26 July 2017 Seattle, Washington mayor approves city income tax effective January 1, 2018 — legal challenges begin Seattle, Washington Mayor Ed Murray recently signed an ordinance passed by the Seattle City Council to establish a city income tax on city residents who are high earners. This is despite the fact that Washington state is one of nine states that do not have a personal income tax. According to the mayor, "Seattle is challenging this state's antiquated and unsustainable tax structure by passing a progressive income tax. Our goal is to replace our regressive tax system with a new formula for fairness, while ensuring Seattle stands up to President Trump's austere budget that cuts transportation, affordable housing, healthcare, and social services. This is a fight for economic stability, equity, and justice." Effective for income received on and after January 1, 2018, resident individuals earning over $250,000 and joint filers earning over $500,000 will be required to pay an income tax of 2.25% on total income. These income levels would be adjusted annually on and after January 1, 2019 by inflation. Total income is defined as income before any adjustments, deductions, or credits taken on the federal Form 1040, as shown on line 22 of Form 1040, line 15 on Form 1040A or line 9 of Form 1041. The city income tax will be due annually on April 15, accompanied by a return to be developed by the city's finance director. At this time, the ordinance does not provide for the withholding of city income tax by the individual's employer. Opponents of the Seattle income tax point to Washington state law, which prohibits a municipality from establishing a local income tax. The law states: "A county, city or city-county shall not levy a tax on net income." Proponents of the city income tax point to the fact that the ordinance calls for an income tax on "total" rather than "net" income. News sources are reporting that the first legal challenge to the ordinance came from a Seattle resident on July 14, 2017, the day the mayor signed the ordinance. Other challenges are expected. The Freedom Foundation, a non-profit think tank with offices in Washington and Oregon, stated on its blog that it intends to form and lead a coalition to file suit against the ordinance. In 2016, Olympia voters rejected an initiative (Initiative 1) to fund college tuition with a 1.5% local income tax on high city earners. There have also been several attempts over the years to establish a statewide income tax. Washington State Senate Republicans failed in a recent attempt (SJR 8204) to place on the November 2017 ballot an initiative to amend the state Constitution to prohibit a state income tax. According to Article VII, Section of Washington's Constitution?"all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only."?? According to the Senate report on SJR 8204, in 1933, the Washington State Supreme Court interpreted this section of the state Constitution as prohibiting taxation of personal income, reasoning that income is property and therefore must be taxed uniformly. In doing so, the court struck down a voter-approved state income tax initiative. However, the Senate report reasons that a Washington court reviewing the issue today might conclude that income is not property and therefore an income tax would not violate the Washington State Constitution. Document ID: 2017-1217 |
