1984.

In 1984 the legislature overwhelmingly passed a law making it explicitly clear that local governments in Washington state do not have the authority to impose an income tax. For decades this law remained in effect without question or controversy until elected officials in the City of Seattle attempted to impose an income tax in 2017. Subsequent court rulings

challenging this action reaffirmed the longstanding constitutional prohibition on a graduated income tax. The state Court of Appeals, however, in July 2019 issued a shocking ruling that the statewide ban on local income taxes, which has been in force for 36 years, is unconstitutional and violates single subject restrictions.

The state Supreme Court then refused to hear the case on appeal earlier this year. The high Court’s refusal left the Appeals Court ruling in place, seemingly opening the door to the enactment of flat local income taxes. Three cities have already acted to pass local income tax bans responding to the surprise court ruling, thus reaffirming their competitive advantage of no local income taxes.

Read the complete policy note here.