Olympia is entering uncharted legal territory with a proposal to tax the city’s wealthiest households and create a college fund for local high school grads.
Volunteer group Opportunity for Olympia is circulating a petition that calls for a 1.5 percent tax on any household income in excess of $200,000. The petition needs 4,702 valid signatures from Olympia residents by June 16 to qualify for the November general election ballot.
Organizers and several city officials believe voters will approve the tax if given a chance.
But at least one expert on state tax law says the proposal, if it passes, will likely lose a court challenge and leave Olympia voters feeling disappointed.
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Hugh Spitzer of the law firm Foster Pepper shared insight about the city’s taxation power at a study session Tuesday with the Olympia City Council.
Spitzer said an argument can be made for Olympia to impose an income tax because of the broad interpretation of a city’s ability to self-govern. Olympia is a code city, which is a classification that provides “the broadest powers of local self-government consistent with the constitution of this state,” according to state law.
A major obstacle is whether a city has the authority to adopt a tax that is not allowed by the state Legislature, such as an income tax. Furthermore, the state constitution considers income as property, and property is subject to uniform taxation.
Spitzer sees the Olympia proposal as a “test case” that will attempt to address the constitutionality of the state’s ban on an income tax. However, he predicts that a court will rule that code cities such as Olympia cannot tax individual income.
“People will wind up being quite disappointed,” Spitzer told the council.
Spitzer referred to the 1952 case of Cary v. Bellingham, in which a court shot down a proposed excise tax and ruled that “the right to earn a living by working for wages is not a substantive privilege granted or permitted by the state.”
Aside from the legal questions, city officials are concerned about the potential administration costs.
According to the petition, the city would be responsible for collecting the tax. And if voters approve the tax, the city must decide whether to defend the decision — at taxpayer expense — in a likely court challenge that Spitzer predicts could last 18 months or longer depending on appeals.
The petition also stipulates that no more than 5 percent of the fund can go toward administration costs, which are unknown at this time. The city’s finance committee will meet May 11 to determine the potential costs.
“This could be a big hit to our general fund,” Olympia Mayor Cheryl Selby said.
Regardless of the eventual cost to the city, several council members agreed the proposal has a good chance of passing at the polls.
Councilwoman Jessica Bateman said the proposal reflects Olympia’s values for education and improving quality of life. She noted that in today’s economically stratified society, many individuals end up taking on tens of thousands of dollars in debt for the privilege of attending college.
“This is a really relevant issue for our community,” Bateman said.
The Seattle-based Economic Opportunity Institute has provided the blueprint for the proposed tax. Organizers estimate about 750 households in Olympia city limits would be subject to the tax, which would raise about $2.5 million a year.
As the proposal is written, every public high school graduate and GED recipient living inside Olympia’s boundaries would be eligible for money to pay for the first year of tuition at any community college, or an equivalent amount can be applied to tuition at any public university in Washington. The amount would be slightly less than $4,000.