Seattle City Council Approves Local Income Tax On High Earners

Jul 10, 2017

The Seattle City Council voted 9-0 Monday to pass a citywide income tax on high earners.

The 2.25-percent tax applies to annual income over $250,000 for an individual and $500,000 for a couple filing jointly.

Mayor Ed Murray supports the tax and is expected to sign it into law. 

The tax is scheduled to apply to income earned in 2018, though proponents say they expect a lawsuit that may delay its implementation. 

Legal experts view the city's legislation as a test case that may determine whether citywide income taxes are legal in Washington state.

Currently, there are no state or local income taxes in Washington. The state Supreme Court decided in 1933 that the state Constitution allows only for a flat 1-percent tax on income. Proponents of Seattle's income tax say they hope the modern court will reverse that ruling. 

A 1984 state law also made it illegal for cities to tax net income. Seattle leaders crafted the city's law to get around that restriction. 

Below is a story posted in advance of the vote:

The Seattle City Council is expected to pass legislation Monday afternoon enacting a citywide income tax.

The council passed a resolution in May saying it intended pass an income tax proposal by the summer. Mayor Ed Murray along with Councilmembers Lisa Herbold and Kshama Sawant unveiled further details a month later.

Seattlites have largely come out in support of the tax. City leaders say the tax will help pay for needed social services and can help alleviate the pressure of more regressive taxes like property and sales taxes.

Those taxes are considered regressive because they hit people with lower incomes harder.

Some concerns have been raised about privacy and enforcement as well as the legality of the tax.

In 1934, the state Supreme Court ruled that income is property, effectively killing a graduated statewide income tax. Then the legislature passed a law in 1984 preventing localities from enacting their own income taxes.

City officials have said they expect a legal challenge once the tax has passed.

Here are the highlights of the city's proposal:

Who will be affected?

Unlike other city income taxes around the country, Seattle's would only affect people whose primary residence is in the city. The tax would apply to individuals making more than $250,000 and couples filing jointly who make more than $500,000.

Less than five percent of the population falls into that category, according to city officials.

How much will it be?

It's a 2.25 percent tax on income over $250,000 for individuals and over $500,000 for couples.

For example, a Seattlite making $275,000 per year would have to pay $562.50.

When will it start?

Unless the process is delayed by a lawsuit, the tax would apply to income received after Jan. 1, 2018. The city would collect the tax in 2019.

What will the money be used for?

The legislation outlines general uses for income tax funds, but does not make specific allocations. City Councilmember Lisa Herbold said those discussions would happen during the rulemaking process and future budget talks.

The goals outlined in the ordinance are to lower the regressive taxes, replace federal funding that could be lost, and provide social services such as housing, education, transit and public health.

The money will also be used to implement and enforce the new city income tax.

The tax is estimated to raise about $125 million per year.