October 25, 2017

Seattle-Style Income Tax Coming to a City Near You?



This article originally appeared in the October 13, 2017 edition of the Vancouver Business Journal.

Is a state or local income tax coming your way?

Clark County residents that work in Oregon are already familiar with Oregon’s state income tax.  What many Clark County residents may not realize is that there is movement in Washington at several levels to impose state or local income taxes for all residents.  Is that likely to happen?

On July 10, 2017, the Seattle City Council passed an ordinance to impose a 2.25% tax on its residents earning more than $250,000.  That action was immediately met with several legal challenges asserting the city income tax was unconstitutional and illegal.

Will the Seattle income tax withstand legal scrutiny and might the “tax the rich” mentality inherent in the Seattle income tax structure spread to other parts of the state, or even become a statewide income tax?  Those challenging the Seattle income tax ordinance assert several different arguments as to why an income tax is not allowed in Washington.


Since at least 1933, the Washington Supreme Court has indicated that a progressive income tax is unconstitutional.  The Washington Constitution prohibits a non-uniform tax on property, i.e., different tax rates applied to a single class of property.  Over the years, the Washington Supreme Court has consistently held that income was “property” under the Washington Constitution.  Since the Seattle income tax ordinance was designed as a progressive tax, effectively a zero percent tax rate for income below $250,000, and a 2.25% tax rate for income above $250,000, the income tax ordinance taxes property (income) of Seattle residents at different tax rates.  As such, any tax on income, with disparate rates on different levels of income, is unconstitutional.  Proponents of the income tax have not specifically stated how they intend to address this constitutional issue and the legal challenges.


Over 30 years ago, the Washington legislature specifically addressed the issue of whether local income taxes would be permitted in Washington.  Washington state law currently provides that no city or county may tax net income.  The Seattle City Council attempted an end around this prohibition by asserting the tax was imposed on “total” income.  Semantics aside, it is clear from the structure of the Seattle tax ordinance that the tax is imposed on “net” income over $250,000 not “total” income.  As such, in addition to being unconstitutional, the Seattle income tax is illegal under Washington law.  Perhaps the proponents are hoping that the Washington legislature will ride to the rescue and pass legislation that makes income tax at the local level permissible.  Even if the legislature were inclined to do so, it is not clear such legislation could be expected in time to save the Seattle income tax ordinance from the current legal challenges.

Given all of these legal hurdles, it is unlikely that the Seattle income tax will withstand the current court challenges.  Similarly, absent a change in state law, and a local income tax structured as a flat tax, it seems unlikely that income taxes will be making their way to other local jurisdictions in Washington in the near future.



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