Income tax lawsuit concludes at the appeals court; on to the state Supreme Court

This afternoon the state Court of Appeals wrapped up its chapter of the legal challenge to Seattle’s income tax, rejecting a request to reconsider its July ruling. That clears the way for the case to move on to the state Supreme Court.

You may recall that back in July, the Court of Appeals ruled against the income tax legislation, using a novel legal theory in which it declared that the city had the authority to impose an income tax because income is property under state law, but since Seattle’s income tax is not uniform it runs afoul of the state Constitution. It also threw out the state law prohibiting taxes on net income, reasoning that the bill used to enact it violated the “single subject” rule.

Rather than immediately appeal to the state Supreme Court, the plaintiffs filed a motion asking the appeals court to reconsider its ruling and requesting additional oral arguments given that the court had chosen a legal theory that had not been proposed by either side and had not been covered in the parties’ briefs.  This put the City of Seattle in an awkward position in writing its response, trying to oppose the motion for reconsideration without undermining its own case when it eventually gets to the Supreme Court. That includes the question of whether income is property: the city only gets to impose the progressive income tax it wants if income isn’t property, but then it needs to find a different, convincing argument for why it has the authority to impose the tax in the first place (the state legislature must explicitly grant taxing authority to the city).

To that end, today’s ruling was a minor victory for the city: not only did the Court of Appeals refuse to revisit its earlier opinion, but it did so in a terse ruling that didn’t address any of the legal arguments on either side — and thus avoided muddying the legal waters even further.

Now that the litigation is complete at the appeals court level, it’s on to the state Supreme Court — where the case was always destined to end up. Both sides will reiterate the arguments they made in the lower courts, plus address their objections to the Court of Appeals’ ruling. The conventional wisdom is that the Supreme Court is itching to revisit the issue of whether income is property, a nearly 90-year-old precedent that has been frequently criticized by legal scholars over the ensuing decades.  It isn’t assured that the court will accept this case, but given the context and the unexpected ruling from the appeals court, the odds are high.

In the meantime, Council member Herbold has submitted a budget proposal for next year that would require the city to build a plan for implementing the income tax — just in case it passes.

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  1. What they need is for the Supreme Court to recognize that Seattle can’t impose the tax (because it hasn’t been given the authority) but also that an income tax is NOT property (because no one thinks it is any more). To me that seems the most clear way to get a win from this.

    1. Hmmm… the appeals court makes an interesting point that the city is empowered to impose property taxes (within limits). But the issue of “is income property” is not a general question as far as this case goes. It’s a very specific question about Article VII, Section 1 of the Washington State Constitution, which provides its own definition of “property” as it applies to the requirement for uniform taxation on property. The question is whether income is “subject to ownership.” There’s no reasonable argument for applying any other external definition of “property” to this section, and there is not a strong argument that the definition included there must be applied elsewhere either.

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