OLYMPIA, WA – Former Washington State Attorney General Rob McKenna has issued a legal memo arguing that a proposed tax on millionaires is unconstitutional, citing the state Constitution and a century’s worth of unanimous court rulings that income is property.
Senate Bill 6346 introduced this session, would impose a 9.9% levy on personal income over $1 million, or on combined household income of more than $1 million. On Monday, the state Senate voted 27 in favor and 22 opposed.
Since the 1930s, a progressive income tax has been declared illegal by the State Supreme Court under various rulings on the basis of the 14th Amendment to the Washington Constitution approved by voters in the 1930 election.
Prior to that, the state had a property tax, but the rate had to be “uniform and equal” and it did not account for differentiate between property types.
The amendment states the following:
All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.
In his legal memo, McKenna, a Republican, wrote that the definition of “property” is “by design, extraordinarily comprehensive. The purpose of Amendment 14 was to expand the reach of property taxes to intangible forms of property, including stocks, bonds, and money, which had previously evaded taxation.”
McKenna cites the landmark 1933 Culliton v. Chase ruling in response to a graduated income tax passed shortly after the passage of the 14th Amendment, in which the majority opinion declared that “no more positive, precise, and compelling language could have been used than was used in those words of our Fourteenth Amendment. It needs no technical construction to tell what those words mean. The overwhelming weight of judicial authority is that ‘income’ is property and a tax upon income is a tax upon property.”
McKenna represented the plaintiffs in a lawsuit against a capital gains income tax passed in 2022 by the state Legislature, which labeled it an “excise tax.” The State Supreme Court ultimately declared it to be an excise tax, even though the tax is not owed if the sale of capital gains generates no income.
However, McKenna wrote in his memo that the state high court’s distinctions in that case “is obviously fatal to SSB 6346” due to it being a “broad-based income tax.”
Under the 14th Amendment, an income tax was permitted at varying rates based on the class of property. According to an argument in favor of the amendment included in the 1930s voter pamphlet, “’uniform and equal’ sounds fair, but in reality its application to a tax system works most unfairly, as all forms of wealth do not have the same ability to pay.”
“Stocks and bonds cannot pay the same tax as real estate, and escape altogether under our present system” the pro-argument stated. “Under the proposed amendment it will be possible to tax bonds and stocks other than those secured by or representing property taxed in this State, at moderate rates, by the proposed amendment. Every fair man should be willing to pay towards the cost of government, whether his money is invested in land, merchandise, bonds, or stocks.”
