Seattle's income tax loses the first round in court

A judge in King County has struck down Seattle's new income tax on higher earners.

It's the first ruling in a case that's expected to go all the way to the State Supreme Court.

The tax, approved by the City Council this summer, would place a 2.25 percent tax on total annual income over $250,000 for individuals.

In his written decision (read it in full below), King County Superior Court Judge John Ruhl said there's no statute that authorizes a net income tax.

He said state law actually prohibits it.

It's a setback for Seattle officials, who passed the state's first-ever income tax in an attempt to make the city's tax structure more fair.

City Attorney Pete Holmes said the city will appeal immediately to the State Appeals Court.

He said it's time for the state to revisit the income tax.

"We have the most regressive tax structure in the entire country,” he said. “The city is trying to take a leadership role in this. The state should acknowledge that even if there's a lack of leadership and will-power at the state level, the city should be allowed to make it's own way."

Holmes said the state Supreme Court could decide it wants to take the case right away, bypassing the Court of Appeals.

That's what happened in the review of Seattle's gun tax this year.

Four parties filed lawsuits against the income tax, saying it violates state law.

Former Attorney General Rob McKenna, who was part of the legal challenge, said the judge found the tax “illegal on statutory grounds. Because it violates the state statute which prohibits cities and counties from imposing income taxes. And because they have no authority to impose an income tax."

Part of the legal arguments turned on what exactly kind of tax this was. Under the legislation's language, this was a tax on gross income -- because a net income tax is prohibited under state law.

Judge Ruhl was not swayed.

“In short, the City’s tax, which is labeled, ‘Income Tax,’ is exactly that,” Ruhl wrote. “It cannot be restyled as an ‘excise tax’ on the alternate ‘privileges’ of receiving revenue in Seattle or choosing to live in Seattle.”

Here's what other players had to say about the ruling in statements:

Mayor Tim Burgess and City Attorney Pete Holmes: “When it comes to Washington state, the studies are clear: the wealthiest among us are not paying their fair share. As it happens, many of them agree. In order to build a more just and equitable society for all, we need a serious overhaul of our state’s tax structure.”

Tom McCabe, CEO of the Freedom Foundation, which filed the lawsuit: “The whole idea is to punish those who’ve been successful by confiscating their wealth and giving it to the perceived victims of that success.”

Brian T. Hodges, attorney with Pacific Legal Foundation who represents several Seattle residents challenging the tax: “Seattle politicians billed their plan as a ‘wealth tax,’ but it’s ultimately aimed just as much at the middle class and even the poor. By subverting constitutional protections against discriminatory tax schemes, their strategy was to pave the way for more taxes, on more people, at all income levels.”

KUOW reporter Kate Walters contributed to this report.