Earlier this year the city of Seattle unanimously passed a city income tax into law. The tax would be 2.25% on total income above $250,000 for individuals and on total income of $500,000 for married filing jointly. The law was immediately challenged (it faced at least 11 different lawsuits) because the Washington constitution prohibits taxes on net income (and many other reasons, including a law passed in 1984 banning cities, counties, and other jurisdictions from levying income taxes). But the far-left city council in the Emerald City didn’t care about those pesky laws; they wanted, “…to build a more just and equitable society for all…” and that required (in their view) “…a serious overhaul of our state’s tax structure.”
In a development that was anything but a surprise, Judge John Ruhl ruled that the ordinance violates the law passed in 1984 that bars a tax on net income.
Regardless of which of these definitions one uses, the conclusion is the same: the City’s income tax is a tax on net income…
The City’s argument is not persuasive. Although it is true that “net proceeds” is not synonymous with “net income,” a “total income” figure that includes “net proceeds” necessarily reflects the result of a netting process, and thus is “net income.”
In sum, the court concludes that the City’s Ordinance imposes a tax on net income.
The judge did not reach the constitutional arguments because the city’s proposed tax was not legal based on statutory grounds.
While the city vowed to appeal to the Washington Supreme Court, if they really want to change Washington’s tax structure a better choice would be to convince the Washington legislature to do so.
