CONSTITUTIONALITY OF INCOME TAX

TAXATION ‑- INCOME ‑- INITIATIVE AND REFERENDUM ‑- CONSTITUTIONALITY OF INCOME TAX

A bill providing for the imposition of a graduated net income tax would be unconstitutional under Article VII, § 1 (Amendment 14) of the state Constitution even though approved by the voters as a referendum bill.

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                                                               December 26, 1974

Honorable Georgette W. Valle
State Representative, 31st District
1434 S.W. 137th
Seattle, Washington 98166                                                                                                             Cite as:  AGLO 1974 No. 105

Dear Representative Valle:
 
            This is written in response to your recent letter requesting our opinion as the constitutionality of a certain bill proposing to impose a graduated net income tax upon corporate and individual income.  We answer your question in the manner set forth in our analysis.
 
                                                                     ANALYSIS
 
            Although the bill you have asked us to review also contains certain other provisions, including a reduction in the state sales tax and an exemption of "food products" from that tax and the compensatory use tax,1/ it is the income tax aspect of it which poses the constitutional problems with which you are concerned.  Under the terms of subpart B of the bill (§§ 82A-4 through 82A-36) this tax would be imposed upon net income (i.e., gross income less authorized deductions and exemptions) at a graduated rate.
 
            As indicated in an attachment to your letter, this bill thereby substantially incorporates the provisions of the earlier, but never effective, provisions of chapter 141, Laws of 1973, 1st Ex. Sess., as amended by chapter 35, Laws of 1973, 2nd Ex. Sess. ‑ except that unlike the foregoing 1973 legislation, its effectiveness is not made contingent upon approval by the voters of an enabling amendment to the state constitution.2/   Instead, this new bill would,  [[Orig. Op. Page 2]] itself, be referred to the voters without an accompanying constitutional amendment in accordance with the provisions of Article II, § 1(b) of the state constitution relating to referendums by the legislature.  See, State ex rel. Lofgren v. Kramer, 69 Wn.2d 219, 417 P.2d 837 (1966).  From this it follows, necessarily, that although voter approval ‑ particularly if by a large majority ‑ might conceivably have some influence upon the courts in their ensuing review of this bill, its constitutionality would nevertheless have to be tested against the pertinent provisions of our state constitution as it now exists.
 
            Among these provisions is the so-called "uniformity" clause of Article VII, § 1 (Amendment 14) which states that:
 
            ". . .  All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax . . ."
 
            Moreover, the term "property" as thus used is expressly defined in this section of the constitution to mean and include,
 
            ". . . everything, whether tangible or intangible, subject to ownership.  . . ."
 
            By reason of this definition, the Washington supreme court has on several occasions declared both individual and corporate income to constitute a class of property so as to be subject to this constitutional requirement of uniformity.  See, Power Inc. v. Huntley, 39 Wn.2d 191, 235 P.2d 173 (1951); Jensen v. Henneford, 185 Wash. 209, 53 P.2d 607 (1936); and Culliton v. Chase, 174 Wash. 363, 25 P.2d 81 (1933).  Furthermore, because of this requirement, the court in each of these three cases struck down as unconstitutional the income tax laws which were there involved; chapter 10, Laws of 1951, Ex. Sess., chapter 178, Laws of 1935, and chapter 5, Laws of 1933.
 
             [[Orig. Op. Page 3]]
            With regard to the earliest of these three laws, it is also significant within the context of your present request to note that the supreme court invalidated the graduated net income tax which was therein provided for even though the law imposing it had been submitted to and adopted by the voters as an initiative under subsection (a) of Article II, § 1 of the constitutuion, supra.  In so doing the court said, at page 373:
 
            "The fact that the income tax law was passed as an initiative measure is of no controlling importance, nor can it be likened to an amendment to the constitution.  The constitution provides the means, methods and processes for its own amendment."
 
            Therefore, the mere fact that the bill you have asked us at this time to review would, likewise, by enacted (in part) by the voters in the form of a referendum bill under Article II, § 1(b) of the constitution would not legally immunize it from a successful constitutional challenge ‑ based upon the reasoning of the court in the above cited three cases.  And, without any question, the constitutional objections which were found by the court to exist with respect to the laws involved in those cases would similarly exist in the case of the income tax contemplated by the instant proposal.  In fact, that is obviously why its earlier, 1973 counterpart was expressly conditioned upon voter approval of a constitutional amendment.
 
            Of course, it is possible that the supreme court, as presently constituted, could be persuaded to reverse its earlier rulings and uphold a graduated net income tax such as is here proposed without a constitutional amendment.  But this, obviously, is something upon which we cannot properly speculate in attempting to provide you with an objective opinion as to the constitutionality of such a tax at the present time.  Until and unless those decisions are thus overruled, we must continue to be guided by them ‑ and so conclude that at this time, the constitution of this state continues to prohibit the imposition of a tax upon corporate or individual net income such as would be provided for under the bill you have asked us to review.  Accordingly, we must necessarily advise you, in direct response to your question, that this aspect of that bill would not be constitutional.
 
            It is hoped that the foregoing will be of some assistance to you.
 
Very truly yours,
 
FOR THE ATTORNEY GENERAL

PHILIP H. AUSTIN
Deputy Attorney General

                                                         ***   FOOTNOTES   ***
 
1/See, chapters 82.08 and 82.12 RCW.
 
2/See, § 60, chapter 141, supra, which provided that:
 
            "The provisions of this 1973 amendatory act shall take effect on January 1, 1974 if the proposed amendment to Article 7 of the state Constitution authorizing the legislature to impose a tax upon net income and to authorize property tax relief is validly submitted and is approved and ratified by the voters at a general election held in November, 1973.  If such proposed amendment is not so submitted and approved and ratified, this 1973 amendatory act shall be null and void in its entirety."
 
            That constitutional amendment, however, as you know, was considered and rejected by the voters at the November, 1973, state general election.