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November 10, 1972
Honorable Jeff Douthwaite
State Representative, District 43
5518 31st N.E.
Seattle, Washington 98105
Cite as: AGLO 1972 No. 79 (not official)
This is written in response to your recent letter requesting our opinion with regard to the constitutionality of a single rate state income tax. Because no specific bill designed to impose such a tax has been included with your request, our response will, of necessity, have to be somewhat abstract and generalized.
Of course, the obvious starting point for any discussion of the constitutional ability of our legislature to enact such a bill is a recognition of the fact that, according to numerous decisions of our state supreme court, the income of both corporations and individuals is a form of property. See, Power, Inc. v. Huntley, 39 Wn.2d 191, 235 P.2d 173 (1951); Petroleum Navigation Co. v. Henneford, 185 Wash. 495, 55 P.2d 1056 (1936); Jensen v. Henneford, 185 Wash. 209, 53 P.2d 607 (1936); Culliton v. Chase, 174 Wash. 363, 25 P.2d 81 (1933), and cases cited therein. For this reason any legislation designed to impose a state income tax must conform not only with the uniformity requirement of Article VII, § 1 (Amendment 14) of the state Constitution1/ but with the 40 mill limit of Article VII, § 2 (Amendment 17) as well. The essence of this latter provision, as you know, is that the aggregate of all taxes levied by the state and its various taxing districts (except port districts and public utility districts) upon real or personal property shall not exceed 40 mills on the basis of an assessed valuation of fifty percent of true and fair value without voter approval of an excess levy.
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Directing our attention, first, to the requirement of uniformity as set forth in the 14th Amendment, supra, the first constraint imposed by this provision upon any income tax is that of precluding any sort of "graduated rate" tax under which different tax rates are applied against varying amounts of income. See, Culliton v. Chase, supra. In addition, this same provision also prohibits the legislature from imposing even a single rate income tax upon corporate income only, while exempting personal income from this same tax. Power, Inc. v. Huntley, supra. And finally, it also means that any income tax may well have to be measured against gross rather than net income in order to pass constitutional muster, because of the potential effect that at least certain forms of deductions could have upon the true uniformity of a single rate income tax levied only against net income after these deductions are allowed. For example, deductions for business expenses may be constitutionally permissible ‑ and indeed would have to be if we are to have a true net income tax ‑ while personal exemptions, such as those found in the federal income tax system, would be clearly impermissible. See, Jensen v. Henneford, supra.
As for the impact of the 17th Amendment upon any bill proposing a state income tax, the basic effect of this constitutional limitation upon the rate of any property taxes is that of establishing a maximum rate of two percent for any such income tax as might be imposed by the legislature (i.e., forty mills based upon an assessment rate of fifty percent). And, of course, if the constitutional amendment contained in S.J.R. No. 1 is approved by the voters at the forthcoming November, 1972 general election, this maximum rate will be reduced from two percent to one percent, in accordance with the terms of the measure.
In summary, then, while it may theoretically be possible presently2/ to draft a bill imposing a state income tax which would be constitutionally defensible, any such tax would not only have to be a "single rate" tax as you have stipulated but, in addition, would have to ‑
(a) apply uniformly to all income, both personal and corporate;
(b) be imposed either against gross income without [[Orig. Op. Page 3]] any deductions, or net income calculated solely on the basis of business expense but not personal deductions; and
(c) not in any event exceed a rate of two percent (under the present Constitution) ‑ or one percent if S.J.R. No. 1 is approved by the voters on November 7, 1972.
It is hoped that the foregoing will be of some assistance to you.
Very truly yours,
Philip H. Austin
Deputy Attorney General
*** FOOTNOTES ***
1/This section requires that:
". . . All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax . . ."
2/I.e., without an enabling constitutional amendment.