When an income tax initiative passed in the 1930s, the Washington Supreme Court struck it down saying it violated Washington State Constitution Article VII, Section I which provides, “All taxes shall be uniform upon the same class of property . . . . The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership . . . .” This is the so-called “uniformity provision” of the Washington Constitution.
Why do proponents of I-1098, the high earners income tax think things are different now? Is I-1098 constitutional?
Yes, according to some of the leading experts on Washington State’s Constitution. The constitutional experts consulted by the Yes on 1098 campaign say that the key precedents that led to the 1930s ruling have been overturned in ensuing decades. If the voters approve I-1098, and it is challenged in court, our state’s leading constitutional scholars are confident it will be upheld.
Should they be confident? There are sound arguments why the prior court ruling is outdated and wrong. But I would not be confident.
The issue is whether a tax on income is a tax on “property” as used in Article VII of the State Constitution. The proponents and “leading experts” pitch is this: The original Washington Supreme Court case that found a tax on income to be a tax on property was based on a strained and erroneous reading of a prior case that had nothing to do with an income tax. Further, they argue that U.S. Supreme Court authority upon which the old Washington case relied has been overturned. Thus, when faced with the question now, the Court will see the errors of its ways and uphold a state income tax. The proponents and “leading experts” are right as to these two points, but that does not decide the question.
First, the “erroneous” holding is not found in simply one case in the 1930s, but has been adopted in several cases over many years. As recently as 1960, the question was put to the Washington Supreme Court by the State Attorney General. The unanimous Court stated: “The argument is again pressed upon us that these cases were wrongly decided. The Court is unwilling, however, to recede from the position announced in its repeated decisions.” Apartment operators Ass’n v. Schmacher, 56 Wn.2d 46, 47 (1960).
Indeed, as recently as 2001, the Court, in a decision written by now Chief Justice Madsen, cited as good authority the 1930s case that held the income tax unconstitutional: “[T]he term property is as broad and comprehensive as may well be imagined. . . . It includes items as diverse as “income” . . . .” Dean v. Lehman 143 Wn.2d 12, 25 (2001). In other words, there is a lot of precedent (prior case law) that needs to be overturned for I-1077 to be upheld as constitutional. That could happen. The Illinois Supreme Court did just that in 1969 upholding an income tax law and overruling a 1932 decision that had held an income tax was a property tax that violated the uniformity provision of the Illinois Constitution. But the current Washington Supreme Court is instinctively going to be inclined to uphold its prior decisions absent very compelling arguments. And while clearly in a small minority, the Washington decisions holding a tax on income is a tax on property is not unique among the States.
Second, the Washington constitution’s definition of “property” as “everything, whether tangible or intangible, subject to ownership” is unique compared to other state constitutions. As noted above, the Supreme Court in 2001 reiterated that the term “is as broad and comprehensive as may well be imagined.” Indeed, in a relatively recent decision (as far as these cases go), the New Mexico Supreme Court distinguished its language from Washington’s in finding income not to be property under the New Mexico Constitution: “We would, however, note that the Washington constitution contains what that court termed “a peculiarly forceful constitutional definition,” stating that property includes everything capable of ownership, whether real or personal property, and whether tangible or intangible. From this, Washington held that income was necessarily intangible property. If New Mexico had a similar provision, we would probably agree.” Burns v. State, 439 P.2d 702, 706 (1968).
Third, the people have an alternative, albeit more difficult, avenue to impose an income tax: amend the State Constitution. In Apartment operators Ass’n v. Schmacher, noted above from 1960, the Court concluded its rejection of the State’s entreaty to overrule prior precedent with a statement that may apply equally today as in 1960: “Among other things, the attorney general urges that the result should now be different because the state is confronted with a financial crisis. If so, the constitution may be amended by vote of the people. Such a constitutional amendment was rejected by popular vote in 1934.”
The Yes on I-1098 campaign may be right that the old cases from the 1930s were based on old and outdated law, but simply being right may not be enough to cause the Washington Supreme Court to overturn decades of precedent.
