The Washington State Court of Appeals recently affirmed that the Seattle's 2017 ordinance instituting a local income tax on high earners' income is unconstitutional because it is a graduated income tax. However, in a surprise twist, the high court also ruled that the 1984 Act (Ch. 90) enacting Washington law (RCW 36.65.030) that bans local income taxes is also unconstitutional. This recent ruling opens the door for Seattle and other Washington localities, barring a state Supreme Court appeal, to enact a local flat income tax.

This ruling sets the stage for a Washington Supreme Court showdown.

In the conclusion, the opinion states, "Article VII, section 1 of our constitution, as interpreted by Culliton, considers income to be intangible property, so a tax on income is a tax on property. Arguments to the contrary can be resolved only by our Supreme Court."

Go here for a news release by Seattle Councilmember Kshama Sawant regarding the ruling on what she calls the council's "Tax the Rich" legislation. See also Washington State Senator Steve O'Ban's news release on his intent to pre-file 2020 legislation to set a clear state ban on local income taxes.

Ernst & Young LLP insights

As we reported, Seattle also attempted to institute an employer payroll tax in 2018, the ordinance for which was eventually overturned after a coalition of Seattle businesses pledged to place a repeal referendum on the November 2018 ballot. (EY Payroll Newsflash Vol. 19, #102, 6-12-2018.)

See EY Payroll Newsflash Vol. 18, #131, 7-26-2017, for more on the 2017 ordinance.

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