The Washington Attorney General’s office should help plaintiffs fighting a new Seattle income tax, according to a letter from 36 GOP state representatives.
Five of the six Mid-Columbia state representatives signed the letter, voicing concern that a successful legal defense of a new Seattle income tax could lead to local income taxes elsewhere in the state.
The House Republicans sent their request to the Attorney General’s office Sept. 26 in response to Seattle-based Economic Opportunity Institute filing a legal brief asking for permission to intervene on Seattle’s side in the case in King County Superior Court.
Rep. Terry Nealy, R-Dayton, is the leader behind the House Republicans’ letter. The other Mid-Columbia representatives signing it include Bill Jenkin, R-Prosser, Larry Haler, R-Richland, Mary Dye, R-Pomeroy, and Joe Schmick, R-Colfax.
Rep. Brad Klippert, R-Kennewick, did not sign the letter, and could not be reached for comment by deadline. Nealy said sometimes legislators are out of town or otherwise unavailable when caucus letters are passed around for signatures.
The Republicans’ letter asked for a reply from the attorney general by Oct. 6. The attorney general’s office was still considering its response as of press time. However, Attorney General Bob Ferguson rejected a similar request Aug. 1 by the plaintiffs to help them with their lawsuits.
On July 10, the Seattle City Council unanimously passed a city income tax of 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together.
Two lawsuits have been filed in King County Superior Court against Seattle’s new income tax — one by the conservative think tank The Freedom Foundation of Olympia and the other by a group called the Opportunity For All Coalition, which is represented by former attorney general Rob McKenna.
The litigation likely will focus on technical interpretations of the Washington Constitution on banning an income tax and definitions of types of incomes taxes.
In September, the Economic Opportunity Institute received the judge’s permission to intervene on the side of Seattle in litigation. The think tank’s court filing mentioned that if Seattle wins, it would open up the possibility of local income taxes in other cities. The institute was involved with a failed 2010 state ballot initiative to create a state income tax and with a failed 2016 initiative in Olympia to create a local income tax in that city. If it passed, the Olympia measure was expected to face a legal challenge on constitutional grounds.
No local income tax initiatives have surfaced in Eastern Washington.
The institute being able to intervene in litigation prompted House Republicans to send their letter to the attorney general.
“The fact that EOI seeks to see the Seattle ordinance upheld on broad grounds that would support its advocacy for adoption of local income taxes in multiple jurisdictions, not just Seattle, places new state interests at stake in this litigation. … The citizens we represent expect us to have done all we can to defend against the development of a patchwork of local income taxes, particularly if they come to be without ever having been expressly authorized by state laws,” the House Republicans’ letter said.
In an interview, Nealy focused on the camel’s nose-poking-into-the-tent aspect.
“If the EOI’s argument prevails, it would open up the state. It would create a hodgepodge of taxes across the state,” Nealy said. No matter which side wins in King County Superior Court, Nealy expects the loser to appeal. The other five Mid-Columbia state representatives could not be reached for comment by deadline.
The Republican letter said if the attorney general decides not to support the lawsuit, the Legislature will look into hiring its own outside counsel. But that scenario is unlikely because Democrats control the House.
While Republicans routinely bring up the specter of a state income tax as a political rallying call, neither the GOP nor Democrats have brought up a serious proposal for installing a state income tax for many years. An income tax is universally considered political Kryptonite to both sides in a state with a significant sales tax.
However, Republican legislators also have routinely portrayed Democrats’ annual attempts to pass a capital gains tax as an income tax in disguise.
For five straight years, Democrats have proposed a capital gains tax to raise money for education. Democrats have proposed a tax of 5 percent on individuals making at least $25,000 in a year in capital gains and on couples making at least $50,000 a year in capital gains. Gains from transactions involving primary homes, retirement funds and most agricultural and timber-related gains would be exempt. It is estimated that 32,000 Washingtonians would pay the tax, and that it would raise $550 million per budget biennium.
Senate Republicans have stymied the proposals, arguing it is a form of income tax. But Democrats and the Washington Department of Revenue have classified it as an excise tax, meaning it is a tax on sales.
However, if Democrat Manka Dhingra defeats Republican Jinyoung Englund for the wide-open 45th District state senate race in the northeastern Seattle suburbs in a November special election to replace a GOP senator who died, a capital gains tax likely will be introduced in 2018 to be passed due to Democrats controlling both the Senate and House. However, Republicans will likely challenge that in court as well.