Daily Decisions: Seattle Business & Occupation Tax is Constitutional

Article I, Section 10, Clause 2 (known as the Import-Export Clause) of the U.S. Constitution states:

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

Seattle imposes a Business and Occupation (“B&O”) tax on a “person engaging in business activities in the City who does not maintain an office or place of business in the City” in the amount of “that portion of the taxpayer’s gross income or gross proceeds of sales that are derived from business activities performed in the City.”  SMC 5.45.080(B).  

In American Honda Motor Company v. City of Seattle (Division 1, April 2, 2012), Honda argued that “imposing the B&O tax on the wholesale sales of imported vehicles ‘prior to completion of import transportation’ violates the Import-Export Clause.”

After a review of relevant U.S. Supreme Court precedent, the Court of Appeals disagreed.  It held that the B&O tax did not violate the Import-Export Clause because: (1) “[T]he tax does not burden or interfere with federal government regulation or commerce.”  Rather, it is merely a “general business tax that is imposed on the privilege of engaging in the business of wholesale sales in the City.” (2) The B&O tax “compensates the City for the services provided in order to engage in the business of wholesale sales.”  (3) “[T]he tax is ‘properly apportioned, does not discriminate,’ and reasonably relates to the services provided by the City.”


One thought on “Daily Decisions: Seattle Business & Occupation Tax is Constitutional

  1. Pingback: Monday Morning Mash-up: April 9, 2012 | Ziff Blog

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