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Watson v. City of Seattle

Supreme Court of Washington, En Banc

August 10, 2017

PHILIP WATSON, an individual; RAY CARTER, an individual; FARWEST SPORTS, INC., d/b/a OUTDOOR EMPORIUM, a Washington corporation; PRECISE SHOOTER, LLC, a Washington limited liability company; THE SECOND AMENDMENT FOUNDATION, INC., a Washington nonprofit corporation; NATIONAL RIFLE ASSOCIATION OF AMERICA, INC., a New York nonprofit association; and NATIONAL SHOOTING SPORTS FOUNDATION, a Connecticut nonprofit association, Appellants,
CITY OF SEATTLE, a municipality; ED MURRAY, Mayor of the City of Seattle, in his official capacity; SEATTLE DEPARTMENT OF FINANCE and ADMINISTRATIVE SERVICES, a department of the City of Seattle; and GLEN LEE, Director of Finance and Administrative Services, in his official capacity, Respondents.

          STEPHENS, J.

         This case concerns Seattle Ordinance 124833 (Ordinance), which imposes a "Firearms and Ammunition Tax" on each firearm and round of ammunition sold within the city limits. Its stated purpose is to raise revenue for public health research relating to gun violence and to fund related social programs. Two individual gun purchasers, Phillip Watson and Ray Carter, along with various organizations (hereinafter Watson), [1] brought this suit challenging the constitutionality of the Ordinance.

         RCW 9.41.290 forbids the local regulation of guns. Watson argues that the Ordinance is actually a regulation, not a tax, and is preempted by RCW 9.41.290 in any case. Watson also argues that even if the Ordinance is a tax, it exceeds Seattle's delegated taxing authority. The King County Superior Court ruled in favor of Seattle, holding that the Ordinance imposes an authorized tax and that this tax is not preempted by RCW 9.41.290. Watson appealed, and the Court of Appeals certified the matter to this court.

         We affirm the trial court. Under Washington law, a charge intended to raise revenue for the public benefit is a tax. While courts should be dubious of regulations masquerading as taxes (and vice versa), in this case Watson offers no convincing evidence that the Ordinance has a regulatory purpose or intent. It is a tax. The Ordinance is also authorized by the broad grant of taxing authority delegated to cities like Seattle. Finally, the Ordinance is not preempted by state law; RCW 9.41.290 preempts only municipal gun "regulation, " not taxation.


         In August 2015, the Seattle City Council (Council) unanimously passed the Ordinance, and Mayor Ed Murray signed it into law. The Ordinance imposes a "Firearms and Ammunition Tax" of $25.00 on each firearm and $0.02 to $0.05 per round of ammunition sold within the city limits.[2] The tax applies only to licensed retail sellers of guns and ammunition.[3] Clerk's Papers (CP) at 76 (applying the tax to "every person engaging within the City in the business of making retail sales of firearms or ammunition"). The Ordinance became effective on January 1, 2016. Id. at 80.

         The Council designed the Ordinance to fund gun safety programs and related public health research. The Ordinance recites that "gun violence directly affects the City and its residents, " id. at 68, and notes it is difficult for cities to obtain outside funding for related research. Id. at 67 (stating that Congress has blocked federal funding for gun violence research since 1996). The Council locally funded a 2014 study by the Harborview Injury Prevention and Research Center on the predictors and consequences of gun violence. Id. at 67 (noting that Harborview Medical Center leveraged that research to develop a hospital-based gun violence intervention program). The Council passed the Ordinance in part to create a local source of funding for gun violence research and programming. Id. at 68 ("[T]he City intends to .. . provide broad-based public benefits for residents of Seattle ... by funding programs that promote public safety [and] prevent gun violence."). To this end, the Ordinance created the "Firearms and Ammunition Tax Fund, " which is authorized to support "basic research" and "programs that promote public safety, prevent gun violence and address in part the cost of gun violence in the City." Id. at 78. The tax will generate an estimated $300, 000 to $500, 000 per year. Id. at 135.

         Watson challenged the Ordinance in King County Superior Court, alleging that the "tax" imposed under the Ordinance is actually a regulation preempted by state gun laws. CP at 32-35; RCW 9.41.290 (the legislature "fully occupies and preempts the entire field of firearms regulation"). Watson argued in the alternative that even if the Ordinance is a tax, it exceeds Seattle's constitutional taxing authority. In response, Seattle argued that the Ordinance is a tax rather than a regulation, is not preempted by RCW 9.41.290, and is a lawful exercise of Seattle's taxing authority. Both parties filed motions for summary judgment. The trial court ruled in favor of Seattle. In a December 22, 2015 order, the court held that the Ordinance imposes a tax because its primary purpose is to raise revenue; that the tax is authorized by RCW 35.22.280(32); and that state preemption does not apply because RCW 9.41.290 preempts conflicting regulations, not taxes. The court granted Seattle's motion and dismissed the case. Watson appealed.

         Division One of the Court of Appeals, pursuant to RCW 2.06.030 and RAP 4.4, certified the following question to this court: "Whether a municipal ordinance imposing a tax on retail firearm and ammunition sales within the municipality is a constitutional and lawful exercise of taxing authority?" Order of Certification, Watson v. City of Seattle, No. 74534-4-1 (Wash.Ct.App. Oct. 14, 2016). We accepted direct review.


         We review constitutional challenges and questions of statutory interpretation de novo. See, e.g., Okeson v. City of Seattle, 150 Wn.2d 540, 548-49, 78 P.3d 1279 (2003). City ordinances are presumed to be valid and constitutional; the challenging party has the burden of showing unconstitutionality. See State v. Kirwin, 165 Wn.2d 818, 825, 203 P.3d 1044 (2009); State v. Immelt, 173 Wn.2d 1, 6, 267 P.3d 305 (2011). As with statutory interpretation, the primary objective of courts interpreting an ordinance is to "ascertain and carry out the legislature's intent" by giving effect to the ordinance's "plain meaning." Arborwood Idaho, LLC v. City of Kennewick, 151 Wn.2d 359, 367, 89 P.3d 217 (2004); see also Bowie v. Dep't of Revenue, 171 Wn.2d 1, 11, 248 P.3d 504(2011).


         (1) Does the Ordinance levy a tax or instead assess a regulatory fee?

         (2) If the Ordinance imposes a tax, is that tax within Seattle's taxing authority under RCW 35.22.280(32)?

         (3) Is the Ordinance preempted by RCW 9.41.290?


         Labeling something a tax does not make it so. Watson argues that Seattle levied a charge on the sale of firearms and ammunition in order to restrict gun sales, making the "tax" imposed by the Ordinance a regulatory fee that is facially preempted by RCW 9.41.290. In the alternative, Watson argues that even if classified as a tax, the Ordinance exceeds Seattle's taxing authority under RCW 35.22.280(32). Watson also asserts an alternative preemption argument not raised below: that RCW 9.41.290 preempts taxation as well as regulation and therefore preempts the Ordinance under either classification.

         We reject each of Watson's arguments. Following Covell v. City of Seattle, 127 Wn.2d 874, 905 P.2d 324 (1995), the Ordinance is a tax because its primary purpose is to raise revenue for public services. To be a valid tax, the Ordinance must be based on a delegation of legislative taxing authority. Here, the Ordinance is authorized by RC W 35.22.280(32), which delegates broad taxing authority to first class cities. Finally, the Ordinance is not preempted. RCW 9.41.290 preempts only "regulation" of firearms, not taxation. There is no basis for selectively invalidating the Ordinance while leaving traditional (and unchallenged) sales and gross receipts taxes in place.

         A. Under the Covell Analysis, the Ordinance Imposes a Tax, Not a Regulatory Fee

         We turn first to the question of whether the charge imposed on firearm and ammunition sales is a tax or a regulatory fee. If the Ordinance is a regulation, it is facially preempted by RCW 9.41.290 and our analysis ends. If the Ordinance instead levies a tax, we must then determine whether that tax is authorized. See infra Part B.

         Generally speaking, a charge "imposed to raise money for the public treasury" is a tax. Okeson, 150 Wn.2d at 551. Nontax charges, by contrast, may be imposed for regulatory purposes. This court refers collectively to nontax charges as "'regulatory fees.'" Samis Land Co. v. City of Soap Lake, 143 Wn.2d 798, 805, 23 P.3d 477 (2001) (quoting Covell, 127 Wn.2d at 878 n.1). Classifying a charge as a tax or a fee is important because distinct constitutional constraints govern each classification. Fees are generally based on a local government's police powers, while the taxing authority of Washington's municipalities largely depends on legislative delegation. See Covell, 127 Wn.2d at 878 (characterizing Seattle's police powers as "extensive"); Okeson, 150 Wn.2d at 551 (noting that "[a] local government does not have the power to impose taxes without statutory or constitutional authority"). Thus, there is a concern that cities could "avoid the constitutional limitations on taxes" by simply characterizing a tax as a regulatory fee. Id. at 552.

         Courts Consider the Covell Factors To Distinguish between Taxes and Fees

         To determine whether an ordinance imposes a tax or a fee, Washington courts follow the three-part test outlined in Covell. Ill. Wn.2d at 879. The first-and most important-Covell factor asks whether the "'primary purpose'" of the ordinance is to raise revenue or to regulate. Id. (quoting Hillis Homes, Inc. v. Snohomish County, 97 Wn.2d 804, 809, 650 P.2d 193 (1982) (Hillis Homes I)). If the legislative purpose behind the Ordinance is '"to accomplish desired public benefits which cost money, '" the charge is a tax. Id. (quoting Hillis Homes I, 97 Wn.2d at 809). On the other hand, if the primary purpose is to exert regulatory control over those paying the fee, then the "charges are properly characterized as 'tools of regulation, ' rather than taxes." Teter v. Clark County, 104 Wn.2d 227, 239, 704 P.2d 1171 (1985).

         The second Covell factor asks "whether the money collected must be allocated only to the authorized regulatory purpose." Covell, 127 Wn.2d at 879. Collecting funds into a segregated, dedicated account indicates a regulatory fee. See, e.g., Hillis Homes, Inc. v. Pub. Util. Dist. No. 7, 105 Wn.2d 288, 300, 714 P.2d 1163 (1986) (Hillis Homes II) (water fees used to pay only for improvements to the water system). Tax revenue, by contrast, is more likely to be mixed into the general fund. See Samis Land Co., 143 Wn.2d at 810-11 (revenue from vacant lot tax applied to city-wide utility system expenses). However, Covell itself recognized that this factor is "not dispositive." 127 Wn.2d at 885 (determining that Seattle's street utility charge constituted a tax, despite the segregation of fees). While the segregation of fees is part of the analysis, segregation alone is not sufficient; the funds must also be used to "serve[] a regulatory purpose." Okeson, 150 Wn.2d at 553 ("All funds could be deposited into special accounts, and that would not necessarily turn taxes into fees."). Otherwise, taxes could be "guised as fees" simply by depositing them into a dedicated account. Id.

         The third Covell factor examines "whether there is a direct relationship between the fee charged and the service received [or] the burden produced by the fee payer." Covell, 127 Wn.2d at 879. If so, the charge is likely a regulatory fee. Id. However, if the amount does not correlate to the cost of the burden (or the value of the benefit), the charge is likely a tax. Id.

         In this context, "direct relationship" means that the amount paid is calculated to offset the burden created (or benefit received) by the payer. Id. This relationship does not need to be mathematically precise or individualized. See Teter, 104 Wn.2d at 238; Hillis Homes II, 105 Wn.2d at 301. Nevertheless, there must be some '"practical basis'" for asserting that it exists. Covell, 127 Wn.2d at 884 (finding no direct relationship between a flat lighting tax, uniformly assessed, and the benefit received by individual utility users).

         Pursuant to Covell, the Ordinance Imposes a Tax

         Watson asserts that the Ordinance is, in effect, a regulation masquerading as a tax. Watson argues that all three Covell factors indicate the Ordinance should be classified as a regulation. See Appellants' Opening Br. at 10. He argues that (1) the Ordinance's primary purpose is regulatory because it seeks to limit access to firearms, (2) segregation of funds indicates the Ordinance is a regulation, and (3) there is a "direct relationship" between the tax and the burden of gun violence. Id. at 10-14. We disagree.

         The first Covell factor indicates that the Ordinance imposes a tax. The statutory text is clear: the purpose of the Ordinance is to "raise general revenue ... to provide broad-based public benefits for residents of Seattle." CP at 68. Revenue raised will "fund[] programs that promote public safety, " including "youth education and employment programs, " and support "basic research." Id. at 78. Because public health research and gun safety programs are "'desired public benefits which cost money, '" the Ordinance imposes a tax. Covell, 127 Wn.2d at 879 (quoting Hillis Homes I, 97 Wn.2d at 809). There is no regulatory language in the text of the Ordinance or evidence of a regulatory purpose. See CP at 66-79. As the superior court observed, other than requiring payment of the tax, the Ordinance "does not place any burden or restriction on the plaintiffs [or] prescribe any activity." Id. at 180. The Ordinance does not limit retailers in the number or type of firearms and ammunition they can sell, nor does it restrict what a gun buyer can do with purchased firearms or ammunition.

         Nevertheless, Watson urges this court to look past the Ordinance's "textual wrapping paper, " Appellant's Reply Br. at 3, to its alleged regulatory purpose: "burden[ing] the sale of firearms and ammunition." Id. Watson relies heavily on "legislative history" to support this analysis, quoting pro-gun-control statements by the Council's members as evidence that the Ordinance is part of a broader regulatory scheme to limit gun access. Appellants' Opening Br. at 10-11 (citing CP at 52, 61-62, 88). Watson's argument would unwisely embroil courts in second-guessing the motives of lawmakers. Statements by "individual legislators] do[] not show legislative intent." State ex rel Citizens Against Tolls (CAT) v. Murphy, 151 Wn.2d 226, 238, 88 P.3d 375 (2004); Seattle Times Co. v. County of Benton, 99 Wn.2d 251, 255 n.1, 661 P.2d 964 (1983) (resort to statements by legislators inappropriate unless "more substantial" legislative history is unavailable, such as bill reports specific to the statute before the court).[4] As a tool of statutory interpretation, an examination of legislative history is intended to supplement textual analysis-not to replace it entirely, as Watson urges here. See, e.g., Seattle Times, 99 Wn.2d at 255 n.1. Covell addressed the primacy of statutory language when differentiating a tax from a fee: classification "turns on a determination of the primary purpose of the fees as derived from the language of the authorizing and implementing legislation''' 127 Wn.2d at 886 (emphasis added). Here, the plain language of the Ordinance states it imposes a "tax." CP at 75.

         The second Covell factor is inconclusive. Because revenue is segregated into the Firearms and Ammunition Tax Fund, this factor initially suggests that the Ordinance may be a regulation. CP at 78; see also Lane v. City of Seattle, 164 Wn.2d 875, 883, 194 P.3d 977 (2008) (segregation into a dedicated account indicates a regulatory fee). However, segregation of funds is not the only requirement for classification as a fee; the funds must also be "allocated only to the authorized regulatory purpose." Covell, 127 Wn.2d at 879. An ordinance with no regulatory language cannot "authorize" a regulatory purpose, much less dedicate funds to that end. Id. Here, the Ordinance dedicates the revenue to education and research. CP at 78. Because the Ordinance segregates funds but allocates them for a nonregulatory purpose, the second factor is inconclusive. See Okeson, 150 Wn.2d at 553 (revenue deposited into the city's light fund, absent a regulatory purpose, is inconclusive); Covell, 127 Wn.2d at 885 (segregation of funds is "not dispositive").

         Watson maintains that the Ordinance does allocate funds to a regulatory purpose, because it requires the "tracking[] and auditing of the number of firearms and rounds of ammunition sold by retailers." Appellants' Opening Br. at 11. But Watson does not explain how requiring retailers to keep sales records for tax purposes--already mandated by RCW 82.32.070 with respect to the gross receipts tax and sales tax- constitutes regulation. See id. On this record, the second factor remains inconclusive.

         Finally, the third Covell factor also indicates that the Ordinance is a tax. The Ordinance imposes a flat charge of $25.00 per firearm sold, and $0.02 to $0.05 per round of ammunition. CP at 76. There does not appear to be a "direct relationship" between the amount of annual revenue the Ordinance is expected to generate ($300, 000 to $500, 000, see CP at 135) and the economic burden of gun violence in King County (roughly $180 million per year, see CP at 66). Covell, 127 Wn.2d at 879. Moreover, a flat tax is uniformly applied, while we would expect a regulatory fee to vary according to the value of the burden or benefit. Id. at 884-85.

         Watson advances a more lax interpretation of Covell, noting that a fee may be regulatory even if it is not individually calculated. See Appellants' Opening Br. at 13 (citing Okeson, 150 Wn.2d at 554). Watson is correct that a "direct relationship, " Covell, 127 Wn.2d at 879, does not mean one that is mathematically precise.[5] See Teter, 104 Wn.2d at 238. However, in this case it does not appear that the Council made any attempt to correlate the economic burden of gun violence with the revenue generated by the tax. The record does not reveal how the Council arrived at the tax rate imposed.[6]Under Covell, when these "calculations" are completely absent, the charge is a tax. 127 Wn.2d at 884 (classifying a flat $2 per unit charge as a tax). Without some mechanism to ensure the amount paid reflects the payer's burden, there is no '"practical basis'" for asserting a direct relationship between the two. Id.

         In sum, the first and third Covell factors indicate that the Ordinance is a tax, not a regulation. The second factor is inconclusive. Under Washington law, the Ordinance is properly classified as a tax. See, e.g., Covell, 127 Wn.2d at 888; Okeson, 150 Wn.2d at 553; Arborwood Idaho, LLC, 151 Wn.2d at 372-73 (classifying charge as a tax despite the second Covell factor indicating "fee"). Watson's first argument thus fails: as a tax, the Ordinance is not facially preempted by state law. See RCW 9.41.290. However, we must further consider whether the Ordinance exceeds Seattle's municipal taxation authority.

         B. The Ordinance Is Legislatively Authorized

         Local taxation must be authorized by a legislative delegation of taxing power. See Wash. Const, art. I, § 1. Watson acknowledges that RCW 35.22.280, which outlines the broad delegation of legislative power to first class cities, authorizes Seattle to levy local taxes. See Appellants' Opening Br. at 16. However, Watson argues that RCW 35.21.710 severely limits that authority, requiring business taxes to be uniform, measured by gross receipts, and capped at a certain rate. See Appellants' Opening Br. at 17-19. Watson's argument is inconsistent with Washington's constitutional authorization of local taxing authority and this court's precedent. See Citizens for Financially Responsible Gov't v. City of Spokane,99 Wn.2d 339, 343, 662 P.2d 845 (1983) (holding that RCW 35.22.280(32) ...

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