The recent state Court of Appeals ruling has thrown a new measure of uncertainty for workers and economic development recruiters statewide about the future of state and local income taxes.
The ruling also likely will raise the Better Spokane-backed Proposition 2 ballot measure on the political radar here and throughout the state, as other communities ponder whether to follow Seattle’s lead and continue to chip away at prohibitions regarding income taxes or counter them in the name of economic competitiveness.
When Proposition 2, which would prohibit the city of Spokane from establishing its own income and business and occupation taxes, was validated for the city’s November ballot, many saw it as moot, because they believed income taxes were already prohibited in the state. And state voters have rejected multiple attempts to change state constitution to allow a graduated income tax.
With the recent Appeals Court ruling regarding the Seattle tax, Prop 2 suddenly has become more relevant.
While the court ruled unanimously that the Seattle tax violated the state constitution, what should be alarming for opponents of income tax, which historically has made up the majority of state voters, is that the court ruled cities do have authority to establish a property tax on income – essentially a flat income tax. In the ruling the court struck down a 1984 state law that that prohibits cities from imposing any type of income tax with the court’s interpretation that the state law violates the single-subject rule, meaning the Legislature tried to do too many things with one law.
For many, at least outside of the Seattle area, the lack of a state income tax has become part of the state’s identity.
Economic development organizations, including Greater Spokane Incorporated here, and the statewide agencies, such as the Department of Commerce and its Choose Washington initiative, cite Washington’s lack of income tax as a major selling point. And businesses looking to locate operations here, one recent example being, California-based Mullen Technologies Inc., have mentioned Washington’s lack of an income tax as a factor in their decisions.
To be sure, both opponents and supporters of establishing income taxes at state and local levels expect the decision will be appealed to the state Supreme Court. Supporters of the Appeals Court ruling, however, see it as a crack in the foundation of earlier court rulings that recognized income as property, which if taxed, must be taxed at the same rate as everyone. If they can convince the state Supreme Court that earlier rulings that equated income with property should be reversed, such a decision could remove the constitutional ban on a graduated income tax without a vote of the people.
Already, there are calls for the state Attorney General to defend Washington law that the Appeals Court overturned. It’s doubtful he’ll do that, however, as the Seattle native hasn’t defended the state law so far.
Ideally the Legislature will fix the overturned law by reinstating it as a single-subject act.
Meantime, lawmakers will be able to gauge public sentiment by keeping an eye on measures such as Spokane’s Prop 2 and other measures it might inspire around the state.
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