Seattle Appeals Court Decision Invalidating ‘Rich’ Tax

By Paul Shukovsky

The city of Seattle is appealing to the Washington Supreme Court a state Superior Court’s decision striking down the city’s new municipal income tax on high-earners.

The city filed Dec. 8 a notice of appeal, seeking to defend an ordinance passed in July that would impose a 2.25 percent tax on the “total income” of single filers making more than $250,000 and joint filers making more than $500,000.

Superior Court Judge John Ruhl rejected the city’s argument that the tax is an excise tax and within its taxing authority. “Regardless of what label one may choose in classifying the City’s tax, the requirement remains that the Legislature must specifically authorize the tax,” Ruhl wrote Nov. 22 in granting summary judgment to the plaintiffs. “The City has not identified any specific statutory authorization for its tax.”

City elected leaders and intervenor-defendant Economic Opportunity Institute—an organized-labor backed organization that played a key role in drafting the tax ordinance—have said since the tax’s passage that it would end up before the Supreme Court to settle the question of the constitutionality of an income tax.

“The City believes direct review is important because the questions of whether a graduated income tax is constitutional or an excise tax based on personal gross income is constitutional are ones that appropriately should be decided by the Washington Supreme Court,” city attorney spokeswoman Kimberly Mills told Bloomberg Tax in a Dec. 14 email. “These are issues the City believes are of substantial public importance.”

Objecting to Appeal Timing

Assuming the Supreme Court accepts the direct appeal, Mills said the city anticipates its opening brief would be filed in April 2018.

Plaintiff attorneys filed a letter with the Supreme Court Dec. 12, asserting that Seattle’s notice of appeal was “prematurely filed.” The letter noted that the Superior Court hasn’t entered judgment, addressed plaintiffs’ requests for a permanent injunction, or “entered an order on the form of the Declaratory Judgment to be entered.”

“The letter to the court is in our view wrong,” Mills said. “It is purely procedural and will not impact the appeal going forward.”

The case is Kunath v. Seattle , Wash. Super. Ct., No. 17-2-18848-4, notice of appeal filed 12/8/17 .

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Cheryl Saenz at rtuck@bloombergtax.com

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