A state income tax would face serious constitutional problems

A proposal from Senator Jeanne Kohl-Welles has lawmakers in Olympia once again discussing the possibility of an income tax.

The major hurdle any income tax has to clear is the question of whether the legislation would require a constitutional amendment. (Remember: constitutional amendments require two-thirds approval in the Legislature and ratification by the voters of the state.)

Apparently hoping to avoid this problem, several Democratic legislators have vocally asserted that a “modern” income tax is constitutional, and wouldn’t require any amendment.

Frequently cited in this discussion is an analysis by public finance attorney Hugh Spitzer, which he wrote for the 2002 Gates Commission.

Mr. Spitzer argues that the cases commonly thought to prohibit an income tax may no longer be good law, and that an income tax could now be accomplished without a constitutional amendment.

Presented with a modern income tax, he says, the state Supreme Court would likely use a “clean slate” approach without the constraints of previous cases.

A more thorough analysis would suggest otherwise.

The Washington Constitution (art. VII, § 1) requires that taxation of property be uniform, a clause that was added to the constitution in 1930 by Amendment 14: “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.”

One of the first cases to interpret this constitutional section was Culliton v. Chase (1933), in which the Washington State Supreme Court analyzed whether a graduated income tax, adopted by initiative the year before, was constitutional.

The court said that personal income falls within the constitutional definition of “property,” and therefore must be taxed uniformly.

As a result, the Supreme Court struck down the graduated income tax as unconstitutional.

Spitzer suggests that Culliton is no longer good law, and can be ignored if the Supreme Court were to review an income tax today, and he argues that the court in Culliton relied on the case of Aberdeen Savings & Loan Assoc. v. Chase (1930) to classify “income” as property.

Aberdeen, in turn, relied on two U.S. Supreme Court cases that have since been overturned.

Given this shaky foundation, Spitzer says, the Culliton ruling is in doubt, and a modern Supreme Court would not have to be constrained by these precedents.

In practical terms, if income is no longer classified as “property” under the state constitution, the uniformity clause would no longer apply, and a graduated income tax could be accomplished without constitutional amendment.

Spitzer’s analysis ignores the true basis of the Supreme Court’s decision in Culliton, and leaves out some critically relevant facts.

Regardless of the validity of Aberdeen, the Supreme Court in Culliton relied more on the unique character of our state constitution when classifying income as property.

Just months after the Aberdeen decision issued, Amendment 14 added the uniformity clause to the Washington Constitution.

When the Supreme Court considered the Culliton case three years later, the court took note of the “peculiarly forceful constitutional definition” of property in Article VII.

“It would certainly defy the ingenuity of the most profound lexicographer,” the court ruled, “to formulate a more comprehensive definition of ‘property.’ It is ‘everything, whether tangible or intangible, subject to ownership.’”

With this expansive definition of property, the court held that income fell within that classification.

“Income is either property under our 14th Amendment, or no one owns it,” the court stated. “The overwhelming judicial authority is that ‘income’ is property and a tax upon income is a tax upon property.”

The Supreme Court noted the unique language of the Washington Constitution by comparing it to other state constitutions. For example, the Wisconsin Constitution explicitly authorized progressive taxation on income.

The Idaho Constitution conferred upon the Legislature the ability to define the word “property.”

Had Washington the same constitutional provisions, said the court, it would likely find an income tax constitutional.

But unless the constitution were amended, the court said the Legislature’s hands are tied by the “emphatic restrictions” in the Washington Constitution.

Given the Supreme Court’s reliance on the constitutional wording of Amendment 14, which is still intact, Culliton is still good law, and there is little reason to assume that the Supreme Court would ignore it and its subsequent line of cases.

Michael Reitz is legal counsel to the Evergreen Freedom Foundation.

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