At 5 p.m. this evening the Seattle City Council will hold a public hearing on its proposed local income tax ordinance to set up a constitutional challenge to the state's graduated income tax ban. Seattle officials know that a graduated income tax conflicts with numerous state Supreme Court rulings but they hope to be sued to see if they can get five justices to overturn 84 years of caselaw. Statewide voters have already rejected five constitutional amendments to allow a graduated income tax and another four ballot measures have also failed. 

Another challenge Seattle is facing with its proposal is that state law also prohibits a local income tax. Though the statute says "net income" the legislative history is clear that lawmakers sought to prohibit a local income tax, period. Seattle officials, however, think they've found a way around this by basing the income tax on "total income" instead of the traditional adjusted income that is used for federal income tax owed. This means the Seattle income tax would apply to all income that is reported on line 22 of the federal 1040 income tax form (see image):

So will using "total income" convince the court this tax is lawful?

As noted by the Tax Foundation: 

". . . advocates of a Seattle municipal income tax argue that by imposing the tax on gross income rather than adjusted gross income, it cannot be said to fall on net income. This is arguably a strained interpretation of the statute. Net income is undeniably a subset of gross income, and thus subject to tax under the proposed ordinance . . . The courts have held that localities must have an express grant of authority to levy a given tax, and of course, nothing in statute specifically authorizes a local income tax. The Seattle City Council justifies the proposed income tax under statutory authority to establish licenses and permits, which may be too novel for the courts, not least because it is unclear that a right of residency could be subject to a licensing process."

Legality aside, Seattle officials say there is nothing for the average taxpayer to worry about since this tax is targeted on those with total income in excess of $250,000. As we have constantly seen across the country, however, income tax rates rarely stay targeted on the rich. The Seattle Council has already shown a willingness to tax low and moderate income taxpayers with a soda tax. What confidence does that leave those in Seattle that the proposed income tax rate won't soon expand?

Another interesting aspect of the income tax proposal is it applies only to those that live in Seattle, not those that work there. This makes me wonder if this proposal isn't really just a secret plot from realtors from cities just outside Seattle. 

For those of you that don't live in Seattle you may be asking why should I care about this? Because unlike Las Vegas, what happens in Seattle rarely stays in Seattle. The only way Seattle can legally have a city income tax is for one to be allowed across the state.

Additional Information
Why you should care about Seattle’s plan to impose an income tax
Income tax rate creep - Hollywood edition
Lawmakers can extinguish wildfire of illegal local income tax proposals
History of income tax votes in Washington
Why did legislature pass 1984 local income tax ban?
Will Seattle try to adopt an illegal income tax?
Olympia Council can help Seattle Council understand local income tax ban