The Revenue act of 1935

The Revenue Act of 1935 is the origin of our contemporary tax code.  Passed by the legislature and signed into law by then Governor Clarence Daniel Martin, the act introduced dramatic tax reform.  With concerns about the stability of the previous revenue system, proponents of reform looked to develop a tax code that was in pace with the changing economy. The legislature at that time, had to wrestle with a dramatic economic downturn, a highly engaged citizenry, and a number of difficult state supreme court decisions. 

Governor Clarence Daniel Martin

Prior to the Revenue Act of 1935, Washington funded its core functions through property tax collections. Being that Washington was a predominately agricultural state, this provided the most reliable and consistent form of revenue.  However, this was proving inadequate, inequitable, and economically unsound as manufacturing increased and agriculture declined.

The notion of dysfunction in the state’s tax code carried far and wide and had largely populous support.  The reform discussion sprung from the successful passage of People’s Initiative 69 on November 8, 1932.  This initiative brought in sweeping revenue reform in Washington State, including a graduated income tax.  However, the initiative was challenged in court resulting in the removal of the income tax section.  As the economic situation continued to worsen, the legislature capitalized on the populous sentiment and put forth many of Initiative 69’s reforms in the legislative process.

The 1935 legislature introduced HB 237 with 17 titles and nearly 200 sections!  Within those titles were provisions for a B&O tax, a cigarette tax, a radio tax (that was vetoed at signing), a highly controversial sales tax, and much more.  In addition, the 1935 legislature introduced a second bill that instituted a graduated income tax with a 3% tax on all income over $4,000 and up to a 4% surtax on additional amounts. Reform proved to be difficult, creating more obvious divides between urban and rural communities. This divide played out in the legislature and discussions were difficult and controversial.

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The income tax portion of the sweeping reform went on to be struck down by the Washington State Supreme Court because of its lack of uniformity (it wasn’t a flat tax), but other reform components still remain today. Only through intense and informed discussion was the Revenue Act of 1935 passed by the legislature.  Despite the difficulty of the discussion, the legislature and the people of Washington State pressed forward towards the changes that had to take place.

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