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Bankers groups suing Department of Revenue over controversial bank tax bill

It was one of the big tax bills passed by the Legislature in the 2019 session and one that a handful of lawmakers – including one Democrat – called on Governor Inslee to veto.

Instead, Inslee approved the new business tax on large, out-of-state banks earning at least a billion a year in profits, nearly doubling the B&O tax on those banks from 1.5 percent to 2.7 percent to bring in an estimated $133 million a year in the current two-year budget and about a billion dollars in 10 years.

Now the Washington Bankers Association and American Bankers Association are suing the Department of Revenue over the tax.

The 16-page lawsuit claims the tax violates the U.S. Constitution’s Commerce Clause by only targeting out-of-state banks giving banks in Washington an unfair advantage.

In court filings, they argue the bill was, “intended to and has the effect of disadvantaging and burdening interstate commerce for the purpose of advantaging and protecting financial commercial banking interests headquartered in Washington, both within Washington and in commerce among the states.”

The lawsuit claims the tax is in violation of the Washington State Constitution because the measure lawmakers passed was a title-only bill, meaning it had a vague title – and no text — until the final two days of session. The lawsuit states:

“HB 2167 was a “title-only” bill, a bill which contains a title and a number but is without legislative substance. Title-only bills are introduced for the express purpose of having a vehicle on which to graft substantive legislation to be introduced at a later time. Title-only bills are an artifice created by legislators to evade the Washington State Constitution’s requirements for the timely introduction and consideration of legislation.”

Article II, Section 36 of the Washington State Constitution provides: WHEN BILLS MUST BE INTRODUCED. No bill shall be considered in either house unless the time of its introduction shall have been at least ten days before the final adjournment of the legislature, unless the legislature shall otherwise direct by a vote of two-thirds of all the members elected to each house, said vote to be taken by yeas and nays and entered upon the journal, or unless the same be at a special session.

The suit goes on to point out various objections raised by lawmakers on both sides of the aisle about the rushed process used to pass the bill, and the likely legal challenges that would follow.

Senator Mark Mullet was among the most vocal Democrats opposing the measure, pointing out that he could not even get a legal opinion on the impact from Washington Attorney General Bob Ferguson. The bill’s content did not show up until Friday, April 26 – a weekend — two days before the end of the session.

Mullet and Senator Steve Hobbs were among the handful of no votes on the Democrats side, with Hobbs describing himself as a reluctant no vote.

“To bypass a policy committee, you don’t do that,” Hobbs said. “It’s just not right.”

But fellow Democratic Sen. Christine Rolfes — who chairs the budget committee — argued this was about leveling the playing field.

“Just six of these banks generated more than $120 billion in profit [last year],” she said. “Washington’s tax structure is literally the most unfair in the nation. This is a small increase on the world’s most profitable companies, and it will help fix our broken system.”

The lawsuit, filed in King County Superior Court, asks the court to find the bill/tax illegal, invalid, and unenforceable in its entirety.

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