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As Seattle gets closer to an income tax, state Republicans work to stop it

A court ruling this week threw out a long-standing ban on local income taxes. As some celebrated, GOP lawmakers quickly went on the offensive.

Members of the public watch as the Seattle City Council considers arguments before passing a new city income tax on the wealthy on  July 10, 2017. (Photo by Elaine Thompson/AP)

Earlier this week, Seattle’s attempt to tax the wealthy was once again declared unconstitutional, based on how the tax would affect certain taxpayers and not others. This, an appeals court ruled, runs counter to a state Supreme Court decision from 1933.

That part of Monday’s ruling from the Washington state Court of Appeals was no surprise. But another part of the decision caught many policymakers off guard. The ruling struck down a law the Legislature passed 35 years ago that banned cities and counties from taxing net income, finding it was also unconstitutional.

Now, Republican lawmakers, who have long opposed income taxes of any kind in the state, are looking for ways to make sure that part of the ruling doesn’t stick.

One Republican legislator, state Sen. Steve O’Ban of Tacoma, is urging Democratic Attorney General Bob Ferguson to step in to defend the income-tax prohibition, which Washington lawmakers originally approved in 1984.

O’Ban wrote a letter to Ferguson on Wednesday that asked him to intervene in the Seattle income-tax case, which is expected to be taken up by the state Supreme Court.

“Every client is entitled to a defense. The state is your client,” O’Ban wrote to Ferguson. “And a state law in place for over 35 years has just been found invalid on grounds rarely invoked by the court system. We expect you to represent the state's interest by defending the constitutionality of the law.”

In addition, O’Ban and other GOP lawmakers would like to see the Legislature readopt the 1984 law — but this time in a different way, one that would ensure the ban passes judicial scrutiny.  

The appeals court struck down Washington’s ban on local income taxes because of how the original bill was structured. By combining multiple subjects in the same bill, the court ruled, the Legislature violated a constitutional rule that bills cannot embrace more than one subject.

The 1984 legislation contained six distinct sections, with the ban on local income taxes being only one of them. The others dealt with different aspects of local government.

Monday’s ruling found that the disparate sections of the bill “are not adequately germane to each other” to pass constitutional muster.

As such, "it is impossible to assess whether the broad prohibition on net income taxes would have passed without the bill’s unrelated provisions,” the decision said.

O’Ban believes the court ruled in error on that point. So does state Rep. Drew Stokesbary of Auburn, the leading Republican on the House Appropriations Committee.

Nonetheless, both GOP lawmakers said the Legislature could easily pass a stand-alone version of the income-tax prohibition that would eliminate any doubt about that legal issue.

“We could just pass a bill that includes that section as the only part of the bill,” Stokesbary said Thursday.

Stokesbary and O’Ban both say they plan to introduce legislation to enact the more narrow version of the ban prior to the Legislature's reconvening in January.

One of the goals of such a bill would be to prevent Seattle's income tax from going into effect, the lawmakers said.

At the same time, by pushing for a statewide ban, Republicans would be issuing a calculated political challenge to Democrats, who control both chambers of Washington’s Legislature and the governor's office.

While a tax on income may find some support in liberal Seattle, it is viewed as a less popular proposition in other parts of the state, including some rural and suburban areas represented by moderate Democrats.

In past campaigns in legislative swing districts, Republicans have often accused Democratic candidates of supporting an income tax, something those candidates have frequently denied

“To me, it’s kind of simple: Democrats' campaign arguments have been, ‘We don’t want an income tax, Republicans are just crying wolf,’ ” Stokesbary said. “If that’s true, they should join with us in passing this statute as a single bill next session.”

State Rep. Noel Frame, D-Seattle, said Republicans’ request for Democrats to enact a ban on income taxes is not new, but rather “their favorite political weapon.”

She noted that Republicans steadfastly opposed her proposal earlier this year to create a work group to discuss how to modernize and help balance Washington’s tax code. That work group is now moving forward.

“They seem more interested in engaging in a political stunt than in a thoughtful conversation about how to make the tax code better for middle- and low-income people,” Frame said Thursday.

Frame and other lawmakers have recently sought ways to make Washington’s tax code less regressive, a term that refers to how low-income people pay a higher percentage of their income in taxes than the wealthiest Washingtonians.

Seattle’s income tax on high earners was designed to combat the same phenomenon. The Seattle City Council passed the ordinance in July 2017, enacting a tax on individuals earning more than $250,000 per year, as well as on married couples earning more than $500,000 annually. The 2.25% tax applies only to earnings above and beyond those thresholds.

But the selective imposition of the tax on only a portion of taxpayers conflicts with a state Supreme Court decision from 1933. That decision hinged on the finding that income is property, and is therefore subject to constitutional rules requiring that property taxes be applied uniformly.

In Monday’s ruling, the state Court of Appeals said it could not overturn that Supreme Court precedent, even as it ruled cities like Seattle have the authority to impose uniform income taxes.

For that reason, the appeals court still found Seattle’s graduated income tax unconstitutional.

The legal fight will continue, however. In a statement, Dan Nolte, a spokesman for the Seattle City Attorney’s office, said the city will appeal the case to the state Supreme Court and ask the high court to overturn the 1933 ruling.

“The City has always recognized that ultimately the Supreme Court is the proper place to overturn the bad precedent holding an income tax is a tax on property,” Nolte wrote.

Stokesbary said his aim is to introduce legislation that would block Seattle's income tax anyway, even if the state Supreme Court reverses itself on that issue.

For his part, Ferguson appears unlikely to intervene in the income tax case, despite O'Ban's request. His office previously declined to get involved in the case in 2017, after citing the potential cost of litigation to the state.

Normally, the Attorney General's Office "steps in when a state or a state agency is sued," Ferguson told House Republicans in a letter that year.

“That is not the situation here," Ferguson's letter said.

"... Where the challenge to a statute arises in a lawsuit to which the state is not a party, the Attorney General’s Office rarely intervenes.”

 

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As Seattle gets closer to an income tax, state Republicans work to stop it

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