The First Lawsuit Against Washington's Income Tax Is Being Filed Today
Today, the Citizen Action Defense Fund is filing a constitutional challenge to Washington's newly enacted income tax—ESSB 6346—marking the beginning of what could be a years-long legal battle that determines whether Washington's tax system survives intact or undergoes fundamental restructuring.
📄 Read the full complaint: CADF v. State of Washington — Complaint for Declaratory Judgment (PDF)
What ESSB 6346 Actually Does
Washington's new income tax is not a broad-based income tax like those in most other states. Instead, it targets high earners specifically. Starting January 1, 2028, ESSB 6346 imposes a 9.9% tax on income exceeding $1 million per year for individuals and married couples filing jointly. For married couples filing separately, the threshold is $500,000. The tax applies to all types of income—wages, capital gains, investment income, business income—with no meaningful exemptions.
The legislation is projected to generate roughly $3 billion to $3.5 billion annually when fully implemented, making it one of Washington's most significant revenue measures in recent years. But its path to implementation faces a major hurdle: the state constitution may prohibit it.
The Constitutional Challenge: The Core Argument
Washington's Constitution contains language that seems simple but has never been fully tested: Article VII, Section 1 requires that property taxes be "uniform and equal." The litigation filing today raises a fundamental question: Is an income tax a property tax under Washington's Constitution?
At first glance, this seems like an odd argument. Income tax and property tax are different things—one taxes earnings, the other taxes real estate and personal property. But Washington's Supreme Court has never explicitly addressed whether the constitutional term "property tax" is narrowly defined (only real and tangible property) or more broadly defined (all forms of taxation on property rights, including income-producing capacity).
The Citizen Action Defense Fund's argument rests on the theory that income is a form of property or a property right—your capacity to earn is a valuable right—and taxing that income is therefore a form of taxation on property. If that theory prevails, then ESSB 6346 must apply uniformly to all taxpayers and cannot single out those earning over $1 million for special taxation.
Washington has no broad-based income tax, and the reason is partly historical: repeated attempts to impose one have failed legislatively or been ruled unconstitutional. The state instead relies on sales tax, property tax, and other levies that do apply uniformly to all taxpayers in a particular category.
Washington's Failed Income Tax History
This is not Washington's first attempt at an income tax. In 1932, during the Great Depression, Washington lawmakers enacted an income tax as a revenue emergency measure. It was immediately challenged and struck down by the Washington Supreme Court, which held that an income tax violated the state constitutional requirement for uniform property taxation.
In the 1980s, Seattle—the city, not the state—attempted to levy an income tax on residents. That effort was also challenged and struck down as unconstitutional under Washington's constitution and the home rule provisions that govern municipal taxation.
The language and logic of the 1932 ruling have never been overturned. While ESSB 6346 is narrower than a full income tax (it applies only to high earners rather than all income), the constitutional question remains: Is income a form of property under Washington's Constitution, and if so, can the state tax it unequally?
Comparison to the Capital Gains Tax Case (Quinn v. State)
You may be familiar with Washington's "capital gains tax" case—a similar constitutional battle that unfolded just a few years ago. In 2021, Washington enacted a 7% tax on the sale of long-term capital assets, marketed as a tax on capital gains rather than income. The legislature structured it carefully to avoid triggering the income tax definition, arguing it was actually an excise tax.
The case went to Washington's Supreme Court as Quinn v. State. In a narrow 5-4 decision in 2022, the court upheld the capital gains tax, finding it was indeed an excise tax (a tax on the act of selling) rather than a tax on income or property. The tax was therefore not subject to the uniformity requirement.
However, the Quinn decision did not resolve the question of whether income taxes themselves are constitutional in Washington. The capital gains tax was carefully structured to be an excise tax, and the court's holding was narrow. The new income tax is explicitly structured as a tax on income, not the sale of an asset, which puts it on shakier constitutional ground.
The difference matters: an excise tax on selling is a one-time transaction tax; an income tax applies annually to ongoing earnings. The constitutional question becomes whether the state can impose a non-uniform, ongoing tax on income-producing capacity when its constitution requires uniform property taxation.
Who Is Filing the Suit and Why
The Citizen Action Defense Fund, a nonprofit legal organization focused on constitutional property rights issues, is bringing the lawsuit. They filed suit in Thurston County Superior Court, which will be the first venue for this constitutional challenge. The case will almost certainly be appealed to Washington's Supreme Court, where the real battle will be decided.
Other potential plaintiffs and amici—organizations supporting the lawsuit through written arguments—may include business groups, wealthy individuals subject to the new tax, and conservative organizations focused on constitutional limits on taxation. The lawsuit will likely attract significant attention and financial support from those opposed to the tax.
What Happens if the Lawsuit Succeeds?
If the lawsuit succeeds and Washington's Supreme Court strikes down ESSB 6346 as unconstitutional, the immediate effect is that the tax cannot be collected or implemented. The state would lose the projected $3 billion to $3.5 billion in annual revenue.
But the broader implications are significant: a ruling striking down the income tax would effectively constitutionally prohibit Washington from enacting any broad-based income tax in the future without amending the state constitution. This would cement Washington's position as one of the few states relying primarily on sales tax and would force the state to find alternative revenue sources or reduce spending.
The political fallout could be substantial. Progressive lawmakers who backed ESSB 6346 as a way to tax the wealthy and reduce income inequality would need to pursue alternative revenue strategies. A constitutional amendment would be required to override the court ruling, which is a heavy political lift.
What Happens if the Lawsuit Fails?
If the lawsuit fails and the court upholds ESSB 6346, the tax takes effect as scheduled on January 1, 2028. High earners in Washington—including founders with significant equity, successful professionals, and wealthy investors—will owe 9.9% of income above the threshold annually.
A loss in this case would also establish that Washington's constitutional uniformity requirement does not prevent income taxation. This would open the door to future income tax legislation, potentially at lower thresholds or with different structures. A defeated lawsuit could embolden lawmakers to broaden the tax in subsequent legislative sessions.
Timeline and What to Expect
Constitutional litigation moves slowly. Here's a realistic timeline:
- 2026 (now): Lawsuit filed, initial briefing and motions
- 2026-2027: Superior Court proceeding and ruling (may take 12-18 months)
- 2027-2028: Appeal to Washington Supreme Court and briefing
- 2028 or 2029: Oral arguments and decision
The tax is scheduled to go into effect January 1, 2028, while the lawsuit is likely still in the appellate process. This creates a timing problem: if the state begins collecting the tax and the court later strikes it down, questions arise about what happens to revenue already collected and how taxpayers who paid are treated.
Washington's legislature may attempt to address this by enacting a stay or escrow provision—requiring collected revenue to be held pending the outcome of the lawsuit. Alternatively, taxpayers may refuse to pay pending the outcome, though this is legally risky and not advisable without specific legal guidance.
What You Should Do in the Meantime
Even though this lawsuit may take years to resolve, high-income earners should not assume the tax won't happen. The constitutional arguments are real but untested; there's no guarantee the lawsuit will succeed.
Plan as if the tax will take effect. This means:
- Review your income structure: If you're a founder or business owner, understand how much income you'll realize annually. Founders with illiquid equity may have little income now but could face substantial tax bills after an exit.
- Consider timing of liquidity events: If you're planning an exit or equity sale, timing may matter. Income realized before January 1, 2028 won't be subject to the tax; income after that date will be. If you can accelerate an exit into 2027, that's worth modeling.
- Evaluate residency: The income tax applies to Washington residents. If you're not currently a Washington resident but contemplating moving here, the income tax should factor into your decision. If you're a Washington resident, consider whether relocating makes economic sense.
- Understand the threshold: The $1 million threshold applies to individual annual income. For married couples, that's $1 million combined. If you're a founder with fluctuating income, some years may exceed the threshold and others won't.
- Coordinate with federal planning: Washington's income tax is not deductible against federal income tax (currently), so you're paying both federal and state tax on the same income. Factor this into your overall tax planning.
The Bigger Picture
This lawsuit is about more than one tax statute—it's about whether Washington's Constitution will be interpreted to allow the state to diversify its tax base away from sales taxes. A loss by the plaintiffs could open the door to broader income taxation and reshape Washington's fiscal policy for decades. A win would affirm that Washington's Constitution provides meaningful limits on the state's taxing power.
Either way, the litigation will likely take years to resolve. In the meantime, planning as if the tax will go into effect is the prudent approach for anyone expecting to be subject to it.
Keep Reading
- The Washington Supreme Court Just Fast-Tracked the Income Tax Referendum Case. Here's What It Means.
- Why the Lawsuit Against Washington's Income Tax Has a Real Chance
- Why Washington’s New Millionaire Tax Faces a Serious Constitutional Problem
- Washington's New Income Tax: The Complete Guide for Founders, Investors, and High Earners
