By Daniel Beekman
August 9, 2017
Seattle’s new income tax has been hit with two new lawsuits, one involving the conservative Freedom Foundation and the other, former Republican state Attorney General Rob McKenna.
In addition, five residents whose legal team includes former Republican state Attorney General Rob McKenna and two former state Supreme Court justices sued to block the tax.
There are now three lawsuits against Seattle’s tax, the first brought last month by investment manager Michael Kunath. Although each challenge is beginning in King County Superior Court, City Attorney Pete Holmes said the overall issue could be taken up and resolved by the state Supreme Court as early as 2018.
“We could get there next year and receive a decision promptly,” he said. “This represents a good opportunity to test our legal authority to enact something not as inherently regressive as the prevailing order in Washington state.”
Proponents and opponents alike expected the tax to be quickly challenged in court.
The Freedom Foundation plaintiffs, some of whom expect to be subject to the 2.25 percent rate, include Fremont developer Suzie Burke and Aurora Avenue North businesswoman Faye Garneau. Burke and Garneau are major property owners.
They claim the tax violates state laws and the state constitution. And they say the council had no authority to impose the tax without putting it to a vote of the people.
“This tax ordinance’s legal and constitutional infirmities are obvious,” David Dewhirst, litigation counsel for the Freedom Foundation, said in a news release.
“This is clearly bad policy and illegal, but it’s also an assault on the rule of law.”
The Freedom Foundation, an Olympia-based think tank, is working on its lawsuit with the Seattle law firm Lane Powell, while the other suit filed Wednesday is supported by the Opportunity for ALL Coalition, a nonprofit dedicated to blocking Seattle’s new tax.
The Opportunity for ALL Coalition plaintiffs, like the Freedom Foundation plaintiffs, claim the city cannot impose the tax, which they say was promoted “under the false pretense that it will tax only the ‘wealthiest residents.’ ” They say the measure also will affect people of more modest means who sell their homes or businesses.
“Contrary to its billing,” their lawsuit says, the tax “reaches well into Seattle’s middle class in unexpected ways,” such as boosting rents by driving up property costs.
The tax is scheduled to be imposed starting in 2018, with returns due the next April. Dena Levine, an Opportunity for ALL Coalition plaintiff, said some income from her insurance agency could be taxed despite that income not ending up in her pocket.
And the West Seattle resident said income from selling her business could be taxed.
“I was kind of taken aback,” Levine said, adding she and her husband are talking about moving to Burien. “My business is part of our retirement plan.”
The Opportunity for ALL Coalition suit says certain plaintiffs asked Democratic state Attorney General Bob Ferguson to investigate the legality of the tax. He declined.
The push for the tax began in February, when local nonprofits and labor unions calling themselves the Trump Proof Seattle coalition began a campaign. The coalition said revenue from the tax could offset federal funding cuts by the Trump administration.
The proponents also said the measure would serve as a legal test case for taxing income in Washington, possibly opening the door to a fairer tax system statewide.
Because there are no income taxes in Washington, the state and its cities rely heavily on property and sales taxes, resulting in a system labeled among the most regressive in the nation, meaning people with lower incomes pay a much greater percentage of what they have.
Other than offsetting federal cuts, Seattle’s ordinance says revenue from the income tax could be used by the city to: lower property taxes and other regressive taxes; address homelessness; provide affordable housing, education and transit; create green jobs and meet carbon-reduction goals; and administer the tax.
The city has estimated the tax would raise about $140 million a year while costing $10 million to $13 million to set up, plus $5 million to $6 million a year to administer.