The Hastings Building in Port Townsend. Photo via Wikimedia Commons

Following Seattle’s Lead, Effort Brewing to Pass Income Tax in Port Townsend

Seattle’s law could help other towns access IRS data on residents.

Seattle Weekly caught Tobi McEnerey by phone on her way out the door, as she was wrestling with her kids.

“Sorry to rush off the phone. Two five year olds, unimaginably, didn’t want to go to a housing rally so I could talk about tax structure,” she wrote in a followup email.

McEnerey lives in Port Townsend, and is heading up an effort there to establish an income tax on high-earners.

Sound familiar?

Both sides of Seattle’s income tax debate have framed the new levy on income over $250,000 for individuals and $500,000 for couples as the first step to similar taxes across the state. Opponents frame this as a bad thing (“you’re next!”) Proponents say it’s why Seattle’s law is so important: Seattle could lead the way to more progressive taxing across the state.

As has been widely reported, one way Seattle could lead the way is by successfully defending the income tax law against a slew of legal challenges it now faces; that legal fight has already begun earnest.

But a less noted clause in the law would also allow small cities like Port Townsend to piggyback on Seattle’s law and get residents’ income data from the IRS for taxing purposes. The clause is highlighted in a motion filed on Wednesday by the Economic Opportunity Institute, asking that they be allowed to intervene in the lawsuit challenging Seattle’s income tax law.

”Cities of less than 250,000 residents may access IRS data for their city only by partnering with other cities that have local income taxes and which have a combined population of 250,000 or more,” the motion says. “The ordinance has a provision for Seattle to facilitate such data sharing.”

John Burbank, executive director of the Economic Opportunity Institute, says that the 250,000-population rule was a hurdle in his group’s efforts to pass an income tax by ballot measure in Olympia (the measure did not pass). Since Olympia does not have 250,000 people, the income tax there would have essentially been collected through self-reporting.

“There would have been a certain amount of leakage,” Burbank says, probably understating things.

But if Seattle’s law is upheld and the city gets access to IRS income data, then other towns in Washington could partner with Seattle and get their residents’ income data as well. That would make for a more effective collection of the income tax.

Burbank notes similar agreements are used in suburbs around Cleveland. There, the City of Cleveland operates the Central Collection Agency, which oversees tax collection for 50 “member communities and collects over four hundred million dollars on an annual basis,” according to its website.

EOI, which has been lobbying the Seattle City Council for an income tax on high earners since at least early 2016 and won a $50,000 contract earlier this year to consult on the creation of the ordinance, is asking to intervene in the case so it can argue legal points it says the City of Seattle does not plan to. Specifically, it wants to argue that a state law stating that “a county, city, or city-county shall not levy a tax on net income” is unconstitutional. Among other things, Burbank says they want to argue the statute does not adequately define “net income,” rendering it invalid.

Meanwhile, over in Port Townsend, McEnerey says the city council has “many, many reservations of what this would look like in a small town with an $8 million general fund.” But that’s not dissuading her and others.

“So, we organize. We show council that their folks want this. Given the steep educational component, it is slow going. We have many forums upcoming for the general public and are courting organizational endorsement presently.

“We have high hopes to pass this in PT by early next year.”

dperson@seattleweekly.com

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