Washington Appeals Court Finds Seattle Income Tax Unconstitutional

(CN) – The Washington Court of Appeals ruled Seattle’s income tax on wealthy residents unconstitutional on Monday but left the door open for the city to impose property taxes based on income if they are uniform across tax brackets.

The Washington Constitution bars graduated income tax, and a 2017 ordinance in Seattle imposing tax on the total income of every resident led to a number of lawsuits. Four lawsuits challenging the ordinance were consolidated, and the think tank Economic Opportunity Institute intervened as a defendant.

A state court judge concluded Seattle did not have authority to impose a net income tax, finding in favor of the taxpayers who brought the actions.

The city and think tank appealed. In an opinion issued Monday, Judge James Verellen wrote for the court that Seattle had “valid statutory authority to levy a property tax on income.”

“Because Seattle’s income tax measures a city resident’s taxable income based on the sum of net calculations, it is a net income tax,” the judge wrote. “Seattle’s income tax is a tax on net rather than gross income.”

The city taxes individual income above $250,000 at a rate of 2.2%, and annual income under that amount is taxed at 0%. This violates the state constitution’s requirement that taxes be imposed uniformly, the appellate court ruled.

Because income is considered “intangible property” under the current interpretation of the state constitution, Seattle’s income tax was considered a property tax.

The judge noted that the court is “constrained” by Washington Supreme Court precedent and lacks authority to overrule prior decisions.

In a statement, the Seattle City Attorney’s office said “ultimately the Washington State Supreme Court is the proper place to overturn the bad precedent holding an income tax is a tax on property.”

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