Seattle’s Taxing Power Over Businesses Held to be Effectively Unlimited

David Edwards | August 11, 2017

On August 10, 2017, the Washington Supreme Court issued an opinion giving Seattle and other Washington cities a wide berth when it comes to their taxing power over businesses. The Court held that Seattle’s taxing authority on businesses is effectively unlimited by any State statute and is instead tempered largely by the people’s right to reject their leaders or engage in the initiative process. The decision opens the door for a number of new taxes in Seattle, including the recently passed soda tax.

The Court addressed the question of whether Seattle could impose an additional flat tax on items sold at retail (in this case, firearms and ammunition). State law limits a city’s ability to impose certain taxes. In particular, a city is barred from imposing taxes on a business’ gross receipts above a certain fixed rate or imposing higher gross receipts taxes on a particular type of retailer. However, the Court found that the imposition of flat taxes on the sale of an item at retail was not improper because it did not technically change a businesses’ gross receipts tax rates, even if it did raise the overall tax burden on specific types of retailers. This reasoning allows Seattle to impose any number of other business taxes on a flat rate basis. Not only can Washington cities impose additional flat taxes on the sale of anything from books to prescription medication, cities can tax any number of other business activities as well.

While the decision has far-reaching implications for businesses in Washington, it does not address a city’s taxing power over individuals. The power exercised by Seattle in passing taxes on soda, firearms, and ammunition is based on the Court’s recognition of a city’s broad rights to tax businesses related to their business licenses. Accordingly, taxes like Seattle’s recently passed income tax could face different statutory and constitutional challenges because they are imposed on individuals rather than businesses. Only time will tell if Seattle’s recent expansion into new and varied types of taxes will be met with resistance from the courts.

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