Whenever a political reporter writes on a controversial topic, it’s almost a sure thing that the next day’s email, voicemail and social media feeds will be filled with missives from self-styled “experts” opining why a particular action is or isn’t constitutional.
Almost any topic can be controversial these days, so one learns to ignore many such unsolicited legal opinions, particularly the ones that are unsigned, come from blocked phone numbers or include questions of the legitimacy of one’s parentage.
In similar fashion, one must be cautious about debates in the Legislature on controversial topics, particularly taxes, in which opponents wax eloquent on the unconstitutionality of a particular bill before them.
It’s true that legislators in general are better versed in the law than the public at large, and some are even lawyers. But reporters are apt to remember the words of the late U.S. Supreme Court Justice Charles Evans Hughes, who once remarked that the constitution “is what the judges say it is.”
That dictum was on display Thursday, when the state Supreme Court upheld the constitutionality of a special Business and Occupation Tax levy on large banks that do business in Washington, even if they are based in another state.
In 2019, when the Legislature imposed that extra 1.2% tax on those financial institutions that had a net income of $1 billion or more, many opponents argued it was unconstitutional, both as an infringement on interstate commerce and a system that discriminates based on the size of the bank. It wasn’t surprising when an association representing the banks filed suit to block the law, and the state Attorney General’s office defended it.
Both sides had good lawyers, with former state Attorney General Rob McKenna on the team representing the bankers association, up against some of the best litigators in the current office. A King County Superior Court judge agreed with the banks. Not surprisingly, the state appealed.
The state Supreme Court overturned the lower court ruling and said the law is constitutional based on rules that have evolved over time that allow states to “regulate matters of local concern.” It also doesn’t discriminate between in-state and out-of-state banks, because any financial institution that has more than $1 billion in net income is subject to the tax.
The 41-page majority decision, written by Justice Barbara Madsen, walks through a long line of cases that set up requirements for states that want to regulate interstate commerce, and explains why the tax withstands those tests. It also mentions that some legislators questioned its constitutionality, but said such concerns “do not exist in a vacuum. They must be considered together with the statements of other legislators.”
Madsen also makes reference to the state’s regressive tax system and the bill’s stated purpose of addressing wealth and income disparity that may make some opponents challenging another tax – the capital gains tax on high earners – a little nervous.
“These are legitimate government interests and the (bankers’) association offers no reason to question that the 1.2% tax will not serve them,” she wrote.
In the end, six other members sided with Madsen that the tax meets the rules set down by previous court rulings to allow a state to regulate interstate commerce.
“The association understandably dislikes the higher tax rate it must now carry,” Madsen wrote.
“But displeasure with a tax does not implicate the commerce clause, nor does it relieve those engaged in interstate commerce from their just share of state tax burden.”
And the other two? Justice Debra Stephens, joined by Chief Justice Stephan Gonzalez, wrote that those 41 pages of deep analysis weren’t really necessary. The law “does not discriminate against interstate commerce in purpose or effect … that conclusion should end our discussion.”