Washington
State Supreme Court declares citizen-approved state income tax unconstitutional
on September 8, 1933.

HistoryLink.org Essay 5726 : Printer-Friendly Format

On September 8, 1933, the Washington State Supreme Court
declares the state’s one-year-old, citizen-approved income tax
unconstitutional. Some legal scholars call the reasoning behind the 5-4
decision “tortured” (Roberts). A business-and-occupation tax (which
taxes gross receipts of businesses) and a citizen-approved 40-mill (four cent)
limit per assessed dollar on property taxes, however, are judged
constitutional.

Washington a Property-Tax State

The property tax is a "regressive tax" -- one in
which poor and middle-class families pay a far greater percentage of their
income in taxes than do the wealthy. The property tax has been Washington state’s primary revenue source since statehood in
1889, but with the progressive period at the turn of the century came demands
for reform. Increased demands for government services drove property taxes
higher, forcing many farmers into foreclosure.

Washingtonians overwhelmingly supported the Federal Income
Tax amendment to the U.S. constitution, ratified on February 3, 1913.

Efforts to pass a state income tax began to accelerate in
the 1920s. Farmers, represented by the Washington State Grange, the Washington
Education Association (WEA), and urban workers formed a loose coalition to
broaden the tax structure.

An income tax proposal passed the Washington State Senate in
1929, but died in a House of Representatives committee. In 1931, a Tax Advisory
Committee and the State Tax Commission supported measures proposing personal
and corporate income taxes. The bills passed both houses of the state
legislature, but Governor Roland Hartley (1864-1952), an obstreperous
Republican and Everett lumberman, vetoed them.

Movement for an Income Tax

With the Democratic sweep of 1932, in the depth of the Great
Depression, Democrats controlled Washington’s state legislature and all
congressional seats. The Parent-Teacher Association (PTA), the Seattle Central
Labor Council, the Washington State Grange, and WEA endorsed the graduated
income tax. Voters overwhelming (70 percent) approved Initiative 69, which
mandated a graduated income tax. Voters also approved a 40-mill (four cent)
limit per assessed dollar on property taxes, another issue that would remain
contentious.

Under the property tax, farmers were losing their land to
foreclosure. In addition, the state was not bringing in enough money to provide
adequate services. The state unemployment rate topped 25 percent, and the
burden of aid and services to the jobless was draining public coffers.
“Our present tax system is on the verge of collapse,” said M. K.
Norton, president of the Washington State Assessor’s Association (Roberts).

Challenges to the Income Tax

Two lawsuits challenged the new income tax law. Thurston
County Superior Court Judge D. F. Wright consolidated them, declaring the law
“unconstitutional.” Wright’s ruling was appealed to the
Washington State Supreme Court, which upheld it. The majority decision
interpreted income as property and said an income tax would violate the state
constitution’s taxation equality requirement.

In response the State Legislature passed a bill authorizing
a “temporary” business-and-occupation tax. This tax on "gross
receipts" (not profits) of businesses became permanent.

Sources:

Phil Roberts, A Penny for the Governor, a Dollar for Uncle Sam (Seattle:
University of Washington Press, 2002); Alfred Harsch,
"The Washington Tax System -- How It Grew," Washington Law Review,
Vol. 59 (January 1965); "Tax Alternatives for Washington State: A Report
to the Legislature Prepared Pursuant to Chapter 7, Section 138, Laws of 2001,
by the Washington State Tax Structure Committee, William H. Gates Sr.,
Chair" (The Gates Report), 2002; Washington Tax History, Washington
State Department of Revenue, 2004.

By Frank Chesley , August 04, 2004

More information:
<
Browse to Previous Essay | Browse
to Next Essay > | Search
|

Related Topics: Government
& Politics | Economics
| Law
|

Major Support for HistoryLink.org Provided By: The State of Washington | Patsy Bullitt Collins | Paul G.
Allen Family Foundation | Museum Of History &
Industry | 4Culture (King County Lodging Tax Revenue) | City of Seattle | City
of Bellevue | City of Tacoma | King County | The Peach Foundation | Microsoft
Corporation, Other Public and Private Sponsors and Visitors Like You