Coming soon: Lawsuit challenging Washington state's 'millionaires tax'

Washington's "millionaires tax" was largely expected to pass its state Legislature this year. It was just as certain that lawsuits would follow, challenging its constitutionality.

“Since lawmakers and the Governor have chosen to ignore both the constitution and decades of settled case law, we will act,” said Jackson Maynard, executive director of the Citizen Action Defense Fund, in a statement. “This lawsuit is about upholding the rule of law and ensuring that Washingtonians are not subjected to an unconstitutional tax scheme.”

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Citizen Action Defense Fund announced its intention to sue on the heels of Gov. Bob Ferguson signing the high-earners tax into law Monday morning.

"There's going to be a public conversation around this in the days and weeks and months ahead, as there should be of something of this historic nature," Gov. Bob Ferguson said at the bill's signing event.

The governor was joined by a range of supporters. They promoted the services that the tax is aimed at funding, such as health care, the working families tax credit, and other essential services.

"Putting front and center those perspectives you just heard, I think will be critical because when Washingtonians hear the benefits that flow to working families, to businesses large and small, to kids in schools with those free meals, for childcare services for thousands of Washington families, it's going to make a huge, huge difference."

Maynard objected to some of the arguments from proponents.

"A lot is being made of the fact that this is supposed to fund free lunches for kids; if the Legislature and the governor really wanted to fund free lunches for kids, they had $80 billion in a budget to be able to do that," he said. "The fact that they would rely on an unconstitutional tax, that doesn't take place for three years, is a little ridiculous."

Maynard told KUOW the CADF intends to file its lawsuit over the coming week. Former Washington State Attorney General Rob McKenna is representing the group.

Lawsuits expected to challenge Washington's millionaires tax

Senate Bill 6346 — or the "millionaires tax" as it was branded by state Democrats — places a 9.9% income tax on residents earning more than $1 million annually (it does not tax the first million earned). Washingtonians will begin paying the tax in 2029 (for the 2028 tax year). About .5% of Washington households will be affected by the tax, according to the bill.

The tax passed mostly along party lines with the majority of Democrats supporting it, and Republicans against (11 Democrats joined Republicans in opposition to the tax).

Opponents argue that the tax violates Washington's state constitution. This goes back to a 1933 Washington State Supreme Court decision. The court concluded income is property, and property must be taxed uniformly across all residents.

" That case law is well established; it's been relied on for years," Maynard said. "This is a unconstitutional tax. It's also, frankly, bad policy."

There have been multiple efforts to allow income taxes since the Supreme Court's decision. All were rejected by voters.

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The inability to set tax rates according to income level is one reason why Washington is often said to have the most regressive taxes in the United States.

“Washington’s constitution is clear, and the courts have been equally clear for nearly a century —income is property, and progressive income taxes are unconstitutional under existing law,” McKenna said. “If the State proceeds with the new income tax, it will create a direct conflict with binding precedent and the constitutional protections that safeguard taxpayers. We are preparing to challenge the tax in court.”

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The CADF won't be alone challenging the tax. Jim Walsh, a state representative and chairman of the state Republican Party, has said the local GOP will file three separate legal challenges to the "millionaires tax." One of those challenges will be based on the "necessity clause" written into the tax bill. This clause prevents voters from challenging the law via the referendum process. This lawsuit could come sooner than the constitutional challenge.

Larry Delaney, president of the state teacher’s union and part of the coalition to pass the millionaires tax, told KUOW that he expects the millionaires tax to withstand legal challenges. He pointed to the state's capital gains tax as an example. Washington's capital gains tax was challenged on similar grounds, but was upheld by the courts.

“Challenges, from many of the same actors that tried to overturn the capital gains tax and failed, are highly anticipated, and we are prepared to fight them again," Delaney said. "We are confident that once everything is said and done, the Millionaires Tax will be implemented, and millions of kids and working families will benefit from it."

The Citizen Action Defense Fund is a non-profit organization that promotes itself as a watchdog group working for "all Washingtonians," often focused on challenging the constitutionality of local government actions. In the past, it has filled lawsuits generally in favor of conservative causes.

This story has been updated to clarify when the "millionaires tax" will go into effect.