466 P.3d 213
Wash.2020Background
- Federal Way (a code city under Title 35A RCW) adopted an ordinance imposing a 7.75% excise (utility/B&O-style) tax on gross income from water and sewer services provided within city limits.
- Lakehaven, Highline, and Midway (water/sewer districts organized under Title 57 RCW) provide utility services inside Federal Way and sued for declaratory relief, arguing the city lacked authority to tax them, asserting governmental-immunity protection, and raising constitutional challenges (vagueness; privileges and immunities).
- The superior court granted summary judgment for Federal Way; the districts appealed and the Supreme Court accepted direct review.
- The Supreme Court held RCW 35A.82.020 grants code cities broad authority to impose excise taxes on "all places and kinds of business," including utility providers doing proprietary business within city limits.
- The Court ruled governmental immunity does not shield the districts because providing water/sewer to ratepayers is a proprietary (not governmental) function; it also held the districts lack standing to pursue the asserted constitutional claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Does RCW 35A.82.020 authorize a code city to impose the excise tax on another municipal corporation doing business in the city? | Districts: Legislature did not give "express" authority to tax other municipal corporations; Algona requires express delegation. | City: RCW 35A.82.020 grants broad authority to impose excises on "all places and kinds of business," including proprietary municipal businesses. | Held: RCW 35A.82.020, read with related statutes, supplies authority; no additional "express" phrasing is required for code cities. |
| 2. Does governmental immunity bar the tax on the districts? | Districts: Provision of water/sewer is chiefly a governmental/public function, so it is immune from municipal taxation absent express authorization. | City: Water/sewer delivered to ratepayers is a proprietary commercial activity subject to excise taxation. | Held: Water/sewer services to paying customers are proprietary; governmental immunity does not bar the tax on gross income from proprietary activities. |
| 3. Do the districts have standing to bring federal/state due process vagueness and state privileges & immunities claims? | Districts: They have personal standing and alternatively represent ratepayers who would have standing. | City: Municipal corporations lack the constitutional personhood to assert Fourteenth Amendment due process; article I, §12 does not apply to municipal corporations. | Held: Districts lack standing to assert the federal and state due process claims and lack standing under article I, §12; Court did not reach merits. |
| 4. Is the ordinance void for vagueness or violative of article I, §12 antifavoritism due to an exemption for Tacoma? | Districts: Ordinance is vague as to "gross income" and favoritism (Tacoma franchise) violates privileges and immunities. | City: Definition of gross income is adequate; the Tacoma exemption arises from a preexisting franchise agreement, not unlawful favoritism. | Held: Court declined to resolve merits because districts lack standing on constitutional claims; superior court had rejected vagueness and favoritism claims on the merits below. |
Key Cases Cited
- Watson v. City of Seattle, 189 Wn.2d 149 (Wash. 2018) (municipal licensing authority includes power to levy excise/B&O taxes measured by gross income)
- King County v. City of Algona, 101 Wn.2d 789 (Wash. 1984) (discusses limits on municipal taxation of other governmental entities; relied on by districts but distinguished)
- Okeson v. City of Seattle, 150 Wn.2d 540 (Wash. 2003) (explains governmental vs. proprietary distinction in municipal taxation contexts)
- City of Wenatchee v. Chelan County Pub. Util. Dist. No. 1, 181 Wn. App. 326 (Wash. Ct. App. 2014) (held RCW 35A.82.020 sufficient to support one municipality’s taxation of another’s proprietary activities)
- Twitchell v. City of Spokane, 55 Wash. 86 (Wash. 1909) (early precedent treating water sales to consumers as proprietary/commodity)