Seattle's income tax on people making more than $250,000 annually violates state law and is therefore invalid, a King County Superior Court judge ruled today.
The ruling comes after oral arguments Friday.
Along with a 1930s Supreme Court ruling against a state income tax, state law says cities and counties cannot impose income taxes. In arguing the case Friday, lawyers for the City of Seattle and the Economic Opportunity Institute argued the tax is legal because it's actually an excise tax on "the privilege" of working or living in Seattle, rather than an income tax.
King County Superior Court Judge John Ruhl rejected that argument in a 27-page ruling today.
"To the extent that the Ordinance purports to impose a tax on the 'privilege' of receiving pay for labor, such a 'privilege' is not a valid basis for an excise tax," Ruhl wrote. "In short, the city’s tax, which is labeled, 'Income Tax,' is exactly that. It cannot be restyled as an 'excise tax' on the alternate 'privileges' of receiving revenue in Seattle or choosing to live in Seattle."
Ruhl also rejected the city's attempt to distinguish between the "net income" mentioned in state law banning income taxes and the "total income" mentioned in the city's income tax ordinance. (That's defined in the ordinance as the "amount reported as income before any adjustments, deductions, or credits.")
The case combined multiple challenges to the tax. Among the 31 plaintiffs were Fremont landowner Suzie Burke and investment manager Michael Kunath. The Freedom Foundation represented Burke and more than a dozen other plaintiffs.
Brian Hodges, an attorney at the Pacific Legal Foundation, called the ruling "a victory for all taxpayers in Seattle and throughout the state, and for everyone who values the rule of law." The libertarian-leaning firm represents several people challenging the tax.
The ruling is unsurprising, even for supporters of the tax. As they have argued for months, the tax is a legal test case. They hope it will reach the Washington State Supreme Court, forcing the court to revisit its 1930s ruling against a state income tax.
In a statement, interim Mayor Tim Burgess and City Attorney Pete Holmes said they are "hopeful that it will be upheld on appeal."
"Our state continues to be one of the worst in the nation when it comes to tax fairness, a result of our misguided over-reliance on regressive sales taxes," Burgess and Holmes said. "We are also living in a time of extreme income inequality that corrodes our social compact and causes many to wonder whether wealthy individuals are paying their fair share... We need more progressive tax sources, not fewer. The Seattle income tax was an attempt to move toward this goal."