Seattle income tax still and definitively illegal: State Supreme Court refuses to take it up city’s appeal.

The state Supreme Court refused to take up Seattle’s appeal of a lower court rulings against the city’s graduated municipal income tax. The terse majority opinion essentially shuts the door on the city’s efforts to impose an income tax, though it appears to leave in place the strange ruling by the Court of Appeals that says cities are not prohibited from levying an income tax.

The Seattle Times reports,

Washington’s Supreme Court has rejected Seattle’s bid to reinstate an income tax on wealthy households, dealing a major blow to advocates for tax system reform in the state.

In a majority decision, the Supreme Court on Thursday denied the city’s quest to overturn rulings against the tax by a King County Superior Court judge and the state Court of Appeals.

Reporter Daniel Beekman write of the surprising Appeals Court ruling, which came after a King County Superior Court ruled that the Seattle income tax violated a statutory prohibition on local income taxes.

The state Court of Appeals weighed in last year with a mixed decision.

It declared Washington’s 1984 ban on taxing net income unconstitutional, citing a technical rule broken by the Legislature way back then. But with respect to the constitutionality of the city’s tax, the Court of Appeals deferred to the Supreme Court, which has several times in the past ruled that income is property and that property must be taxed uniformly.

The story concludes by quoting the city attorney.

“That’s the end of the road for this piece of legislation, which, frankly, could not have come at a worse time,” Seattle City Attorney Pete Holmes said in a statement Friday.

“The denial of the petition means the Washington state Court of Appeals decision stands … Seattle has the authority to adopt a flat income tax, but not a progressive one.”

The law firm Lane Powell released a statement applauding the court’s decision.

Lane Powell attorneys Scott Edwards and Ryan McBride together with Freedom Foundation attorneys David Dewhirst and Eric Stahlfeld represented one group of plaintiffs. Edwards commented, “We are pleased with the Supreme Court’s decision, which puts an end to Seattle’s effort to circumvent the democratic process and the will of the voters. The proposed tax was clearly unconstitutional and this decision is a reaffirmation of that.”

The Lens reports,

The State Supreme Court has ruled since 1933 that the state constitution’s broad definition of property includes income; ballot language for the constitutional amendment adding the property definition includes statements by proponents that the measure would allow the state to tax income such as bonds. Voters have also repeatedly rejected a state income tax, the latest in 2010 via Initiative 1098.,,

Yet, another court case is possible if the state legislature decides to enact a capital gains tax, which has been proposed in recent sessions. However, while a local graduated income tax could be ruled invalid for statutory reasons, a lawsuit against a state capital gains tax directly addresses the constitutional issue of whether income is property. For advocates, a legal challenge in that case would provide a straightforward path to a State Supreme Court hearing and potential new ruling.

Jason Mercier, with the Washington Policy Center, has followed the income tax issue closely. He writes today,

While this is fantastic news concerning the state’s constitutional ban on a graduated income tax, it means the Appeals Court’s bizarre decision to invalidate state law banning a local income tax remains in effect. Earlier this year majority Democrats in the legislature refused to hear bi-partisan bills that would have re-instated that 36 year old law.

Make no mistake though, this is a major decision and devastating blow to those who have been trying to circumvent voters and get the courts to allow a graduated income tax without a constitutional amendment. It also means extra vigilance will be needed now on efforts to impose a capital gains income tax.

To be continued.