Seattle appealing highest-earners income tax decision

City has been planning Supreme Court defense

As expected, a King County Superior Court judge ruled a Seattle income tax on the city’s highest earners illegal on Wednesday.

The Trump-Proof Seattle coalition began pushing for an income tax of the city’s highest earners back in February, and was led by the Transit Riders Union. The Seattle City Council passed a 2.25 percent tax on individual income above $250,000, and above $500,000 for couples filing jointly back in July.

The four lawsuits against the tax were consolidated, and plaintiffs included The Freedom Foundation, investment manager Michael Kunath and the Opportunity for All Coalition. The city attorney’s office brought on Pacifica Law Group and Hugh. D. Spitzer with Foster Pepper to help with the defense.

King County Superior Court Judge John Ruhl wrote in his Nov. 22 decision that the court had considered pleadings from both sides and around 1,200 pages of documents filed in the case.

Ruhl wrote that Seattle’s income tax was not authorized by the Washington Legislature, which are the only taxes that can be legally imposed.

The judge ruled the income tax, which is estimated by the city to raise up to $140 million annually, is not an excise tax, which Seattle would be able to put in place. An excise tax is imposed on people “for voluntarily exercising a certain right or privilege,” Ruhl wrote, such as a business license.

Ruhl disagreed with one alternate argument from the city that choosing to live in Seattle is a voluntary right or privilege.

“[t]he tax is on the benefit of taking advantage of the city’s protections by being a Seattle resident (the incident), imposed on personal total income above the thresholds (the measure), at a rate of 2.25% for any amount over the threshold (the rate),” according to a reply document to the court. One plaintiff’s attorneys argued the city can’t license the right to live in Seattle; Rule agreed.

The city had expected lawsuits, and that the matter of an income tax would ultimately have to go before the state Supreme Court. The greater goal than an income tax in Seattle is to have the Supreme Court rule an income tax constitutional in Washington state.

Initiative 69 was passed in 1932 by 70 percent of voters, and had included a net income tax on corporations. However, the state Supreme Court overturned I-69 in a 5-4 decision shortly after, determining income is a form of property. Therefore, all taxes must be levied equally.

Mayor Tim Burgess and City Attorney Pete Holmes released this statement following the ruling:

“Our state continues to be one of the worst in the nation when it comes to tax fairness, a result of our misguided over-reliance on regressive sales taxes. We are also living in a time of extreme income inequality that corrodes our social compact and causes many to wonder whether wealthy individuals are paying their fair share. When it comes to Washington state, the studies are clear: the wealthiest among us are not paying their fair share. As it happens, many of them agree. In order to build a more just and equitable society for all, we need a serious overhaul of our state’s tax structure. We know some argue against any income taxes at all, but we would point out that we already have a corporate income tax in this state—through the business and occupation tax. But we need more progressive tax sources, not fewer. The Seattle income tax was an attempt to move toward this goal, and we are hopeful that it will be upheld on appeal.”

“Regardless of what label one may choose in classifying the City’s tax,” Ruhl wrote, “the requirement remains that the Legislature must specifically authorize the tax. The City has not identified any specific statutory authorization for its tax.”

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