Seattle's Income Tax Ruled Illegal
The city council's desire to 'tax the rich' collided with the plain text of Washington state law.
Seattle's illegal income tax has been ruled, well, illegal.
King County Superior Court Judge John Ruhl, in a summary judgement, sided with many angry city residents who contended the local income tax violated state law. Ruhl rejected a wide range of arguments cooked up by Seattle to save its legally dubious levy.
The ruling "is a victory for all taxpayers in Seattle and throughout the state, and for everyone who values the rule of law," said Brian T. Hodges, a senior attorney with Pacific Legal Foundation who represented several Seattle residents in challenging the tax.
Seattle's progressive income tax, passed unanimously by the City Council in June, levied a 2.25 percent rate on individual incomes above $240,000 or $500,000 for joint filers.
The tax proved immediately and wildly unpopular. Three State Supreme Court decisions have called the progressive income tax a violation of Washington's state constitution. A 1984 state law reinforced those rulings, flatly saying "a county, city, or city-county shall not levy a tax on net income."
Getting around the plain text of the law required some creativity. The council defended its ordinance as a tax on "total income"—as defined on various IRS tax forms. Ruhl decided the IRS's "total income" figure incorporates various deductions and write-offs, making it in fact a measure of "net income."
Seattle also tried to argue that their ordinance—whose own text describes itself as "imposing an income tax"—was not an income tax at all, but rather an excise tax. The distinction is that an excise tax is levied "on a taxpayer for voluntarily exercising a certain right or privilege."
Living and earning a wage, according to Seattle's legal team, is a privilege that residents choose to exercise, and thus can be taxed. Paul Lawrence, an attorney for Pacifica Law hired by Seattle to defend the tax, made this point rather succinctly, saying "if they don't like the tax consequences that Seattle has chosen to do an income tax, they can move to Bellevue." (Bellevue is a suburb of Seattle that does not have an illegal income tax.)
Progressive Seattle, in effect, adopted the "love it or leave it" argument much beloved by patriotic conservatives. Ironic given that council member Kshama Sawant, co-sponsor of the ordinance, has repeatedly referred to housing as a human right. One of the stated purposes of Seattle's income tax was to fund more affordable housing.
So, living in Seattle is a privilege, but living in publicly-funded affordable housing in Seattle is a human right. Yeah, right.
Unsurprisingly this argument failed as well. Several constitutional questions were raised by both Seattle and the plaintiffs, but Ruhl declined to rule on those.
In a statement following the ruling, Seattle Mayor Tim Burgess and City Attorney Pete Holmes promised to appeal the ruling to the Washington Supreme Court, saying new progressive sources of income were necessary to correct for the state's "misguided over-reliance on regressive sales taxes."
When still a city councilman, Burgess sponsored Seattle's now-passed, regressive soda tax.
State and local income tax initiatives have been consistently rejected by Washington voters. The last state-wide income tax proposal was voted down by some 64 percent of voters.
Said David Dewhirst of the Freedom Foundation in a press release, "voters have consistently rejected income taxes of all kinds. So they're [Seattle] trying a shortcut by asking the courts to legislate from the bench." Dewhirst participated in the litigation against Seattle's income tax.
Whether the Washington Supreme Court will uphold Seattle's income tax remains to be seen. In the meantime, Seattle residents can continue to enjoy the supposed privilege of living in a income tax-free city.