New lawsuit challenges constitutionality of Washington’s ‘millionaires tax’

Former Attorney General Rob McKenna and the Citizens Action Defense Fund have officially filed a lawsuit challenging the constitutionality of Washington’s newly passed income tax on high earners, also known as the “millionaires tax.”

In the lawsuit, McKenna and the Citizens Action Defense Fund, a group partially funded by Brian Heywood, argue the income tax is unconstitutional because it doesn’t tax all incomes in the state uniformly.

“Washington state can have an income tax if it follows the rules for property taxes: it has to be uniform and no higher than 1%,” McKenna said.

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The lawsuit was filed in Klickitat County Superior Court on Thursday and the lead plaintiffs are Benjamin and Lauren Petter, a builder and the owner of a marketing business who would be subject to the tax. Other plaintiffs named include the Ethnic Chamber of Commerce, the Yakima Klickitat Farm Association, the Building Industry Association of Washington, and the National Federation of Independent Businesses.

A 1933 ruling in the Culliton v. Chase case established that income should be taxed the same as property in Washington state, and all property must be taxed uniformly at a rate of 1%. In the past, this ruling has prevented any graduated income tax from being established in the state, and it was the same ruling that struck down a Seattle income tax on earners who make over $250,000 a year in 2019.

“The law could not be clearer here, which is exactly why the Superior Court in the Court of Appeals invalidated Seattle’s income tax,” McKenna said. “And it’s why the courts are going to invalidate the new state income tax.”

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Former Washington State Supreme Court justice and former state senator Philip Talmadge added that while he has been in support of addressing Washington’s tax system, voters would have to vote to amend the constitution first.

“I support the idea of tax reform in Washington that could include an income tax, but we did it by a constitutional amendment,” Talmadge said in reference to a 1983 effort that put an income tax to voters. “It would have substantially diminished sales taxes and property taxes and a variety of other taxes in a revenue neutral-fashion, securing real tax reform and placing it in the constitution … The voters did not vote for it.”

But some legal scholars believe this time could be different. Hugh Spitzer, a retired professor at the University of Washington School of Law and constitutional law expert, said he could see a case for the Washington Supreme Court overturning the Culliton ruling.

“The key question is whether today, 90-plus years later, our state Supreme Court will take the same view that income is property,” Spitzer said. “The way that the majority of states looked at it, even in 1933, is that income is money in flow so an income tax is not a property tax, it’s either an excise tax or it’s a different kind of tax, so that’s what the question is going to be before the courts.”

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Lead sponsor of the tax and Senate Majority Leader Jamie Pedersen (D-Seattle) has said previously that he felt confident the Supreme Court would rule in favor of the tax and would overturn the Culliton ruling.

Eli Taylor Goss is the executive director of the Washington State Budget and Policy Center, which supported the passage of the income tax. Taylor Goss feels it’s time for a new decision on the nearly 100-year-old case that has shaped the state’s tax history.

“If you think of our tax code like a four-legged table, all we have is sales tax, property tax, business and occupation taxes, and a gas tax,” Taylor Goss said. “Without more legs to our table, that table can’t bear the weight of a modern economy and the population and the needs and the services and the programs, and that table was built in the 1930s.”

It could be about a year before the Supreme Court issues any decision on the lawsuit.

In the meantime, another lawsuit filed by Let’s Go Washington, a conservative group backed by hedge fund founder Brian Heywood, is challenging a clause in the law that prevents it from being recalled by voters through a referendum process. The state Supreme Court is expected to give a decision on the constitutionality of the use of this clause by the end of April.

The proposed 9.9% tax on incomes over a million dollars would bring in about $3 billion of revenue for the state starting in 2029.