Seattle 'rich tax' at center of legal firestorm

By Taxes FOXBusiness

(AP)

In the wake of the Seattle City Council’s unanimous vote last week to approve an income tax on only its wealthiest residents, a massive legal fight is brewing as opponents allege the ordinance violates the state’s constitution.

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Washington is one of seven states that does not have a personal income tax. In fact, state law prohibits a city or county from taxing net income, causing some to assert the tax is unconstitutional right off the bat. However, proponents of the tax believe there could be legal exception if the court interprets the statute differently.

But the state constitution has other clauses that could pose a problem for the city’s proposal. In addition to the ban on net income, there is also a stipulation that all taxes be “uniform upon the same class of property.” The Supreme Court has historically ruled that income is included under the definition of property, according to The Seattle Times, which would in fact make the tax on one income class unconstitutional. Additionally, there could be a debate over whether a city itself is allowed to create a local tax at all.

One Washington-based tax advocacy organization, the Freedom Foundation, said last week it “is prepared to challenge the action in court – hopefully with a coalition of other freedom-minded organizations.” The group has not only referred to the tax as illegal and unconstitutional, but also as an “assault on taxpayers.”

“This attack on uniform treatment under the law is very alarming,” said Freedom Foundation senior policy analyst Jami Lund, in an interview with FOX Business. “You can’t target some people for taxation.”

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Lund said the group will be meeting with attorneys this week to challenge the tax.

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However, Seattle Mayor Ed Murray has indicated he is not afraid to duke it out in court. Last week at a rally before the vote, Murray said, “We welcome that legal challenge. We welcome that fight,” according to The Washington Post.

The proposal in question is a personal income tax on Seattle’s top earning residents. Individuals with incomes in excess of $250,000 and those filing jointly with incomes in excess of $500,000 would be subject to a 2.25% tariff. People with incomes below those thresholds would not be affected.

Seattle believes the tax will raise around $140 million per year and could help close the wealth gap in the city, while the mayor also cited President Donald Trump’s economic agenda as a reason to introduce the tax.

“Seattle is challenging this state’s antiquated and unsustainable tax structure by passing a progressive income tax,” Seattle Mayor Ed Murray said in a statement on his website last week. “Our goal is to replace our regressive tax system with a new formula for fairness, while ensuring Seattle stands up to President Trump’s austere budget that cuts transportation, affordable housing, healthcare, and social services. This is a fight for economic stability, equity, and justice.”

Supporters say the tax would impact just 20,000 out of more than 660,000 Seattle residents.

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