Washington state millionaire tax faces legal challenge

GOLDENDALE, Wash. (CN) — A coalition of business owners and interest groups sued Washington state Thursday, accusing it of enacting an unconstitutional income tax on high earners.

“For nearly a century, Washington courts have been clear: income is property, and property taxes must be uniform and limited,” Rob McKenna, former state attorney general now representing the plaintiffs, said in a statement.

McKenna said the law “disregards both the plain language of the Constitution and decades of consistent Supreme Court precedent.”

Dubbed the “millionaires tax,” the new law imposes a 9.9% tax on income higher than $1 million a year. It is set to take effect in 2028 if the law survives the lawsuit. Governor Bob Ferguson signed Senate Bill 6346 into law on March 30, commenting that it makes the state’s tax system fairer and life more affordable for working families.

Revenue from the bill will go toward funding free breakfast and lunch for students, expanding a tax credit for working families, eliminating sales tax on diapers, over-the-counter drugs, and hygiene products, and reducing or eliminating business and occupation taxes for an estimated 138,000 small businesses.

The plaintiffs say the Legislature ignored the will of Washington voters by enacting the bill, saying voters have rejected initiatives seeking to impose statewide income taxes 10 times since 1933.

“This case is about what happens when the political branches openly defy the limits of their founding document as interpreted, for nearly a century, by their independent and coordinate branch of government,” the plaintiffs say in the complaint.

Washington state, the state Department of Revenue and its director are named as defendants.

Before the new law, the Evergreen State was one of nine states without a general income tax. In 1930, the state amended its Constitution to prohibit graduated taxes on property, including money.

A 1933 by the state Supreme Court struck down a voter-approved progressive income tax, holding that income can only be taxed at a uniform rate not exceeding 1% since it falls within the broad definition of property.

Joining McKenna in representing the plaintiffs are former Washington Supreme Court Justice Phil Talmadge and the conservative nonprofit Citizen Action Defense Fund. Talmadge, a Democrat, served 16 years in the state Senate.

Talmadge said the legislation is in direct conflict with settled constitutional law.

“The Washington Supreme Court has repeatedly reaffirmed that graduated income taxes are unconstitutional,” Talmadge said in a statement. “This lawsuit ensures those protections are upheld.”

The plaintiffs say the graduated income tax violates the Constitution in two ways — first, by imposing a non-uniform tax, and second, by imposing a tax that exceeds the maximum annual tax rate of 1%.

The plaintiffs also say the new income tax threatens Washington state’s status as an “economic powerhouse and business-friendly state” and will likely cause high earners and business owners to leave the state.

“This law puts small business owners in our state directly in the crosshairs,” said Elizabeth Milito, vice president and executive director for the Small Business Legal Center of the National Federation of Independent Business, one of the plaintiffs. “Washington has long been a place where entrepreneurs can thrive — this tax changes that overnight.”

A representative for the Washington Attorney General’s Office said it will defend the constitutionality of this law in court and expects to prevail.

The plaintiffs include six individuals who earn over $1 million per year — a married couple who each own businesses, a married couple who reside in Wyoming and own a farm in Washington state and a married couple who own a trucking company. Others joining the complaint include the Ethnic Chamber of Commerce Coalition, the Yakima Klickitat Farm Association, the Building Industry Association of Washington and the National Federation of Independent Business.