A Superior Court judge heard oral argument Friday in what was the first — and surely not the last — courtroom battle over the city of Seattle’s new tax on high-earners. A decision is expected before Thanksgiving.
On one side are the city and its progressive supporters fighting to protect a July ordinance that would levy a 2.25 percent tax on earnings that exceed $250,000 for an individual and $500,000 for a couple filing jointly. On the other, a parade of attorneys representing wealthy individuals and other organizations who argue that any such tax violates state law and the state constitution.
At the heart of the case for the opponents are a state law that prohibits an income tax on “net income” and a Washington Supreme Court decision from the 1930s. The Supreme Court case held that a graduated income tax passed in the 1920s violated the state constitution’s uniformity clause. That clause states that the government may not tax the same form of property at different rates. A majority of justices decided that income qualifies as property.
Paul Lawrence, the attorney for the city, advanced a three-prong argument in favor of the income tax. First, the tax applies to “gross adjusted income” rather than “net income,” skirting the state law on the books. Second, the tax does not violate the state constitution because the justices erred when they found that income was a form of property.
Finally, Lawrence said, the city has the right to pass the tax because it is at its heart an excise tax on the “benefits of doing business and living in Seattle.” The Washington Legislature confers taxing authority to cities like Seattle, and has already granted the city the ability to apply excise taxes.
Attorneys against the tax told Judge John Ruhl this was an income tax masquerading as an excise tax, and simply calling income something other than property was “a shortcut.”
“To sum up, there are lawful ways of affecting change and there are unlawful ways,” said Brian Hodges of the Pacific Legal Foundation. “The solution you’re seeking can only be granted through the Legislature.”
No matter which way Ruhl rules, it’s certain the decision will be appealed. That said, it matters a great deal to the city that he find in its favor.
Upholding the tax at this stage will allow the city to begin collecting it in 2018. If the Washington Supreme Court ultimately rules against Seattle, the city will refund those taxes with interest.
If Ruhl rules against the tax at this stage but the Supreme Court overturns that decision, the city will lose the chance to collect more than $100 million in revenue that would be used to reduce regressive taxes and potentially replace federal dollars, Lawrence.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Twitter @AshleyA_RC
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