In a case that has attracted widespread attention in Washington state and nationally, an Orrick team won a major ruling today finding a proposed Seattle city income tax violates the state Constitution. Led by partners Rob McKenna and Dan Dunne, Orrick represented nine individuals, including small business owners, senior citizens and technology workers, in a lawsuit challenging the legality of the City of Seattle’s recently enacted city income tax.
Washington State has no income taxes at either the state or local levels, and Seattle’s ordinance was adopted by the City Council to create a test case that they hope will reach the state Supreme Court. Teaming with two former Supreme Court Justices and co-counsel from Lane Powell, we convinced the trial court that the City lacked legislative authority to tax income; that state law expressly prohibited cities from levying taxes on net income; and that because the tax ordinance was invalid under established state law, the court was not required to reach the issue of its constitutionality. Based on the favorable ruling, plaintiffs intend to ask the Supreme Court to decline discretionary review of the constitutional issue because the case was, and should be, decided on purely statutory grounds.
This case has received significant statewide and national media attention, in part because of a public debate over whether the tax had the potential to discourage major employers, such as Amazon, from continuing to grow in the Seattle area. Our team also took the position that the tax would be unduly punitive to taxpayers if federal tax reform limits the state and local tax deduction, as currently proposed.
An editorial in The Wall Street Journal praised the decision, saying, “Above all it’s a victory for the rule of law.”