1. Constitutionality of Income Taxation in the Western States: Putting Seattle’s New Income Tax in Perspective
Western States Association of Tax Administrators
2017 Annual Conference in Missoula, Montana
Presented by Norman J. Bruns
Garvey Schubert Barer
Seattle, Washington

2. Seattle’s New Income Tax
May 1, 2017: City Council unanimously adopted a resolution establishing an ambitious timeline for developing an income tax ordinance (Res. No )
Resolution called for City to coordinate with the “Trump Proof Seattle” Coalition in developing an income tax.
July 10, 2017: City Council unanimously adopted an income tax ordinance (Ord. No )
April 15, 2019: due date for first returns and tax payments (for income received on and after January 1, 2018)

3. Seattle’s New Income Tax
Incidence: the total income of every resident
Measure: amount reported on
line 22 of IRS Form 1040
line 15 of IRS Form 1040A
line 9 of IRS Form 1041
The equivalent of any IRS form not reported on Schedule K-1 for a beneficiary
Rate: 2.25% of total income over the following amounts
$250,000 (if filing status is single, head of household, qualifying widow(er) with dependent child, or married filing separately)
$500,000 (if filing status is married filing jointly)
These thresholds are indexed in future years

4. Seattle’s New Income Tax Is In Litigation
City’s Hurdle 1: scope of City’s taxing authority
City’s Hurdle 2: state statute (RCW ) prohibits city tax on net income
City’s Hurdle 3: tax uniformity clause of state constitution, as interpreted by multiple court cases, prohibits income taxation
City’s Hurdle 4: Supreme Court will reject precedent only if the established rule is “incorrect and harmful” or prior decision is “so problematic that we must reject it”

5. Some Key Dates in Income Tax History
1861: first federal income tax imposed (allowed to expire in 1872)
1881: federal income tax upheld in Springer v. US (1866 tax year)
1893: onset of Panic of 1893
1894: second federal income tax adopted (Civil War pensions)
1895: federal income tax struck down in Pollock v. Farmers Loan & Trust
1901: Territory of Hawaii imposes an income tax
1909: 16th Amendment to US Constitution proposed
1911: State of Wisconsin imposes an income tax
1913: 16th Amendment ratified and third federal income tax adopted
1916: federal income tax upheld in Brushaber v. Union Pacific

6. WSATA Members by Year of Statehood
Texas 1845
California 1850
Oregon 1859
Nevada 1864
Colorado 1876
Montana 1889 (Nov 8)
Washington 1889 (Nov 11)
Idaho 1890 (July 3)
Wyoming 1890 (July 10)
Utah 1896
New Mexico 1912 (Jan 6)
Arizona 1912 (Feb 14)
Alaska 1959 (Jan 3)
Hawaii 1959 (Aug 21)

7. WSATA Members by Year of Adoption of Corporate Income Tax
Hawaii (Territory) 1901
Montana 1917
California 1929
Oregon 1929
Idaho 1931
Utah 1931
New Mexico 1933
Arizona 1933
Colorado 1937
Alaska (Territory) 1949
Nevada n/a
Texas n/a
Washington n/a
Wyoming n/a

8. WSATA Members’ Income Tax Litigation
Constitution Authorizes Income Tax
Arizona (graduated rates)
Colorado (graduated rates)
California
Texas (strings attached)
Utah (strings attached)
No Uniformity Clause
Alaska
Hawaii
Uniformity Clause But No Case
New Mexico
Wyoming (no income tax)
Uniformity Clause Plus Case(s)
Oregon (tax upheld)
Idaho (tax upheld)
Montana (tax upheld)
Washington (tax struck down)

9. Alaska
Alaska Steamship Co. v. Mullaney, 180 F.2d 805 (9th Cir. 1950)

10. Oregon Standard Lumber Co. v. Pierce, 112 Or. 314, 228 P. 812 (1924)
Redfield v. Fisher, 135 Or. 180, 292 P. 813 (1930)

11. Idaho
Diefendorf v. Gallet, 51 Idaho 619, 10 P.2d 307 (1932)

12. Montana
O’Connell v. State Board of Equalization, 95 Mont. 91, 25 P.2d 114 (1933)
Mills v. State Board of Equalization, 97 Mont. 13, 33 P.2d 563 (1934)
State v. Toomey, 135 Mont. 35, 335 P.2d 1051 (1958)

13. Washington
Aberdeen Savings & Loan Assoc. v. Chase, 157 Wash. 351, 289 P. 536 (1930)
Burr v. Chase, 157 Wash. 393, 289 P. 551 (1930)
Culliton v. Chase, 174 Wash. 363, 25 P.2d 81 (1933)
Jensen v. Henneford, 185 Wash. 209, 53 P.2d 607 (1936)
Power, Inc. v. Huntley, 39 Wn.2d 191, 235 P.2d 173 (1951)
Cary v. City of Bellingham, 41 Wn.2d 468, 250 P.2d 114 (1952)

14. Seattle’s New Income Tax Is In Litigation
City’s Hurdle 1: scope of City’s taxing authority
City’s Hurdle 2: state statute (RCW ) prohibits city tax on net income
City’s Hurdle 3: tax uniformity clause of state constitution, as interpreted by multiple court cases, prohibits income taxation
City’s Hurdle 4: Supreme Court will reject precedent only if the established rule is “incorrect and harmful” or prior decision is “so problematic that we must reject it”

15. Questions? Comments?
Thank you!