An Income Tax by Any Other Name
Seattle’s City Council openly ignored the state of Washington’s law and constitution when it voted unanimously in July to levy a 2.25% tax its wealthy residents. The Freedom Foundation, a local think tank, and other organizations sued to block the ordinance. In pleasant news that received little attention because it came down on the day before Thanksgiving, the King County Superior Court ruled that the tax is illegal.
Seattle’s defense relied heavily on linguistic contortions. A Washington statute explicitly forbids cities and counties from taxing net income. So city councillors claimed they were really taxing “total income,” even though they were using a federal tax-form line item that tallies various net earnings and net income sources. Dismissing this argument, Judge John R. Ruhl noted that “the sum of several net figures necessarily is a net figure.”
In its first sentence, the Seattle ordinance states that it imposes “an income tax on high-income residents.” But in court Seattle insisted that it had enacted an “excise tax,” which happens to be permissible under state law.
Judge Ruhl did not find this logic credible. “The City’s tax, which is labeled ‘Income Tax,’ is exactly that,” he dryly observed. “It cannot be restyled as an ‘excise tax’ on the alternate ‘privileges’ of receiving revenue in Seattle or choosing to live in Seattle.”
Seattle’s class warriors also disregarded the state constitution, which says “all taxes shall be uniform upon the same tax class of property.” Income is a form of property, the state Supreme Court held in 1933. Yet Seattle’s ordinance sought to replace the constitution’s required flat tax with a progressive levy to fit the city’s progressive political distemper.
Judge Ruhl declined to weigh the constitutionality of the ordinance, saying that the statutory case against it sufficed. If Seattle appeals, an appellate court will likely be constricted to reconsidering the lower-court decision, based on those same statutory grounds.
That’s another setback for the organized labor-progressive coalition that wanted to use this legal battle to reverse decades of precedent on income taxation in Washington. They were hoping progressives on the state Supreme Court might declare the constitution’s flat-tax language to be unconstitutional.
Last week’s decision is a victory against punitive taxation that might drive more taxpayers out of the city, especially if federal tax reform limits the state and local tax deduction. Above all it’s a victory for the rule law.
Appeared in the November 28, 2017, print edition.