What The Seattle Income Tax Ruling Means For Washington

SEATTLE, WA — A state appeals court judge handed Seattle a partial victory on Monday in a case over the city's income tax on high earners. But the fight will continue at the Supreme Court before Seattle — or any other city — can collect income taxes.

Washington Court of Appeals Judge James Verellen ruled on Monday that Seattle has the legal authority to implement an income tax, and in the process struck down a 1985 state law that banned cities from collecting income tax. But Verellen also ruled that Seattle's tax is unconstitutional — that's because a 1933 state Supreme Court decision deemed that taxes must be levied uniformly in Washington.

Seattle's income tax, approved by the City Council in July 2017, only applies to high earners, and is therefore not uniform, the ruling said. The tax would collect 2.25 percent on income of $200,000 and up for individuals, and $500,000 and up for households.

"In a series of decisions dating back to 1933, the Washington Supreme Court has unequivocally held income is property, a tax on income is a tax on property, taxes on property must be uniformly levied, and a graduated income tax is not uniform. Therefore, the Washington Constitution bars any graduated income tax" — Washington Court of Appeals Judge James Verellen

Seattle will petition the state Supreme Court to review the appeals court decision, City Attorney spokesman Dan Nolte said on Monday.

"We’re pleased that the Court held the City had the statutory authority to enact an income tax. The City has always recognized that ultimately the Supreme Court is the proper place to overturn the bad precedent holding an income tax is a tax on property. We intend to petition our Washington State Supreme Court for appeal," the Seattle City Attorney's office said.

If Seattle wins and the Supreme Court overturns or alters that 1933 decision (called Culliton v. Chase), other Washington cities could start adopting income taxes.

Washington has consistently been rated as having the most regressive tax system for middle and low-income earners, which some attribute the state's reliance on sales and property taxes. This year, the finance site WalletHub calculated that low-income earners in Washington pay 14.59 percent of their income in taxes each year. The rich in Washington pay just 7.32 percent, which is 13th best in the U.S.

According to the nonpartisan Institute on Taxation and Economic Policy, Washington households that earn $24,000 or less per year pay almost 18 percent of their income in taxes. The top 1 percent — households that earn $549,000 or higher per year — pay just 3 percent of their income in taxes.

Seattle has estimated that the tax would bring in about $140 million per year. That money would be used for a number of programs: possibly lowering property and sales taxes; beefing-up funding for Medicaid should it be cut by the federal government; paying for carbon footprint reduction; and a variety of other programs providing transit services, affordable housing, and help for the homeless.