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City of Spokane v. Horton

Supreme Court of Washington, En Banc

December 7, 2017

CITY OF SPOKANE, a municipal corporation located in the County of Spokane, State of Washington, Petitioner,
VICKI HORTON, Spokane County Assessor, and ROB CHASE, Spokane County Treasurer, and THE STATE OF WASHINGTON, by and through the Department of Revenue, Respondents.

          JOHNSON, J.

         Article VII of the Washington Constitution requires that all taxes be uniform upon the same class of property. See CONST, art. VII, §§ 1, 9, 10. In February 2015, the city of Spokane (City) enacted an ordinance that granted a local property tax exemption to senior citizens and disabled veterans. Relying on a letter by the Department of Revenue (DOR) stating its belief that the ordinance violates article VII, the Spokane County assessor and treasurer (collectively County) refused to implement the ordinance. The issue in this case is whether the City's ordinance violates article VII of the Washington Constitution's uniform property tax requirement.

         The trial court ruled that the ordinance was constitutional and issued a writ requiring the County to apply it. DOR filed a motion to intervene, and both DOR and the County appealed the trial court's ruling. DOR was made a party for purposes of appeal. On appeal, the Court of Appeals reversed and held that the City's ordinance violated article VII, section 9 of the Washington Constitution.[1]City of Spokane v. Horton, 196 Wn.App. 85, 87, 380 P.3d 1278 (2016), review granted, 187 Wn.2d 1017, 390 P.3d 342 (2017). We affirm.[2]

         Facts and Procedural History

         In 2004, the City obtained voter approval for a street bond to pay for street projects. The City initially planned to complete the projects over 10 years, then retire the street bond under a 20-year retirement levy, a type of excess levy. See RCW 84.52.056. In 2014, the City completed the planned projects but still had 10 more years to pay off its remaining bond debt. The City proposed a new strategy to pay off the bonds, as well as extend the City's street program for another 11 years. The proposal involved swapping out the $0.57 per $1, 000 assessed value imposed under the City's excess bond levy with an equivalent $0.57 increase in the City's regular property tax rate. To do this, the City needed to raise its regular property tax levy by more than the statutory levy lid. See RCW 84.55.010, .050. In November 2014, the City referred a levy lid lift proposition to its voters and the voters approved. Acting on information provided by the Spokane County Assessor's Office, the City represented to voters that those who qualify for a tax exemption at the state level under RCW 84.36.381 would continue to be exempted from a portion of the new levy.

         After voters approved the levy, however, the assessor's office informed the City that those qualified under the state tax exemption would not be exempt from the new levy.[3] The City then attempted to work with the assessor's office to resolve the issue until it was apparent the discussions were futile. On February 9, 2015, the City enacted its own fix, Ordinance C-35231, at issue in this case. The ordinance authorizes a citywide local property tax exemption for everyone who would qualify for the state exemption.

         The County sought advice from DOR as to whether the ordinance was consistent with Washington's laws and constitution. Relying on a letter from DOR that stated the ordinance "creates an exemption that is not authorized under state law, " the County refused to implement the ordinance. Clerk's Papers at 92.

         The City then filed this lawsuit, seeking a writ of mandamus compelling the County to implement the ordinance. The Spokane County Superior Court granted the petition and issued the writ, ruling that the ordinance was constitutional and that the County breached its ministerial duty to implement it. After the writ was issued, DOR filed a motion to intervene to protect the interests of the State. The superior court made DOR a party for purposes of appeal.

         The County and DOR appealed to Division Three of the Court of Appeals, which reversed in a divided opinion. The majority opinion held that the ordinance violated article VII, section 9 of the Washington Constitution because it resulted in a nonuniform tax. The City sought this court's review, and we granted it.


         To determine whether the ordinance here is constitutional, some background information on Washington's property tax system is necessary. Washington's property tax system is regulated under constitutional and statutory provisions. Article VII of the Washington Constitution places restrictions on the assessment and taxation of real property. Section 1 provides:

All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. All real estate shall constitute one class: Provided, That the legislature may tax mines and mineral resources and lands devoted to reforestation by either a yield tax or an ad valorem tax at such rate as it may fix, or by both. Such property as the legislature may by general laws provide shall be exempt from taxation.

Const, art. VII, § 1. Section 1 provides that unless explicitly exempted from taxation by the legislature, all real estate constitutes one class that must be taxed uniformly at the same rate and the same ratio of market value to assessed value. Boeing Co. v. King County, 75 Wn.2d 160, 449 P.2d 404 (1969). Tax uniformity is the "'highest and most important'" of all requirements to our state tax system. Inter Island Tel. Co. v. San Juan County, 125 Wn.2d 332, 334883 P.2d 1380 (1994) (quoting Savage v. Pierce County, 68 Wash. 623, 625, 123 P. 1088 (1912)). But absolute uniformity is not required.

         Section 2 limits the aggregate of all annual property tax levies on a particular property to no more than one percent of the true and fair value of that property. Const, art. VII, § 2. However, section 2 allows taxing districts to impose additional levies above the regular amount if voters approve under specific conditions.[4]

         The Washington Constitution also sets forth an explicit exception from uniformity in article VII, section 10:

Notwithstanding the provisions of Article 7, section 1 (Amendment 14) and Article 7, section 2 (Amendment 17), the following tax exemption shall be allowed as to real property:
The legislature shall have the power, by appropriate legislation, to grant to retired property owners relief from the property tax on the real property occupied as a residence by those owners. The legislature may place such restrictions and conditions upon the granting of such relief as it shall deem proper. Such restrictions and conditions may include, but are not limited to, the limiting of the relief to those property owners below a specific level of income and those fulfilling certain minimum residential requirements.

         The legislature has exercised this power by exempting qualifying retired property owners from paying excess levies, and allowing the regular property tax rate to be less than full market value of their primary residence depending on their income. RCW 84.36.38l(5)(a)-(b), (6); WAC 458-16A-140(2). The exemption applies to all property taxes, regardless of whether they are imposed by the State or by a local taxing jurisdiction. See generally RCW 84.36.381.

         The Washington Constitution generally vests taxing power in the state legislature. CONST, art. I, § 1. Municipal corporations have no inherent right to levy taxes. State ex rel. King County v. State Tax Comm 'n, 174 Wash. 668, 671, 26 P.2d 80 (1933). However, article VII permits the legislature to delegate tax powers to municipal corporations. Therefore, a local jurisdiction's taxing authority is derived from legislative grant specified by the Washington Constitution. CONST, art. VII, § 9. Article VII, section 9 provides:

The legislature may vest the corporate authorities of cities ... with power to make local improvements by special assessment, or by special taxation of property benefited. For all corporate purposes, ail municipal corporations may be vested with authority to assess and collect taxes and such taxes shall be uniform in respect to persons and property within the jurisdiction of the body levying the same.

         The legislature has granted code cities property tax authority through a number of statutory provisions. Relevant here, RCW 35A.11.020 provides that "[w]ithin constitutional limitations, legislative bodies of code cities shall have within their territorial limits all powers of taxation for local purposes except those which are expressly preempted by the state as provided in RCW 66.08.120, 82.36.440, 48.14.020, and 48.14.080." (Reviser's note omitted.) RCW 35A.11.030 provides that such "[p]owers of... taxation" may be exercised "in the manner provided" by Title 35A RCW and the general laws of the state.

         Under the state system, cities and other taxing districts may annually impose regular property tax levies on real and personal property within their geographic limits to meet their budgeted government operations. RCW 84.36.005; RCW 84.52.010-.020. Many constitutional and statutory constraints limit these jurisdictions' taxing powers. One restriction is the ability to increase regular levies from year to year. RCW 84.55.010. Under this "levy lid, " taxing districts may levy only as much as in the preceding year plus an amount anticipated for new construction and improvements to property. If a taxing district wants to exceed the yearly limitation, it may do so by seeking "levy lid lift" approval from a majority of its voters. See RCW 84.55.050. While a levy lid lift allows the taxing district to increase its levy amount, it does not relieve the taxing district from any of the other statutory or constitutional limitations imposed on regular levies. RCW 84.55.050.

         The Court of Appeals held that the City's ordinance was unconstitutional because it violates the uniformity requirement of article VII, section 9. It held that the ordinance violates uniformity because it applies two different regular property tax rates to real property in the city and creates different assessment ratios between real property owned by its exempted citizens and real property not owned by its exempted citizens. It further held that section 10 makes clear that only the legislature may grant exemptions, and that power has not been conferred on municipal corporations.

         As stated earlier, article VII, section 9 of the Washington Constitution enables the legislature to vest municipal authorities with the power to tax for local purposes, subject to conditions and limitations as the constitution or the legislature may prescribe. Carkonen v. Williams, 76 Wn.2d 617, 627, 458 P.2d 280 (1969). The legislature exercised this authority when it prescribed code cities all powers of taxation "within constitutional limitations, " RCW 3 5 A. 11.020, and "in the manner provided" by state law. RCW 35A. 11.030.

         The City argues that RCW 35A.11.020's broad delegation of "all powers of taxation" includes the power to exempt. It argues that "within constitutional limitations" cannot be interpreted to limit "all powers of taxation" to only the power to assess and collect. The City does not dispute that the levy lid lift is subject to uniformity requirements generally, but that perfect uniformity is not required under the constitution. Relying heavily on Town of Tekoa v. Reilly, 47 Wash. 202, 208, 91 P. 769 (1907) (Tekoa), the City argues that municipalities have the authority to grant reasonable tax exemptions that promote the "general welfare of the people." Judge Fearing embraced this argument in his dissent in the Court of Appeals opinion below.

         Tekoa involved a case where the plaintiff challenged a local street poll tax, enacted in 1905, that was assessed only on men between the ages of 21 and 50 years. The poll tax applied based on residency; property ownership was not considered. The plaintiff argued that an exemption granted to women and men under 21 and over 50 rendered the tax nonuniform, in violation of article VII, section 9. In upholding the tax, this court reasoned that perfect uniformity of taxation is unattainable, stating that in adopting the constitution, the people of this state

did not propose to send the tax gatherer to the almshouse, the orphan asylum or the nursery, nor did they propose to lay a tax on the inmates of these institutions. In other words, they fully understood that if a street or road poll tax should be imposed, certain ...

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