Council moves income tax ordinance one step closer to adoption

This morning, the Affordable Housing, Neighborhoods and Finance Committee voted to move forward the proposed 2.25% tax on annual income over $250,000.

The details were pretty simple: they moved to adopt a substitute version that incorporated all of last Friday’s amendments, and then with no further amendments offered they voted unanimously to move it out of committee. It will come before the full Council for final approval next Monday, but given that five of the nine Council members participated today (Burgess, Sawant, Bagshaw, Herbold and O’Brien) and there has been no vocal opposition from any other Council members, Monday’s vote should not be controversial.

In the Council’s conversation today there was an interesting acknowledgement that they don’t have a plan for how to use the expected $140 million of annual revenues, other than the high-level statement of “permitted uses.” Burgess argued that it would be best to have that conversation during the Council’s annual budget development process — though he won’t have a chance to participate, because even under the most optimistic schedule there won’t be tax revenues collected until 2019. Burgess finishes his term at the end of this year and is not running for re-election.

Herbold stressed the importance of using part of the income tax revenues to offset property taxes, particularly in light of the state legislature’s vote last week to increase property taxes. A typical Seattle homeowner can expect to pay an additional $400 per year in property taxes. Burgess noted that under state rules they will have more flexibility in how to reduce local property taxes than they will for sales tax.

Once the full Council passes the income tax on Monday and the Mayor signs it, there will be an inevitable — and likely swift — legal challenge, which will work its way through the state’s court system over the next several months (and possibly years). Given the state law explicitly prohibiting a tax on net income, and the Supreme Court precedent finding an income tax to be prohibited by the state Constitution, it wouldn’t be surprising if the challengers asked for a preliminary injunction to prevent its implementation.

There is no budget for anyone to start working immediately on an implementation plan; last week the Mayor’s staff said that they planned to wait until the legality of the ordinance became clearer before forwarding a budget and staffing request to the Council. That, too, is likely to become an issue for the next Mayor rather than the current one, who also finishes his term at the end of the year. It will be interesting to see whether the Mayor and Council appropriate money in the 2018 budget for implementation, including the $10-13 million they will need to spend up-front to implement the income tax IT system — a waste of money if the courts rule against the income tax, but a delay in when tax collection can begin if they wait for the state Supreme Court to rule before they begin implementation.