By Aaron Kesel
A Seattle King County Superior Court ruled that a controversial piece of legislation meant to tax wealthy households is illegal, Seattle Times reported.
In a judgment, Judge John R. Ruhl said the city ordinance adopted in July is not authorized under state law.
“ … the City’s tax, which is labeled ‘Income Tax,’ is exactly that,” he wrote. “It cannot be restyled as an ‘excise tax’ on the … ‘privileges’ of receiving revenue in Seattle or choosing to live in Seattle.”
Seattle City Attorney Pete Holmes and Seattle Mayor Tim Burgess said in a joint statement that their goal is to eliminate the state’s “over-reliance on regressive sales taxes” and ensure the wealthy pay their fair share and the ruling was “disappointing,” but they would continue their efforts and appeal the decision.
“In order to build a more just and equitable society for all, we need a serious overhaul of our state’s tax structure. We know some argue against any income taxes at all, but we would point out that we already have a corporate income tax in this state — through the business and occupation tax. But we need more progressive tax sources, not fewer. The Seattle income tax was an attempt to move toward this goal, and we are hopeful that it will be upheld on appeal,” they wrote.
The taxation effort was a part of what local lawmakers called “a new formula for fairness” that was passed unanimously by the Seattle City Council back in July, GeekWire reported.
The tax measure requires Seattle residents to pay a 2.25-percent tax if they are a single and make more than $250,000 annually or a couple filing jointly and make more than $500,000.
The tax bill’s passage prompted a court challenge from the Freedom Foundation, a conservative think tank that considers the tax a slippery slope.
“In our system of government, the Legislature makes laws and the courts interpret them,” Freedom Foundation Chief Litigation Counsel David Dewhirst told Fox News in a statement. “If you want to change the existing tax laws, you can ask your legislator to introduce a bill, or you can sponsor a ballot initiative. And if you want to amend the Constitution, there’s a process for that too.”
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The city estimates the new tax would raise $140 million a year and cost between $10 million and $13 million to set up, plus an additional $6 million a year to enforce. The money would go toward affordable housing projects as well as other services for lower-paid workers.
A Washington state law state law passed in 1984 states “a county, city, or city-county shall not levy a tax on net income.”
However, state lawyers claimed that the city has a right to tax people on the privilege of living in Seattle, stating that living there is a choice and not forced.
“Where you choose to live is a voluntary choice and you make that choice based on what the benefits are to that choice and also the detriment, whatever the tax consequences are to making that choice,” said Paul Lawrence, an attorney for the city, during the hearing. “If they don’t like the tax consequences that Seattle has chosen to do, an income tax, they can move to Bellevue.”
Venture capitalist Nick Hanauer, an early Amazon investor supports the tax as a way to fund social services.
“You want good neighborhoods, schools, roads, fire, police, somebody has to pay for it,” Hanauer told Bloomberg. “And the people with money are where you have to go to get the money.”
Hanauer, as well as Microsoft co-founder Bill Gates and Amazon’s CEO Jeff Bezos, would not be subject to the tax because all three men live outside of Seattle in the suburbs.
“Here, we have the tragic irony of the two richest people of the world living right next to thousands of people with no homes at all,” Seattle lawmaker Kshama Sawant said during a past City Council meeting on the income tax. “And far from paying their fair share, Seattle’s wealthiest pay the least in taxes,” GeekWire reported.
Voters have rejected personal income tax-related proposals several times over the past decade including in 2010 when voters defeated Initiative 1098, which would have established a state income tax on citizens making more than $200,000 a year and couples making above $400,000 a year.
Voters approved an income tax in 1932, but the state Supreme Court ruled the proposal unconstitutional just like this recent attempt. Washington is one of seven states without a personal income tax, while a state law passed in 1984 also prohibits a county, city, or city-county from levying a tax on net income.