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Home My WebLink About03/17/2020 05A Legal Department; Information on Imposing Income Tax on City Residents to\'4\lyy tbxk ik 1 PP1-:4P PPP g. A P p PPi ittYlltYlt.\ta. BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 5.A. For Meeting of: March 17, 2020 ITEM TITLE: Legal Department response to City Council request for information concerning a Washington municipality's ability to impose income tax on City residents SUBMITTED BY: Jeff Cutter, City Attorney Ryan Bleek,Assistant City Attorney SUMMARY EXPLANATION: During the February 18, 2020 City Council business meeting, the City Council approved a request that the Legal Department bring back a summary analysis of the rules and procedures applicable to a Washington municipality if it were to choose to pass a local income tax. The attached Memorandum addresses the basis for the conclusion that a Washington municipality may impose a local income tax on the gross income of all residents within the City so long as it is uniformly imposed on the same class of property/income. The summary of the process necessary to impose such an income tax includes the consideration of the City Charter requirement that any new tax imposed by the City Council must be approved by no less than five members of the Council. ITEM BUDGETED: STRATEGIC PRIORITY: APPROVED FOR SUBMITTAL BY THE CITY MANAGER RECOMMENDATION: ATTACHMENTS: Description Upload Date Type mama 3/9/2020 r Memo ha r 3/11/2020 r Memo d spokane Iley resolution / / 020 r Me o 2 CITY OF YAKIMA LEGAL DEPARTMENT 200 South Third Street,2nd Fl. I Yakima,WA 98901 P: 509.575.6030 I F: 509575.6160 MEMORANDUM March 9, 2020 TO: Honorable Mayor and Members of the City Council Alex Meyerhoff, Interim City Manager FROM: Jeff Cutter, City Attorney SUBJECT: Council's Authority to Impose an Income Tax At its February 18, 2020 business meeting, Council requested information regarding its legal authority to impose an income tax. After a review of recent case law interpreting the Washington State Constitution, as well as applicable state statutes and the City Charter, the City Council has the authority to impose a local income tax, subject to certain conditions. In July of 2017, the City of Seattle enacted an ordinance imposing an income tax on high-income residents. In Kunath v. City of Seattle,' the Division I Washington Court of Appeals found that, although Seattle's attempt at a graduated tax scheme was unconstitutional, a uniformly imposed income tax would pass constitutional muster. The Court's analysis hinged upon Washington Supreme Court case law holding that income is a form of property, and thus, an income tax is deemed a property tax under Washington law. The Court noted that Washington municipalities have no inherent power to levy taxes, but that the legislature, by statute, granted municipalities the power to levy property taxes. Therefore, insofar as income is property, municipalities may tax income. However, there are specific limitations on how the tax must be imposed and what income may be taxed. Under Article VII, section 1 of the Washington State Constitution, all taxes must be uniformly imposed upon the same class of property, and by statute there can be no tax on net income. The Yakima City Charter also addresses specific limitations on the Council's taxing authority. Under Article VII, Section 2, any new tax imposed by Council requires a minimum of five affirmative votes by the Council members. Thus, under current law, with a vote of at least five members the Council could levy a uniform income tax on gross income on residents of the City. 110 Wn. App. 2d 205 (2019). 3 February 18, 2O3O ,. The Hon. Patricia Byers Mayor City ofYakima nu 1290. 2 Street Ygkirna, VVA9890l Dear Mayor Byers: Numerous economic analyses and surveys of corporate executives have shown that one of Washington state's most significant competitive advantages in business recruitment and retention is ours1ate's lack of persona/ income tax. We are therefore troubled by efforts, led by the City of Seattle, seeking to erode this advantage by allowing municipalities to impose local income taxes. As you may know, some cities have sought to provide some predictability to current employers and potential investors that the business climate in these cities will not take a significant turn for the worse by passing voter-approved bans on personol income taxes in their cides. We at ( the Greater Yakima Chamber of Commerce believe that this would be of great benefit to our community-wide efforts to attract and retain businesses and professional talent. Furthermore, based on past citizen votes on tax issues—most recently onthe levy lid lift—we believe that ,' such an income tax ban would reflect the sentiments of the voters and is likely to be approved, Our state, and our city, should not lightly abandon the tax policies that have contributed to our economic success since the drafting of our state constitution. VVe think that a clear statement that Yakima does not plan to impose a local income tax would foster confidence in our community as a place 1odo business now and io the future, and we would welcome the opportunity to discuss this matter with you further. VeryRn8est President � 4-/ Distributed at tile /0 eeting. 1‘ 5),/9(.: CITY OF SPOKANE VALLEY SPOKANE COUNTY,WASHINGTON RESOLUTION NO. 19-018 A RESOLUTION OF THE CITY OF SPOI E VALLEY, SPOKANE COUNTY, WASHINGTON, REGA' I ING OPPOSITION TO A LOCAL INCOME TAX ON THE RESIDENTS AND BUSINESSES OF THE CITY,AND OTHER TTERS RELATING THERETO. WHEREAS, Article VII, § 1 of the Washington State Constitution establishes the basic framework for taxation in the state of Washington, including what shall be permitted as a tax; and WHEREAS, the City of Seattle recently attempted to enact an income tax on certain individuals applicable within its municipal boundaries. The Washington State Court of Appeals, Division I ruled that such a tax, when selectively applied,was unconstitutional and invalid. Kunath v. City of Seattle, Slip Opinion 79447-7-1 (2019). Certain language in the court's ruling has caused discussion in various communities across Washington as to whether cities have authority to impose a local income tax, which is legally considered a tax on property; and WHEREAS, the City of Seattle is seeking further review from the Washington State Supreme Court in the Kunath case, and that court has not ruled yet on that request for further appeal; and WHEREAS, the City Council wants to declare its position regarding the potential for cities to impose a local income tax on its residents and businesses; and WHEREAS, businesses large and small provide the economic lifeblood in our City, the region, state, and country; and WHEREAS, businesses are already subject to a highly regressive business and occupation tax imposed by the state of Washington. Although many cities across the state additionally impose a local business and occupation tax, the Spokane Valley City Council has deliberately chosen not to, electing to create a regulatory and taxing climate based on opportunity for businesses to operate in; and REAS, Spokane Valley sits several miles from Washington's border with the state of Idaho, which already results in substantial loss of commerce to businesses located in north Idaho. Furthermore, Idaho has a more favorable business regulatory climate, including lower taxes, as an enticement for businesses to locate there to attract commerce from Washington's border communities; and WHEREAS, the City Council knows that a strong and encouraging business climate is one of the best ways to attract and retain good businesses to employ people in family wage jobs; and WHEREAS, use of a local income tax may generate additional revenue in the short term, but would most likely result in less long-term revenue due to the dampening effect it would have on our businesses. NOW THEREFORE, be it resolved by the City Council of the City of Spokane Valley, Spokane County, Washington as follows: Resolution 19-0 1 8 Page 1 of 2 5 Section 1. The City Council hereby declares that the imposition of a local income tax on the businesses and residents of the City of Spokane Valley is prohibited. Such a tax would be in direct conflict with the high value the City places on promoting economic development through the attraction and expansion of financially healthy, family wage-paying employers. Small businesses are the backbone of our local, regional, state, and national economy and it is imperative that the City not put unnecessary hurdles in the way of their success. As such, the Spokane Valley City Council prohibits the imposition of a local income tax in the event a local income tax is determined legal and permissible by the Washington State Supreme Court or the Washington State Legislature. Section 2. Effective Date.This Resolution shall be effective upon adoption. Adopted this 26'" day of November,2019. City ficSpoicane Valley„ dpriirirrta., _.- „,. ...,. _ stine Bainbridge, City Clerk Resolution 19-018 Page 2 of 2