Seattle loses appeals court case finding income tax unconstitutional

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We have been following a controversial ordinance in Seattle that seeks to levy a 2.25% income tax on joint filers earning $500,000 or more a year and single filers with annual income above $250,000. Washington and six other states (Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming) do not currently impose an income tax.

In our July 2017 article detailing the Seattle ordinance, we noted that the new levy was expected to produce $140 million in annual revenue, which was to be spent on a number of initiatives, including addressing the homelessness crisis in the city of Seattle and providing affordable housing, education, and transit services.

Seattle’s mayor, who has advocated for increasing access to affordable housing and reducing homelessness since taking office, signed the ordinance into law on July 14, 2017. According to Bloomberg Tax, Seattle’s elected leaders anticipated a challenge to the ordinance as a pathway towards legalizing graduated income taxes in Seattle and potentially across the state. Washington Supreme Court precedent holds that a tax on income is a property tax that must be levied uniformly pursuant to the Washington Constitution, rather than at graduated rates.

A Washington Court of Appeals recently affirmed a trial court decision striking down the Seattle tax as unconstitutional for this reason. The Court of Appeals further found that the Seattle income tax violated statutory prohibitions on levying net income taxes (which allow deductions for expenses) as opposed to gross income taxes. The case is now positioned for an appeal to the Washington Supreme Court and, if accepted, would present the case that Seattle leaders hope will change the framework for income taxes in the state of Washington.


The plaintiffs challenging the Seattle tax sought summary judgment, arguing the ordinance taxes “net income” versus “gross income” in violation of RCW 36.65.030, which provides that a “county, city, or city-county shall not levy a tax on net income.” The plaintiffs further argued that the ordinance violates art. XI, Section 12 of the Washington Constitution because it prohibits cities from assessing taxes not authorized by the legislature. In addition, the plaintiffs argued that the tax levied by the ordinance is a tax on “property” that is not “uniform” because it imposes tax on the “property” of only some residents and not others in violation of art. VII, section 1 of the Washington Constitution, which states that “all taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax…”

For their part, the city argued that RCW 36.65.030 (which prohibits taxes on net income) is inapplicable to the ordinance because the ordinance taxes “total income,” a figure derived from the resident taxpayers’ federal personal income tax returns. The city further argued that despite describing the tax as an “income tax,” the city is actually imposing an “excise tax” as permitted under RCW 35A.82.020 and RCW 35.22.280(32). In addition, the city argued that it is authorized to impose the tax pursuant to RCS 35A.11.020, a 2008 statute that provides that “within constitutional limitations … [the City has] all powers of taxation for local purposes.”  

In his opinion, Judge John Ruhl (of the trial court) states that “unless the City can identify a statute that specifically authorizes it to impose the type of tax described in the ordinance, the ordinance cannot withstand the Plaintiffs’ challenge."

Following the trial, Judge Ruhl found no such legal authority to uphold the tax. Judge Ruhl also said the tax violated the State of Washington’s law that bans taxes on net income.

Subsequent to the trial court’s decision, the city went straight to the State Supreme Court, rather than appeal the ruling to the Court of Appeals. However, the Washington Supreme Court denied the appeal on January 10, 2019, and transferred the case to the Court of Appeals for resolution.


The appeal arose out of the city’s disapproval with the trial court’s decision and denial of review by the Washington Supreme Court. Judge Verellen wrote for the Court of Appeals, finding that the city had “valid statutory authority to levy a property tax on income.” However, the Court of Appeals found that the city of Seattle’s tax nonetheless violated the statutory ban on net (rather than gross) income taxes. On the question of whether the city’s tax is constitutional, the Court of Appeals found the tax unconstitutional due to Washington Supreme Court precedent holding that “income is property and that property must be taxed uniformly.”


As mentioned above, the Washington Supreme Court denied the city’s petition to bypass the Court of Appeals and move the case directly to the Supreme Court.

Nonetheless, the Seattle City Attorney’s Office said that “ultimately the Washington State Supreme Court is the proper place to overturn the bad precedent holding an income tax is a tax on property.” The city hopes the Washington Supreme Court will grant certiorari and rule in their favor. On the merits, the city hopes that the State Supreme Court will allow the imposition of the new tax on the wealthy by viewing the tax as one that is not imposed on “property.”

Stay tuned, as the Seattle income tax ordinance could continue to generate controversy.

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