Seattle lawsuit part of strategy to force income tax on state, McKenna says

Democratic legislators ask Court of Appeals to overrule Washington voters

Former Washington State Attorney General Rob McKenna and Senate Republican Leader Mark Schoesler, R-Ritzville.

OLYMPIA – When majority Democrats in the state Legislature decided this wasn’t the year to push a new income tax, it didn’t mean the fight was over. The battleground just moved from the Legislature to the courts.

The state Court of Appeals heard oral arguments June 6 in a lawsuit to block a local income tax approved by the Seattle City Council. With help from income-tax activists, Seattle is using the case as a platform to argue that the state’s longstanding ban on a graduated income tax should be overturned. That is the real point of the exercise, says former Washington Attorney General Rob McKenna – part of a well-coordinated legal strategy to force an income tax on an unwilling state. 

“What’s at stake is whether the will of the voters will be honored,” said McKenna, now a partner at the law firm of Orrick, Herrington and Sutcliffe, and lead attorney for the opposition. “Washington voters have said no to an income tax ten times. So income tax advocates are trying to go around them, and are asking the courts to overrule the people of Washington state.”

If Seattle wins the case, a bare majority of Democrats in the Legislature would be able to impose a statewide income tax without voter approval, perhaps as soon as next year’s legislative session. The connection between the Seattle case and legislative efforts to impose an income tax was made clear in January, when 17 Democratic legislators filed a brief on Seattle’s behalf. They are asking the courts to take their side in a political argument that has raged in this state some 90 years – and which they have not been able to win through ordinary political means.

Voters Keep Saying No

An income tax has long been a goal for interests dependent on state spending. But until recently, tax advocates conducted their campaign in a straightforward way. In 1932, at the depth of the Great Depression, the Washington State Grange gathered signatures to place an income tax on the ballot. Voters said yes to the tax, but the Supreme Court struck it down as unconstitutional.

Since 1934, there have been numerous attempts to win voter approval for constitutional amendments and income-tax ballot measures. But public enthusiasm evaporated the moment the economy began to recover. Voters said no every time. The last proposal, Initiative 1098 in 2010, was rejected two-to-one. The rebuke convinced tax advocates a new approach was needed. “There was no appetite to go back to the ballot anytime soon,” McKenna explains.

Seattle Council Joins Crusade

Instead, activists settled on a “city-shopping” strategy. If they could find a city to pass a municipal income tax, they might be able to set up a test case for the state Supreme Court. There they might be able to convince the court to overturn its 1933 decision, and eliminate the single biggest obstacle to an income tax.

One effort to promote a municipal income tax, a 2016 ballot measure in the city of Olympia, failed when voters said no once again. But in 2017 the Seattle City Council took a different tack. It bypassed local voters and passed the tax on its own. Immediately the Seattle income tax was challenged in court, exactly as advocates had hoped.

Principle of ‘Constitutional Avoidance’

There is a big problem with the strategy, McKenna observes. Courts normally don’t consider constitutional questions when there are other showstoppers involved. In this case there are big ones. State law forbids cities from imposing income taxes. Nor has the Legislature granted authority to cities to impose income taxes. One 2014 internal Seattle legal memorandum flatly concluded that such a tax would be illegal.

The Seattle City Council has attempted to define its way out of the problem. It has declared its income tax to be an “excise tax” on “the privilege of living in Seattle.” Seattle claims it would be taxing gross income, rather than net income, despite the fact that tax obligations would be based on net-income calculations on federal tax returns.

Seattle’s argument did not impress the King County Superior Court. Last year the court ruled it doesn’t matter what Seattle calls the tax, it’s still illegal. That meant there was no need to consider constitutional arguments. The same issues are at stake in Seattle’s current appeal.

On to the Supreme Court?

At last month’s hearing, the first question from the Court of Appeals was whether its judges are bound by previous Supreme Court decisions – an indication that it might decide the case the same way. But the next move is up to the Supreme Court. If it chooses to hear a further appeal, it has the ability to overturn its own previous decisions. McKenna notes that the Supreme Court reaffirmed its 1933 ruling in nine subsequent cases. Whatever the inclinations of the current panel, McKenna said it would have to come up with a compelling legal reason to reverse 86 years of precedent. “It would be a heavy lift,” he said.

The courtroom strategy ought to trouble anyone who thinks the people’s wishes should be respected, said Senate Republican Leader Mark Schoesler, R-Ritzville. “What they’re really saying is that the people aren’t smart enough to know what’s good for them, and the courts ought to cut them out of the picture. But the people understand an income tax is just a way to transfer more money from their pockets to the state treasury. It would devastate the tech sector, farmers, small-business owners – and eventually all of us would pay.

“This is really the biggest political argument the state has ever had. The political arena is where it belongs. If some people think an income tax is a good idea, all they have to do is convince the rest of us. They’ve been trying for 90 years. No wonder they’d rather go to court.”