By Liz Cha and Eric Coffill

The Superior Court of Washington for King County held that Seattle’s new income tax on “high income residents” violates a provision of Washington state law which prohibits a city from levying a tax on net income.

On July 14, 2017, Seattle Mayor Ed Murray signed Seattle Ordinance No. 125339, which would impose an income tax on “high-income residents.” This tax would impose an additional tax of 2.25% on the amount of total income in excess of $250,000 for individuals and the amount of total income in excess of $500,000 for married taxpayers filing jointly.

Plaintiffs raised multiple arguments against the tax regarding Seattle’s authority to levy the tax such as whether the tax was an income tax or an excise tax, whether state law prohibited cities from enacting income taxes, and whether the tax violates the Washington Constitution. The court considered each argument but ultimately decided the case on the issue of whether the tax violated state law prohibiting cities from levying a tax on net income.

Wash. Rev. Code Sec. 36.65.030 provides that a “county, city, or city-county shall not levy a tax on net income.” The court rejected the city’s challenge that Wash. Rev. Code Sec. 36.65.030 was invalid because it violated the Single Title Rule and Subject in Title Rule provisions of the Washington State Constitution. Instead, to determine whether this statute applied to the tax, the court analyzed the meaning of the term “net income.” Notwithstanding the dictionary definitions cited by the city, the court determined that there could only be one conclusion—that the city’s income tax is tax on net income. Thus, the court concluded that the city did not have the authority to impose the new income tax because it applied to the net income of high income residents. Kunath v. City of Seattle, No. 17-2-18848-4 (Wa. Sup. Ct. Nov. 22, 2017).