Lakehaven Water & Sewer Dist. v. City of Federal Way ( 2020 )

FILE THIS OPINION WAS FILED
FOR RECORD AT 8 A.M. ON
IN CLERK’S OFFICE JUNE 18, 2020
SUPREME COURT, STATE OF WASHINGTON
JUNE 18, 2020
SUSAN L. CARLSON
SUPREME COURT CLERK
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
LAKEHAVEN WATER AND SEWER
DISTRICT, HIGHLINE WATER
DISTRICT, and MIDWAY SEWER
NO. 96585-4
DISTRICT, municipal corporations,
Appellants,
EN BANC
v.
CITY OF FEDERAL WAY, a municipal
Filed: June 18, 2020
corporation,
Respondent.
STEPHENS, C.J.⸺This case is about the authority of one municipal
corporation to impose an excise tax on another municipal corporation doing business
within its borders. A code city adopted an ordinance that levies an excise tax on all
businesses providing water or sewer services within the city’s limits. Several water-
sewer districts petitioned for declaratory judgment, arguing the city lacked express
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
legislative authority to impose the tax on them. The districts also raised a
governmental immunity defense. They further challenged the ordinance on
constitutional grounds, arguing it violates both due process vagueness principles and
privileges and immunities antifavoritism principles. The parties cross moved for
summary judgment, and the superior court granted summary judgment in the city’s
favor. We granted direct review.
Courts play a limited role in reviewing challenges to local tax policy. Under
Washington’s constitutional framework, the legislature delegates authority to local
governments to levy taxes, and we interpret that delegation of local taxing authority
for compliance with the constitution and the general laws of the state. The legislature
here granted code cities broad authority to levy excises on all places and kinds of
business. That policy prescription contemplates code cities may choose to exercise
their local taxing power by imposing excises for regulation or revenue on the
business of providing water-sewer services to ratepayers. We hold the governmental
immunity doctrine does not bar the city from taxing the districts because they
perform a proprietary function when they engage in this business. As for the
districts’ constitutional claims, they lack standing to bring such claims. For these
reasons, we affirm.
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FACTS
The city of Federal Way (City) is a noncharter code city incorporated under
Title 35A RCW. 1 In the winter of 2018, the city council held a special meeting
concerning the City’s looming budget deficit. There, the City’s finance director
advised, under the 2017-18 budget, the City faced a shortfall of more than $850,000
because of various fiscal concerns. The City had identified and implemented cost-
saving measures, but these spending cuts could not close the deficit. The City thus
considered several potential sources of new revenue, including levying an excise tax
on water and sewer utilities. The council found it necessary to expand the kinds of
excises levied in order to pay for basic municipal services and to meet the budget
deficit.
In passing the ordinance, the council relied on RCW 35A.82.020, which it
concluded gave the City broad authority to impose excises for regulation or revenue
regarding all places and kinds of businesses. It also observed that more than 150
1
The term “code city” refers to a municipality that adopts its charter under Title
35A RCW, the Optional Municipal Code, or elects to be classified as a code city. RCW
35A.01.020, .030, .035. “The term ‘code city’ means any noncharter code city or charter
code city.” RCW 35A.01.035. The distinction between a charter and noncharter code city
has no relevance to the issues presented.
Title 35 RCW governs first-class and second-class cities and towns. First-class
cities adopt their charters under article XI, section 10 of the Washington Constitution and
do not operate under Title 35A RCW. RCW 35.01.010. Second-class cities and towns
similarly do not operate under Title 35A. RCW 35.01.020, .040.
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cities and towns in Washington impose an excise tax on the gross incomes of utilities
providing water and sewer services.2 The council determined that it was in the
public’s best interest to impose the tax.
So, the City adopted an ordinance amending the Federal Way Revised Code
(FWRC), ch. 3.10, governing utility taxes. 3 At issue is FWRC 3.10.040, which
provides:
There are levied upon and shall be collected from everyone, including the
city, on account of certain business activities engaged in or carried on in the
city, occupation taxes in the amounts to be determined by the application of
rates given against gross income as follows:
...
(9) Upon everyone engaged in or carrying on the business of selling or
furnishing water services for commercial, industrial, or domestic use or
purpose, a tax equal to 7.75 percent of the total gross income from such
business within the city during the period for which the tax is due; and
(10) Upon everyone engaged in or carrying on the business of furnishing
sewer services for commercial, industrial, or domestic use or purpose, a tax
2
According to the Association of Washington Cities’ recent Tax and User Fee
Survey, 166 out of 231 responding cities imposed an excise on water utilities and 152
responding cities imposed an excise on sewer utilities. Clerk’s Papers (CP) at 52, 605-06;
see also City of Wenatchee v. Chelan County Pub. Util. Dist. No. 1, 181 Wn. App. 326,
343, 325 P.3d 419 (2014) (noting the surveys suggest that most Washington cities rely on
a utility tax on water).
3
Before the amendment, “FWRC 3.10.040 . . . impose[d] an excise tax on the gross
incomes of the following: telegraph businesses; competitive telecommunication services;
network telecommunication services; cellular telephone services; businesses selling,
brokering or furnishing natural gas for domestic, business or industrial consumption; the
City for the conduct, maintenance, and operation of its municipal storm drainage system
as a public utility; businesses selling or furnishing electric energy; businesses collecting
solid waste; and cable communications businesses.” CP at 613-14; see also FWRC
3.10.040(1)-(8).
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equal to 7.75 percent of the total gross income from such business within the
city during the period for which the tax is due.
Federal Way Ordinance 18-847, § 1 (Mar. 20, 2018).
Lakehaven Water and Sewer District, Highline Water District, and Midway
Sewer District (collectively Districts) are municipal corporations formed under Title
57 RCW. Each provides water or sewer services (or both) to ratepayers within and
without the City’s limits. The Districts petitioned for declaratory judgment, arguing
the City lacked express legislative authority to impose the tax. The Districts also
raised a governmental immunity defense. Under this theory, the Districts argued the
provision of water and sewer services is mostly public or governmental in nature,
thus precluding imposition of the tax. The Districts also sought relief on
constitutional grounds. They claimed (1) the ordinance violates due process as void
for vagueness under both the Fourteenth Amendment of the United States
Constitution and article I, section 3 of the Washington State Constitution, and (2)
the City’s exemption of another municipal corporation (the city of Tacoma) under a
preexisting franchise agreement violates article I, section 12 antifavoritism
principles.
In answering the petition, the City relied on RCW 35A.82.020. The City
maintained its delegated taxing authority encompasses an authorization to tax a
municipal corporation’s proprietary business activities, including providing water-
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sewer services. The City also challenged the Districts’ standing to bring the suit and
contested the merits of the Districts’ constitutional claims.
The parties cross moved for summary judgment, essentially debating five
issues, including whether (1) RCW 35A.82.020 grants the City express legislative
authority to impose an excise on the Districts, (2) the governmental immunity
doctrine prevents the City from imposing the tax on the Districts, (3) the Districts
have standing to bring their constitutional challenges under the due process and the
privileges and immunities clauses, (4) the ordinance is void for vagueness, and (5)
the City’s exemption of another municipal corporation under an preexisting
franchise agreement violates article I, section 12 antifavoritism principles.
The superior court granted the City’s motion for summary judgment and
denied the Districts’ motion. Relying on City of Wenatchee v. Chelan County Public
Utility District No. 1, 181 Wn. App. 326, 325 P.3d 419 (2014), the court ruled RCW
35A.82.020 authorizes the City to impose excise taxes on other municipal
corporations if the income derives from proprietary functions. Still, the court noted
the Districts operate in both proprietary and governmental capacities. In the court’s
view, the “[p]roprietary function is seen in the provision of water and sewer services
to benefit directly billed customers who requested the services and governmental
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function is seen in the provision of services that protect the health, safety and welfare
of the general public.” Clerk’s Papers (CP) at 1527.
It also ruled that the Districts had standing to bring their constitutional claims
but rejected their arguments on the merits. The superior court concluded the
ordinance’s definition of “gross income” was not vague and thus did not violate due
process. Even though the ordinance did not state the tax was on only income derived
from proprietary business activities or distinguish what conduct was proprietary or
governmental to calculate total gross income, it ruled the ordinance was
constitutional. The superior court noted, however, that “[s]pecific determination of
what is proprietary or governmental generated income for purposes of taxation may
be the subject of future litigation.” CP at 1529.
Finally, the superior court ruled that the ordinance did not favor the city of
Tacoma over other municipal corporations but merely adhered to a preexisting
franchise agreement. It reasoned that, under the bargained-for exchange, the City
would receive public fire protection and payment of associated costs for public fire
protection in exchange for not imposing the utility tax at issue.
We granted the Districts’ motion for direct review. The Washington State
Association of Municipal Attorneys and Association of Washington Cities filed a
joint amici brief in support of the City. The Washington Association of Sewer and
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Water Districts, Alderwood Water and Wastewater District, and the Rental Housing
Association of Washington each filed amicus briefs in support of the Districts.
I. STANDARD OF REVIEW
We engage in the same inquiry as the superior court when reviewing a
summary judgment order. Okeson v. City of Seattle, 150 Wn.2d 540, 548, 78 P.3d
1279 (2003). Summary judgment is appropriate when there are no genuine issues
of material fact and the moving party is entitled to judgment as a matter of law. CR
56(c). We review questions of statutory interpretation and constitutional law de
novo. Watson v. City of Seattle, 189 Wn.2d 149, 158, 401 P.3d 1 (2017). When
interpreting a statute, our “fundamental objective is to ascertain and carry out the
Legislature’s intent, and if the statute’s meaning is plain on its face, then the court
must give effect to that plain meaning as an expression of legislative intent.” Dep’t
of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9-10, 43 P.3d 4 (2002). When
determining legislative intent, we examine “the statute in which the provision at
issue is found, as well as related statutes or other provisions of the same act in which
the provision is found.” Id. at 10.
II. AUTHORITY TO IMPOSE LOCAL EXCISE TAXES
“Municipal corporations have no inherent power to tax.” Watson, 189 Wn.2d
at 166. Yet the constitution allows the legislature to delegate taxing authority to
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municipal corporations. Id. (citing WASH. CONST. art. VII, § 9 (“[A]ll municipal
corporations may be vested with authority to assess and collect taxes.”)); see also
WASH. CONST. art. XI, § 12. The Districts claim the legislature did not delegate the
City “express” authority to impose the contested tax and one municipality may not
tax another without an “express” statutory authorization. The City counters that
RCW 35A.82.020 supplies the required taxing authority. That statute provides:
A code city may exercise the authority authorized by general law for any
class of city to license and revoke the same for cause, to regulate, make
inspections and to impose excises for regulation or revenue in regard to all
places and kinds of business, production, commerce, entertainment,
exhibition, and upon all occupations, trades and professions and any other
lawful activity.
RCW 35A.82.020.
RCW 35A.82.020’s plain language delegates code cities broad authority to
impose business and occupation excise taxes. RCW 35A.82.020 provides code cities
may impose such taxes on “all places and kinds of business.” (Emphasis added.)
The legislature did not distinguish between public and private business entities. The
plain language does not restrict the term “all” to only private corporations. The
statute means what it says: all means all.
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Moreover, under this provision, if general law grants any other class of city4
the authority to impose business and occupation excise taxes, code cities may
exercise that authority as well. See id. (“A code city may exercise the authority
authorized by general law for any class of city.”).
In Watson, we held the legislature delegated broad taxing authority to first-
class cities under RCW 35.22.280(32), including the authority to levy local business
and occupation taxes. 189 Wn.2d at 165-68. There, the city of Seattle adopted an
ordinance imposing a “Firearms and Ammunition Tax” on each firearm and round
of ammunition sold within the city’s limits. Id. at 155. The relevant statute provided,
“Any city of the first class shall have power: . . . [t]o grant licenses for any lawful
purpose, and to fix by ordinance the amount to be paid therefor.” RCW
35.22.280(32). We noted the legislature granted cities authority to issue licenses for
the dual purpose of regulation or revenue. Watson, 189 Wn.2d at 167-68.
“Licensing authority [thus] includes the authority to raise revenues by taxing local
businesses.” Id. at 167. But this type of taxation “must fall into one of three
categories: property, income, or excise taxes.” Id. The most common type of excise
tax is the business and occupation tax, which cities levy on the privilege of engaging
in business and measure by gross income or receipts. Id.
4
See generally chs. 35.22 (first-class cities), 35.23 (second-class cities), 35.27
(towns), and 35.30 RCW (unclassified cities).
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Because first-class cities enjoy a broad legislative authorization under RCW
35.22.280(32) to impose business and occupation taxes, Watson, 189 Wn.2d at 165-
68, we hold code cities may also exercise that broad authority under RCW
35A.82.020.
That said, cities imposing such taxes must generally comply with chapter
35.102 RCW, which governs municipal business and occupation taxes. 5 RCW
35.102.140. At the same time, the legislature drafted that chapter not to apply to
taxes on any service that has historically or traditionally been taxed as a utility
business for municipal tax purposes, including water or sewer services. 6 RCW
35.102.020(4). Quite simply, this related statute shows the legislature intended for
cities to have the broad authority to levy local business and occupation excise taxes
on water and sewer services, among other utilities. See id.
In a Court of Appeals case directly on point, a code city brought a declaratory
judgment action against a county public utility district, seeking a determination that
the legislature authorized the city to impose a utility tax on domestic water sales.
Chelan County Pub. Util. Dist., 181 Wn. App. at 330-31. The city argued that RCW
35A.82.020 included the authority to tax domestic water sales by another municipal
5
This chapter defines a “city” as “a city, town, or code city.” RCW 35.102.030(2).
6
This statute also does not apply to a light and power business, or a natural gas
distribution business, a telephone business, cable television services, drainage services,
solid waste services, or steam services. RCW 35.102.020.
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corporation that take place within the city’s limits. Id. at 331. The court determined
“[t]here is no ambiguity in the statute’s grant to code cities of the authority to impose
excises for revenue.” Id. at 337. It noted RCW 35A.01.010 requires “‘[a]ll grants
of municipal power . . . shall be liberally construed in favor of the municipality.’”
Id. (quoting RCW 35A.01.010). And it held, “RCW 35A.82.020’s grant of taxing
authority is broad and, on its face, sufficient to support one municipality’s taxation
of another government’s conduct of activity within its borders.” Id. at 336. We
agree with Chelan County Pub. Util. Dist. and hold this statute, when read along
with related statutes and provisions, provides the City sufficient authority to impose
the business and occupation excise tax on the Districts.
Despite the clear legislative intent outlined above, the Districts insist that
RCW 35A.82.020 gives the City no actual taxing authority. They contend King
County v. City of Algona, 101 Wn.2d 789, 681 P.2d 1281 (1984), requires the City
to show an additional and specific “express” authorization giving one municipal
corporation the authority to tax another. This argument seizes on our statement “that
municipalities must have express authority, either constitutional or legislative, to
levy taxes.” Algona, 101 Wn.2d at 791.
At the heart of the parties’ controversy and the Districts’ reading of Algona
are two competing theories of municipal law: home rule and “Dillon’s Rule.” Home
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rule grants municipalities the broadest powers of local self-government, while
Dillon’s Rule would limit municipal powers to only those expressly granted by the
constitution or the state legislature. See generally Hugh Spitzer, “Home Rule” vs.
“Dillon’s Rule” for Washington Cities, 38 SEATTLE U. L. REV. 809 (2015). Even
though Dillon’s Rule has been superseded by the optional municipal code for over
50 years, remnants of that antiquated theory have persisted in our case law and
animate the Districts’ arguments on this issue.7 The City’s arguments, in contrast,
properly reflect the home rule principles of the relevant statutes.
The Districts’ proposition requiring a delegation in “express” terms does not
have its roots in the constitution itself or current statutes. See generally WASH.
CONST. art. VII, § 9; art. XI, § 12; Titles 35, 35A RCW. Instead, that proposition
grew out of John F. Dillon’s influential, yet dated treatise, which gained popularity
in the late-nineteenth century. Spitzer, “Home Rule,” supra, at 810, 813-16.
Dillon’s theory of municipal government, which became known as Dillon’s Rule,
encourages strict construction of laws relating to the powers of municipal
corporations:
7
Our analysis here applies only to cities classified under the optional municipal
code, Title 35A RCW. See Spitzer, “Home Rule,” supra, at 858 (“The lack of express anti-
Dillon’s Rule language in their statutes arguably means that the rule still applies to second
class cities, to towns, and to noncharter counties.”). Whether Dillon’s Rule survives in
other contexts is not currently before us.
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“It is a general and undisputed proposition of law that a municipal
corporation possesses, and can exercise, the following powers, and no others:
First, those granted in express words; second, those necessarily or fairly
implied in, or incident to, the powers expressly granted; third, those essential
to the declared objects and purposes of the corporation—not simply
convenient, but indispensable. Any fair, reasonable doubt concerning the
existence of power is resolved by the courts against the corporation, and the
power is denied.”
Id. at 816 (quoting JOHN F. DILLON TREATISE ON THE LAW OF MUNICIPAL
CORPORATIONS § 55, at 101-02 (1872)). Early in this state’s history, this court
applied Dillon’s Rule for municipalities. 8
By the mid-twentieth century, however, Dillon’s Rule lost steam in light of
the progressive era home rule movement. See generally Spitzer, “Home Rule,”
supra, at 810, 816-24. The home rule principle stands for the “presumption of
autonomy in local governance . . . [and] seeks to increase government accountability
by limiting state-level interference in local affairs.” Watson, 189 Wn.2d at 166-67.
“This is particularly important with respect to local taxation authority.” Id. at 167.
In 1965, the legislature formed a temporary special municipal code committee
tasked with either the complete revision of the laws governing municipal
corporations or the development of an alternative optional municipal code. LAWS
8
See, e.g., Tacoma Gas & Elec. Light Co. v. City of Tacoma, 14 Wash. 288, 291,
44 P. 655 (1896) (“It is a well settled rule of construction that a delegation of powers will
not be presumed in favor of a municipal corporation unless they be such as are necessary
to its corporate existence, but that the same must be clearly conferred by express statutory
enactment.” (emphasis added)).
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OF 1965, Ex. Sess., ch. 115 § 1, 2. The legislature directed the committee to prepare
“a code of laws for the government of cities and towns which shall include a form
of statutory home rule.” Id. § 2. The committee’s work led to the optional municipal
code now codified under Title 35A RCW. LAWS OF 1967, Ex. Sess., ch. 119.
The committee report preceding Title 35A RCW’s enactment noted that one
of the drafters’ basic objectives was “[t]he broad grant of home rule authority to
municipalities without a specified enumeration of powers, thus avoiding
continuously burdening the state legislature with a multiplicity of municipal
housekeeping bills at each session.” MUN. CODE COMM., WASH. STATE
LEGISLATURE, A REVIEW OF THE OBJECTIVES OF THE MUNICIPAL CODE COMMITTEE
2 (1966) (emphasis added). The legislative committee further noted its clear intent
to abrogate Dillon’s Rule:
Chapter 35A.11 . . . directs that the laws be liberally construed in favor of the
city as a clear mandate to abandon the so-called “Dillon’s Rule” of
construction. In addition to the general grant of broad powers, the chapter
makes clear that existing laws relating to . . . taxation . . . shall be available
to the code cities.
MUN. CODE COMM., supra, at 4 (emphasis added); see also Spitzer, “Home Rule,”
supra, at 840. The optional municipal code thus superseded Dillon’s Rule in 1967,
as plainly expressed in RCW 35A.01.010. 9
9
“The purpose and policy of this title is to confer upon two optional classes of cities
created hereby the broadest powers of local self-government consistent with the
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Despite this history, the Districts rely on Algona to argue the City must have
“express” authorization to impose the excise tax on them. We disagree and decline
to extend Algona to perpetuate this mistaken reading.
In Algona, the city adopted an ordinance levying a seven percent business and
occupation tax on the gross revenues collected at a solid waste transfer station
located within the city’s limits. 101 Wn.2d at 790. The county petitioned for
declaratory judgment, arguing the city had no express authorization to levy such a
tax. Id. at 791. The court stated, “We have consistently held that municipalities
must have express authority, either constitutional or legislative, to levy taxes.” Id.The court determined “[t]he general grant of taxation power on which Algona relies
in RCW 35A.11.020 contains no express authority to levy a tax on the State or
another municipality.” Id. at 793. The court also concluded “[t]o allow the City to
impose the tax in this case would violate the established rule that municipalities must
have specific legislative authority to levy a particular tax.” Id.Constitution of this state. Any specific enumeration of municipal powers contained in this
title or in any other general law shall not be construed in any way to limit the general
description of power contained in this title, and any such specifically enumerated powers
shall be construed as in addition and supplementary to the powers conferred in general
terms by this title. All grants of municipal power to municipalities electing to be governed
under the provisions of this title, whether the grant is in specific terms or in general terms,
shall be liberally construed in favor of the municipality.”
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Algona actually supports the City in this case; RCW 35A.82.020 grants
municipalities express authority to impose the business and occupation excise tax on
all businesses—including the Districts. Even so, Algona’s cursory analysis presents
some interpretative difficulties, and we note at least three concerns. First, Algona
fails to analyze RCW 35A.82.020’s broad grant of taxing authority in any detail.
Second, it echoes language from Dillon’s Rule of construction, applying that
outmoded principle to a statute that clearly embraces home rule principles. Third,
Algona suggests it might be helpful for a statute to contain “express” language
directly addressing municipal taxation authority over other governmental entities,
yet this has never been a requirement to exercise an otherwise plain delegation of
taxing authority.
Turning to the first concern, the Algona court based its decision on the general
grant of taxing power provided to code cities under RCW 35A.11.020:
“Within 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, RCW 82.36.440, RCW 48.14.020, and RCW 48.14.080.”
101 Wn.2d at 792-93. The court cited RCW 35A.82.020 in passing and noted the
statute “grants code cities specific authority to levy B & O taxes,” id. at 792(emphasis added), but it devoted no attention to analysis of whether that statute
delegated the required taxing authority. Instead, the court pivoted to the
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governmental immunity doctrine. Id. at 793-94. Contrary to the Districts’
contention, whether the governmental immunity defense shields one municipal
corporation from the taxing of another is a different question than whether the
legislature “expressly” delegated code cities the authority to levy local excise taxes.
Algona is thus unhelpful here because it does not purport to address whether RCW
35A.82.020 provides an independent delegation of authority authorizing the
imposition of local business and occupation excise taxes.
Second, while the Algona court inserted the “express” term to modify
municipal taxation authority, article VII, section 9 of the Washington State
Constitution does not require as much: “For all corporate purposes, all municipal
corporations may be vested with authority to assess and collect taxes.” Nowhere in
the text of the constitution is there a requirement that the legislature delegate taxing
authority to municipalities in “express” terms. See generally WASH. CONST. art. VII,
§ 9; art. XI, § 12. Instead, the “express” limiting language, as shown above, is a
vestige of Dillon’s Rule.
The inherent doctrinal problem with the Districts’ reading of Algona is that
the Districts (and ostensibly the Algona court) mistakenly apply Dillon’s Rule
precepts to a statutory scheme in which the legislature plainly stated that home rule
applies. If we trace the “express” term in Algona through the case law, we find that
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this court likely did follow Dillon’s rule in developing the common law governing a
municipal corporation’s authority to levy local taxes. Still, that common-law precept
was superseded by statute when the legislature adopted Title 35A RCW. And our
goal when interpreting statutes is to “ascertain and carry out the Legislature’s
intent.” Campbell & Gwinn, 146 Wn.2d at 9.
The Algona court relied on three cases to support its statement that the
legislature must delegate taxing authority in “express” terms: Citizens for
Financially Responsible Gov’t v. City of Spokane, 99 Wn.2d 339, 343, 662 P.2d 845(1983); Hillis Homes, Inc. v. Snohomish County, 97 Wn.2d 804, 809, 650 P.2d 193(1982); and Carkonen v. Williams, 76 Wn.2d 617, 627-28, 458 P.2d 280 (1969).
Citizens for Financially Responsible Government in turn relied on
McQuillin’s Municipal Corporations to provide, “The general rule is municipalities
possess, with respect to taxation, only such power as has been granted to them by
the constitution or the general laws of the state.” 99 Wn.2d at 343 (citing 16 EUGENE
MCQUILLIN MUNICIPAL CORPORATIONS § 44.05 (3d ed. 1981)). Note this language
omits the “express” limiting term and requires a delegation only under “the
constitution or the general laws of the state.” See id.
The “express” language does appear in Hillis Homes, however. There, the
court asserted, “This court has clearly stated that ‘county authorities must have
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express authority, either under the constitution or an act of the legislature, to levy
taxes.’” 97 Wn.2d at 809 (emphasis added) (quoting State ex rel. Sch. Dist. 37 v.
Clark County, 177 Wash. 314, 322, 31 P.2d 897 (1934)). The case cited, School
District 37, provides no authority for this proposition; it also predates the enactment
of Title 35A RCW by over 30 years. See id. Even so, we may fairly infer that the
court there also based its reasoning on Dillon’s Rule precepts.
Carkonen likewise provides “political subdivisions [such as counties and
other municipal authorities] must have an express grant of such power either by
legislative act or other constitutional provision.” 76 Wn.2d at 627 (emphasis added).
Although Carkonen similarly cites the unsupported proposition in School District
37, it also points to Great Northern Railway Co. v. Stevens County, 108 Wash. 238,
183 P. 65 (1919). Great Northern Railway—unlike School District 37—cites
Cooley’s treatise on taxation to outline the rule governing municipalities’ authority
to levy taxes:
“The fact that the state creates municipal governments does not by
implication clothe them with the power to levy taxes. That power must be
conferred in terms, or must result by necessary implication from the language
made use of in the law. But it is not requisite that any particular technical or
legal terms shall be made use of in giving the power; it is enough that the
purpose is apparent, and that on a fair construction of the language
employed the legislature must be deemed to have intended that the power
should exist.”
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
108 Wash. at 241-42 (emphasis added) (quoting 1 THOMAS M. COOLEY, A TREATISE
ON THE LAW OF TAXATION 465 (3d ed. 1903)). Rather than foreshadow Dillon’s
Rule, Cooley’s treatise negates the premise that the legislature must delegate
authority in “express” terms. Cooley was concerned with legislative intent,
regardless of the terms used. See id. Indeed, “Cooley argued for a local right to self-
government and for a less restrictive view of local government powers than did
Dillon.” Spitzer, “Home Rule,” supra, at 815.
The Great Northern Railway opinion adopts Cooley’s less restrictive view
concerning legislative delegations of municipal taxing authority, though School
District 37 likely gleaned the “express” requirement from Dillon’s treatise directly
or from other cases relying on Dillon. But there is no way to know for certain,
because School District 37 failed to cite its source of authority. So, to the extent that
Algona requires “express” authority for one municipality to tax another, it mainly
relies on a case that lacks authority to support its legal proposition. We decline to
read Algona to perpetuate an unsupported common-law proposition that does not
have its roots in the constitution or general laws of the state. See Spitzer, “Home
Rule,” supra, at 856-59.
As a final point, other analysis in Algona undermines the Districts’ view. The
Algona court recognized that municipal taxation authority extends to proprietary
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
functions of municipal corporations but held that the county’s operation of a solid
waste transfer station was a governmental function. 101 Wn.2d at 794. The
governmental aspect was critical to the court’s analysis of earlier cases that had
found sufficient taxing authority. Algona distinguished City of Seattle v. State, 59
Wn.2d 150, 153-54, 367 P.2d 123 (1961) (interpreting ch. 82.04 RCW), and partially
overruled City of Bellevue v. Patterson, 16 Wn. App. 386, 556 P.2d 944 (1976),
which it held erroneously relied on City of Seattle. 101 Wn.2d at 792-95. Unlike
the statute at issue in City of Seattle, which defined a “person” subject to business
and occupation tax to include a municipal corporation and encompassed both
proprietary and governmental functions, RCW 35A.82.020 did not define its terms.
See Algona, 101 Wn.2d at 792-93. Algona thus refused to read RCW 35A.82.020—
authorizing only the imposition of excises on businesses—to extend to governmental
functions, including the operation of a solid waste transfer station. Id. at 795. The
City correctly observes that had the Algona court meant to say more, it would have
overruled Patterson entirely.
In sum, we recognize Dillon’s Rule as a vestige of 19th century jurisprudence
that no longer applies to code cities given current statutes. We decline to extend
Algona to perpetuate this rule. Instead, we adhere to “[t]he general rule [that]
municipalities possess, with respect to taxation, only such power as has been granted
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
to them by the constitution or the general laws of the state.” Citizens for Financially
Responsible Gov’t, 99 Wn.2d at 343. No “express” language calling out municipal
corporations is needed; general articulations of municipal taxing authority are
sufficient as long as the legislature’s intent is plain. In the context of code cities,
“[a]ll grants of municipal power . . . whether the grant is in specific terms or in
general terms, shall be liberally construed in favor of the municipality.” RCW
35A.01.010. For these reasons, we hold RCW 35A.82.020 delegates the City
sufficient authority to impose the business and occupation excise tax on the
Districts. 10 We now turn to whether the governmental immunity doctrine shields the
Districts from the tax.
10
The dissent vastly overestimates the extent of our holding today. Consistent with
the constitution and general laws of the state, we hold only, “[f]or all corporate purposes,
all municipal corporations may be vested with authority to assess and collect taxes,” WASH.
CONST. art. VII, § 9, and “municipalities possess, with respect to taxation, only such power
as has been granted to them by the constitution or the general laws of the state.” Citizens
for Financially Responsible Gov’t, 99 Wn.2d at 343. Despite the cases regurgitating that
the legislature must vest municipal corporations with taxing authority in “express” terms—
see, e.g., Algona, 101 Wn.2d at 791-92; Hillis Homes, 97 Wn.2d at 809; Carkonen, 76
Wn.2d at 627-28; State ex rel. Sch. Dist. 37, 177 Wash. at 322—nowhere in the text of the
constitution or general laws of the state does such a requirement exist with respect to code
cities. See generally WASH. CONST. art. VII, § 9; art. XI, § 12; Title 35A RCW.
In any event, none of the cases relied on by the dissent address the question
presented today: whether a code city, which adopts its charter under Title 35A RCW, must
have “express” authority to impose a business and occupation excise tax on another
municipal corporation doing business within its borders. For that reason, we need not
engage in a stare decisis analysis of whether these prior statements of law are incorrect and
harmful. Contra Johnson, J. (dissenting) at 1, 3. “‘Where the literal words of a court
opinion appear to control an issue, but where the court did not in fact address or consider
the issue, the ruling is not dispositive and may be reexamined without violating stare
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
III. THE GOVERNMENTAL IMMUNITY DOCTRINE
The Districts argue the governmental immunity doctrine shields them from
the excise tax levied by the City because they perform a governmental function.
“The governmental immunity doctrine provides that one municipality may not
impose a tax on another without express statutory authorization.” Algona, 101
Wn.2d at 793. The “express” term in this context does not harken back to Dillon’s
Rule. Instead, the legislature must grant municipal corporations authority to tax
governmental functions in express terms, as governmental functions enjoy implied
tax immunity absent contrary legislative intent. Chelan County Pub. Util. Dist., 181
Wn. App. at 343.
“‘There are probably few tenets of American jurisprudence which have been
so unanimously berated as the governmental immunity doctrine.’” Kelso v. City of
Tacoma, 63 Wn.2d 913, 915, 390 P.2d 2 (1964) (quoting Holytz v. City of
Milwaukee, 17 Wis. 2d 26, 33, 115 N.W.2d 618 (1962)). “The doctrine of
governmental immunity springs from the archaic concept that ‘The King Can Do No
Wrong.’” Id. at 914. This principle of English law posited that the king’s own courts
were without jurisdiction to consider lawsuits against the sovereign and represents
the origin of the doctrine of sovereign immunity. Hugh D. Spitzer, Realigning the
decisis.’” Piel v. City of Federal Way, 177 Wn.2d 604, 619, 306 P.3d 879 (2013) (quoting
ETCO, Inc. v. Dep’t of Labor & Indus., 66 Wn. App. 302, 307, 831 P.2d 1133 (1992)).
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
Governmental/Proprietary Distinction in Municipal Law, 40 Seattle U. L. Rev. 173,
190 (2016). Jurists accepted this doctrine “in the early American Republic without
question and for many years.” 11 Id.In applying the governmental immunity doctrine, we have, over the years,
accepted that “[a] municipal incorporation possesses a two-fold character.” City of
Seattle v. Stirrat, 55 Wash. 560, 564, 104 P. 834 (1909). It has both a
“‘governmental or public character’” and a “‘proprietary or private character.’” Id.
at 564-565 (emphasis omitted) (quoting 1 JOHN. F. DILLON COMMENTARIES ON THE
LAW OF MUNICIPAL CORPORATIONS § 66, at 107-08 (4th ed. 1890)); see also Okeson,
150 Wn.2d at 549 (noting a municipal corporation acts either in a governmental or
proprietary capacity). “‘In its governmental or public character it represents the
state, while in the other it is a mere private corporation.’” Stirrat, 55 Wash. at 565(quoting Cincinnati v. Cameron, 33 Ohio St. 336, 367 (1878)). “The basic concept
underlying the governmental/ proprietary distinction is that municipalities act in
11
Since statehood, this court has addressed the governmental immunity doctrine in
various contexts. E.g., Russell v. City of Tacoma, 8 Wash. 156, 35 P. 605 (1894) (tort
liability); City of Seattle v. Stirrat, 55 Wash. 560, 104 P. 834 (1909) (governmental
contracts); Kelso, 63 Wn.2d 913 (tort liability); Algona, 101 Wn.2d 789 (taxation); Okeson,
150 Wn.2d 540 (taxation); Burns v. City of Seattle, 161 Wn.2d 129, 164 P.3d 475 (2007)
(governmental contracts); Wash. State Major League Baseball Stadium Pub. Facilities
Dist. v. Huber, Hunt & Nichols-Kiewit Const. Co., 165 Wn.2d 679, 202 P.3d 924 (2009)
(statute of limitations exemptions); Pub. Util. Dist. No. 1 of Okanogan County v. State, 182
Wn.2d 519, 342 P.3d 308 (2015) (eminent domain).
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
different modes, i.e., sometimes as ‘governments’ and sometimes ‘like businesses,’
and that their powers and their legal obligations should be treated differently
depending on which of the two modes they are operating in.” Spitzer, Realigning,
supra, at 175.
In Chelan County Pub. Util. Dist., noted above, a concurring member of the
Court of Appeals panel lamented that there appear to be no fewer than six tests
Washington courts employ when evaluating whether a function is governmental or
proprietary. 181 Wn. App. at 352-53 (Fearing, J., concurring). Scholars have
ascribed this fact to the various legal contexts in which the distinction arises. Spitzer,
Realigning, supra, at 177 (“A substantial reason for the confusion and for the
shifting application of the governmental/proprietary categories is that besides the
competing equities and policies, the governmental/proprietary distinction developed
in several fields of law, each with its own set of rationales for treating a municipal
activity as ‘governmental’ or ‘proprietary.’”). But the applicable rules in any given
case will depend on the relevant area of the law under consideration. We thus focus
on cases that specifically address the distinction in the context at issue.
In the context of taxation, “[t]he principal test in distinguishing governmental
functions from proprietary functions is whether the act performed is for the common
good of all, or whether it is for the special benefit or profit of the corporate entity.”
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
Okeson, 150 Wn.2d at 550. We have long held that providing water-sewer services
to ratepayers involves a proprietary function of the government. See id. (quoting
Twitchell v. City of Spokane, 55 Wash. 86, 89, 104 P. 150 (1909) (concluding
providing water is a proprietary function because the “consumer pays for a
commodity which is furnished for his comfort and use”)).
“Water rates paid by consumers are . . . nothing more than the price paid for
water as a commodity. The obligation to pay for the use of water rests either
on express or implied contract on the part of the consumer to make
compensation for water which he has applied for and received.”
Twitchell, 55 Wash. at 89 (quoting 30 AM. & ENG. ENCYCLOPEDIA OF LAW 422 (2d
ed. 1905)); see also Pub. Util. Dist. No. 1 of Pend Oreille County v. Town of
Newport, 38 Wn.2d 221, 227-28, 228 P.2d 766 (1951) (“‘In the erection and
operation of gas works, electric light plants, waterworks and the like, . . . a municipal
corporation acts as a business concern.’” (emphasis added) (quoting 1 OSCAR L.
POND, A TREATISE ON THE LAW OF PUBLIC UTILITIES § 5, at 14-15 (4th ed. 1932))).
Water and sewer utilities “operate[] for the benefit of its customers, not the general
public.” Okeson, 150 Wn.2d at 550 (discussing the same as applied to electric
utilities).
More generally,
“When the municipality undertakes to supply, to those inhabitants who will
pay therefor, utilities and facilities of urban life, it is engaging in business
upon municipal capital and for municipal purposes but not in methods
hitherto considered municipal. It is a public corporation transacting private
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
business for hire. It is performing a function, not governmental, but often
committed to private corporations or persons, with whom it may come into
competition. The function may be municipal but the method is not. It leads
to profit, which is the object of the private corporation.”
Stirrat, 55 Wash. at 565-66 (quoting 28 CYC. Municipal Corporations 125
(1908)). To be sure, the Districts are municipal corporations, but they are engaged
in the business of providing water-sewer services to ratepayers. Consistent with
long-standing precedent, we hold providing water-sewer services to ratepayers is a
proprietary function.
The Districts insist that the governmental immunity doctrine is not confined
to governmental services and urge us not to apply the governmental/proprietary
distinction here. This argument lacks merit. The governmental/proprietary
distinction is integral to the governmental immunity doctrine and is firmly
established in this court’s jurisprudence. To the extent that the Districts and amici
argue that we should abandon the distinction altogether and develop a form of
common law municipal entity immunity, we decline that invitation.
The Districts and amici next contend that the provision of water-sewer
services is public or governmental in nature because such services are essential in
modern society. They argue that water-sewer services constitute a public necessity,
which the government provides for the common good of all. They detail the public
health and safety benefits of access to clean, potable water, as well as sewer services.
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
They further analogize to Algona, arguing there is no difference between solid waste
disposal (a governmental function) and the disposal of sewage sludge. They claim
that while private corporations may have provided water-sewer services in the past,
mostly local governments now provide these services.
To the extent that they highlight the value and importance of water-sewer
services, the Districts’ arguments resonate. Still, they miss the mark in terms of
governmental immunity analysis. Simply put, it is the ratepayer structure that
makes the Districts’ business activities, like any other utility billed directly to paying
customers, proprietary. See Okeson, 150 Wn.2d at 550. The Districts bill ratepayers
for their consumption and use just as with other commodities—filling a pool,
watering a garden, flushing a toilet, taking a shower, all cost money and will be
reflected in the price the consumer pays for the commodity which is furnished for
his [or her] comfort and use. See Twitchell, 55 Wash. at 89. That water quality and
sanitary regulations protect consumer health and safety does not transform the
Districts’ proprietary services into governmental functions. And the broader theme
in the Districts’ and amici’s argument, suggesting that the ratepayer model is no
longer viable for water-sewer services, is simply a policy question not before us.
Finally, the Districts assert the City may not tax ratepayer revenue devoted to
pay for other governmental functions—for instance, hydrant maintenance revenue.
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
But providing utility services “cannot be a proprietary function for some purposes,
but a governmental function for others.” Okeson, 150 Wn.2d at 551. Cities levy
business and occupation excise taxes on the privilege of engaging in business and
measure those taxes by gross income or receipts. Watson, 189 Wn.2d at 168. The
City may therefore impose a tax on the gross income received from water-sewer
ratepayers or other proprietary functions in which the Districts engage within the
City’s limits. To the extent that the Districts receive governmental funds for
governmental functions—e.g., fire protection services and hydrants—those
allocations are not taxable.12
In sum, water-sewer service providers—operating under a ratepayer
structure—perform a proprietary function. For that reason, we hold the
governmental immunity doctrine does not bar the City from taxing the gross revenue
generated from the Districts’ proprietary business activities transacted within the
City’s limits.
12
Whether the Districts may generally use ratepayer revenue to pay for other
governmental services is also not properly before us. While this inquiry similarly involves
a governmental/proprietary analysis, we decline to address that question again here. See
generally Okeson, 150 Wn.2d at 549-50; Lane v. City of Seattle, 164 Wn.2d 875, 884, 194
P.3d 977 (2008) (“Hydrants, like streetlights, are a government expense for which a
government must pay.”).
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
IV. STANDING TO RAISE CONSTITUTIONAL CHALLENGES
The Districts also raise two constitutional challenges, arguing the ordinance
violates both the state and federal due process clauses,13 and the state privileges and
immunities clause. The superior court rejected these claims on the merits, after
concluding the Districts had standing to raise them. On direct review, the City
reasserts its position that the Districts lack standing to bring their constitutional
claims. The Districts counter that they have personal standing, but if not, then they
have standing in a representational capacity. We hold the Districts lack standing in
either capacity.
“The basic test for standing is ‘whether the interest sought to be protected by
the complainant is arguably within the zone of interests to be protected or regulated
by the statute or constitutional guarantee in question’.” City of Seattle v. State, 103
Wn.2d 663, 668, 694 P.2d 641 (1985) (quoting Seattle Sch. Dist. No. 1 of King
County v. State, 90 Wn.2d 476, 493, 585 P.2d 71 (1978)). “Standing requirements
tend to overlap the requirements for justiciability under the UDJA [Uniform
Declaratory Judgments Act, ch. 7.24 RCW].” Am. Legion Post No. 149 v. Dep’t of
13
The Districts offer no independent state constitutional analysis. Generally, “[i]f
a party does not provide constitutional analysis based upon the factors set out in [State v.]
Gunwall[, 106 Wn.2d 54, 720 P.2d 808 (1986)], the court will not analyze the state
constitutional grounds in a case.” First Covenant Church of Seattle v. City of Seattle, 120
Wn.2d 203, 224, 840 P.2d 174 (1992).
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
Health, 164 Wn.2d 570, 593, 192 P.3d 306 (2008). We apply “a two-part test for
standing under the UDJA.” Id. “First, a party must be within the ‘zone of interests
to be protected or regulated by the statute’ in question. Second, the party must have
suffered an ‘injury in fact.’” Id. at 593-94 (citation and internal quotation marks
omitted) (quoting Grant County Fire Prot. Dist. No. 5 v. City of Moses Lake, 150
Wn.2d 791, 802, 83 P.3d 419 (2004)).
Generally, municipal corporations do not have rights under the equal
protection or due process clauses of the state and federal constitutions. See Seattle,
103 Wn.2d at 668; Samuel’s Furniture, Inc. v. Dep’t of Ecology, 147 Wn.2d 440,
463, 54 P.3d 1194 (2002) (“political subdivisions cannot invoke protections of the
Fourteenth Amendment against a state” (citing City of Newark v. New Jersey, 262
U.S. 192, 196, 43 S. Ct. 539, 67 L. Ed. 943 (1923))).
“The due process clause protects people from government; it does not protect
the state from itself. Municipal corporations are political subdivisions of the
state, created for exercising such governmental powers of the state as may be
entrusted to them, and they may not assert the protection of the due process
clause against action of the state government.”
Seattle, 103 Wn.2d at 681-82 (Dolliver, J., dissenting) (quoting Mountlake Terrace
v. Wilson, 15 Wn. App. 392, 394, 549 P.2d 497 (1976)).
The cases the Districts rely on do not permit municipal corporations to bring
due process claims. Instead, those cases address certain constitutional rights of
private corporations. As noted, water-sewer districts are political subdivisions of
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
the state. Whether acting in a proprietary or governmental capacity, municipal
corporations do not have personhood like private corporations do. The implications
of the District’s argument based on Citizens United v. Fed. Election Comm’n, 558
U.S. 310, 130 S. Ct. 876, 175 L. Ed. 2d 753 (2010), for instance, give us pause. If
we were to accept the premise that municipal corporations are no different from
private corporations, the Districts’ argument would seem to suggest they enjoy the
same First Amendment right to spend money on elections. See generally id. (holding
that the government may not, under the First Amendment, suppress political speech
based on the speaker’s corporate identity). No precedent in Washington recognizes
this degree of personhood for municipal corporations, and it would corrode the
democratic process to allow political subdivisions of the state to voice support for
causes or candidates for office.
At bottom, the Districts’ argument for individual standing to assert a due
process claim is built on little more than its perceived irony in the City’s position:
that the City views the Districts as performing proprietary functions yet denies them
the same constitutional standing afforded to private proprietors. First, any irony cuts
both ways, as the Districts maintain their functions are purely governmental. But
more importantly, the unique status of municipal corporations is a feature of
constitutional design that courts must respect. Even if private persons can perform
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
proprietary functions of municipal governments, a governmental entity remains just
that. Municipal corporations have never been recognized as “persons” to the same
extent as private corporations under the federal or state constitution. We hold the
Districts lack standing to assert their due process vagueness argument under the
Fourteenth Amendment of the United States Constitution and article I, section 3 of
the Washington State Constitution. See Samuel’s Furniture, 147 Wn.2d at 463.
The Districts alternatively claim they have representational standing to assert
claims on their ratepayers’ behalf. We disagree.
“An organization ‘has standing to bring suit on behalf of its members when:
(a) its members would otherwise have standing to sue in their own right; (b) the
interests it seeks to protect are germane to the organization’s purpose; and (c) neither
the claim asserted nor the relief requested requires the participation of individual
members in the lawsuit.’” Am. Legion Post, 164 Wn.2d at 595 (quoting Hunt v.
Wash. State Apple Advert. Comm’n., 432 U.S. 333, 343, 97 S. Ct. 2434, 53 L. Ed.
2d 383 (1977)). “This court has adopted a more liberal approach to standing ‘when
a controversy is of substantial public importance, immediately affects significant
segments of the population, and has a direct bearing on commerce, finance, labor,
industry, or agriculture.’” Id. (quoting Grant County, 150 Wn.2d at 803).
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
Here, ratepayers would likely have standing to challenge the ordinance. And
neither the claim asserted nor the relief requested requires the participation of
individual members in the lawsuit. Still, the Districts have not shown that the
interests they seek to protect are germane to their purpose. As “special purpose”
water, sewer, or combined water-sewer districts, their primary purpose is providing
water-sewer services to ratepayers. No evidence in the record shows ratepayers
receive diminished water-sewer services from the Districts because of the excise tax.
See Grant County, 150 Wn.2d at 804 (holding that fire districts lacked
representational standing because they could not show the residents would receive
less effective fire protection or other emergency services). The only interest the
Districts seek to protect is relief from a tax burden. Because ratepayers would likely
have personal standing to argue the ordinance is unconstitutionally vague, we need
not apply our liberal approach to standing here. See id.The Districts next claim they have standing to pursue a claim under article I,
section 12—they do not. Washington’s privileges and immunities clause provides,
“No law shall be passed granting to any citizen, class of citizens, or corporation
other than municipal, privileges or immunities which upon the same terms shall not
equally belong to all citizens, or corporations.” WASH. CONST. art. I, § 12 (emphasis
added). “Where the text of a constitutional provision is plain, the court must give
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4
the language its reasonable interpretation without further construction.” Locke v.
City of Seattle, 162 Wn.2d 474, 482, 172 P.3d 705 (2007).
Based on its text, we have long held that our state privileges and immunities
clause does not apply to municipal corporations. E.g., Bilger v. State, 63 Wash. 457,
469, 116 P. 19 (1911) (“municipal corporations . . . are expressly excepted from the
terms of the prohibition”); City of Spokane v. Spokane County, 179 Wash. 130, 136,
36 P.2d 311 (1934) (“this constitutional provision by its terms does not relate to
municipal corporations”); Locke, 162 Wn.2d at 482 (“By its express language, article
I, section 12 does not apply to municipal corporations.”). The federal cases and out
of state authority the Districts rely on do not alter our long-standing interpretation of
standing under article I, section 12 of the Washington State Constitution.
The Districts’ lack of standing is fatal to their due process and privileges and
immunities claims, and we decline to consider the merits of such claims.
CONCLUSION
We affirm the superior court’s ruling granting summary judgment to the City.
The legislature properly delegated the City authority to impose the excise tax on the
Districts, and the governmental immunity doctrine does not shield the Districts from
the excise because they perform a proprietary function in providing water-sewer
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Lakehaven Water & Sewer Dist. et al. v. City ofFederal Way, 96585-4
services to ratepayers. The Districts lack standing to bring their constitutional claims
challenging the tax.
WE CONCUR:
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Lakehaven Water & Sewer Dist. et al. v. City of Federal Way
No. 96585-4
MADSEN, J. (concurrence/dissent)—I agree with the majority on the merits of
this case: the City of Federal Way has authority under RCW 35A.82.020 to impose local
excise taxes on water and sewer districts (Districts) within its borders, and governmental
immunity does not shield the Districts from taxes imposed on the gross income received
from providing proprietary water-sewer functions. See generally majority at 8-30.
I diverge with the majority on the issue of standing. In my view, the Districts have
representational standing on behalf of their ratepayers, and the majority’s holding
advances a rigid and unwarranted interpretation of our standing requirements.
Organizations may bring suits on behalf of their members, provided the members would
otherwise have standing to sue, the purpose of the organization is germane to the issue,
and neither the claim nor the relief requires the participation of individual members. Five
Corners Family Farmers v. State, 173 Wn.2d 296, 304, 268 P.3d 892 (2011) (citing Int’l
Ass’n of Firefighters, Local 1789 v. Spokane Airports, 146 Wn.2d 207, 213-14, 45 P.3d
186 (2002)). I agree with the majority that the Districts satisfy two elements of the Five
Corners test, that ratepayers would likely have standing to contest the ordinance and
No. 96585-4
Madsen, J., concurrence/dissent
neither the claim nor the requested relief requires participation of individual members.
Majority at 35. But unlike the majority, I would hold that the Districts also satisfy the
final Five Corners element of seeking to protect interests germane to the Districts’
purpose—the interests of their ratepayers in not paying higher rates for water-sewer
services stemming from the imposition of excise taxes.
The majority faults the Districts for failing to show that the provision of water-
sewer services would be diminished as a result of the tax. Majority at 35. But, that is not
the test, and such a showing is more onerous than our standing case law requires. An
organization’s purpose must be germane to the legal issue. Five Corners, 173 Wn.2d a
304; see also Am. Legion Post No. 149 v. Dep’t of Health, 164 Wn.2d 570, 595, 192 P.3d
306 (2008). Black’s Law Dictionary defines “germane” as “[r]elevant; pertinent.”
BLACK’S LAW DICTIONARY 830 (11th ed. 2019). This definition indicates a measure of
distance in meaning. In other words, an organization’s purpose must be related to the
legal issue asserted, but it does not have to be either identical to or the primary purpose of
the organization. Here, the Districts’ primary purpose is providing water-sewer services
at specific rates. The imposition of the excise tax will affect these rates and thus the
ratepayers. The Districts’ purpose in providing services to ratepayers is related, that is,
germane to the ratepayers’ interests in contesting the excise tax ordinance.
The majority’s narrow understanding fails to recognize that these issues affect
ratepayers and are germane to their interests and the purpose of the water-sewer districts.
An organization’s purpose must be related to the interests of its members when bringing a
2
No. 96585-4
Madsen, J., concurrence/dissent
suit on their behalf. We must interpret and apply this requirement with mindful balance
so that we close the doors only to suits that are irrelevant to an organization’s members,
lest we foreclose judicial review and deny access to justice. In close cases, I would err on
the side of access. Fortunately, in this case, it is clear that the Districts have
representational standing under well-established standing rules.
I would agree with the trial court in this case. The Districts have standing to bring
constitutional challenges in a representational capacity but do not succeed on the merits
of the claims.
With these thoughts in mind, I respectfully concur in part and dissent in part.
3
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way
No. 96585-4
JOHNSON, J. (dissenting)—The majority drastically abandons well-settled
law and grants code cities seemingly unlimited authority to levy taxes—authority
not expressly delegated by statute. In crafting this new approach, the majority
grants taxing authority to cities that the legislature has consistently and recently
rejected. Most troubling, the majority’s new rule provides no restraints on local tax
rates, contrary to limits the legislature commonly provides. The majority abandons
our principles of stare decisis, rejecting decades of court decisions resolving this
exact issue. The superior court should be reversed.
Historically, Washington cities have understood that RCW 35A.82.020,
enacted in 1967, does not grant authority to tax other government utilities
providing water and sewer services, and that whatever authority is claimed must
come from the legislature. This understanding is evidenced by the introduction,
and failure, of legislation that would have granted cities the authority to tax
districts providing water and sewer services, all of which proposed a tax rate limit
of six percent on water-sewer districts. See, e.g., H.B. 2249, § 6, 61st Leg., Reg.
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, No. 96585-4
(Johnson, J., dissenting)
Sess. (Wash. 2009); H.B. 2637, § 6, 61st Leg., Reg. Sess. (Wash. 2010); H.B.
2749, § 7, 61st Leg., Reg. Sess. (Wash. 2010).
The majority not only creates the taxing authority here but provides no limit.
The legislature knows how to expressly delegate taxing authority. For example, in
2010, the legislature enacted former RCW 35.13B.010 (2010), authorizing the city
of Renton to impose a utility tax, similar to the one at issue here, which expired in
2015 and has not been reenacted. Under the majority’s reasoning, there was no
need to introduce these bills, and the taxing authority under former RCW
35.13B.010 was somehow superfluous, based on the majority’s new expansive
general taxing authority under RCW 35A.82.020. The power of taxation does not
work in this manner.
Generally, taxing authority is an inherent power of state government and not
a power inherent in local government. Instead, the taxation authority flows from
legislative delegation. We have recognized where the legislature delegates taxing
authority to a municipality, the delegation must be made in express terms.
Article 7, section 9 and article 11, section 12 of the Washington
State Constitution permit the State Legislature to grant municipal
authorities the power to levy and collect taxes for local purposes.
These constitutional provisions are not self-executing. Carkonen v.
Williams, 76 Wn.2d 617, 458 P.2d 280 (1969). We have consistently
held that municipalities must have express authority, either
constitutional or legislative, to levy taxes. Citizens for Financially
Responsible Gov’t v. Spokane, 99 Wn.2d 339, 662 P.2d 845 (1983);
2
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, No. 96585-4
(Johnson, J., dissenting)
Hillis Homes, Inc. v. Snohomish [County], 97 Wn.2d 804, 650 P.2d
193 (1982); Carkonen v. Williams, supra.King County v. City of Algona, 101 Wn.2d 789, 791-92, 681 P.2d 1281 (1984)
(footnote omitted). This rule is strongly established in our cases as a basic principle
of government. We should depart from this general principle only on a clear
showing that the established rule is “‘incorrect and harmful’” or rarely when we
are compelled to forgo prior precedent where the legal underpinnings of our
precedent have changed or disappeared. State v. Otton, 185 Wn.2d 673, 678, 374
P.3d 1108 (2016) (quoting In re Rights to Waters of Stranger Creek, 77 Wn.2d
649, 653, 466 P.2d 508 (1970)). While the majority attempts to distinguish this rule
from the present case, the requirement that delegations of taxing authority be
express is a rule that reaches all delegations of taxing authority to subdivisions of
the State.
The majority does not engage in, or even attempt to apply, an “incorrect and
harmful” analysis, likely because the express authority requirement is neither
incorrect nor harmful. As stated, the general rule is that taxing authority is vested
in the legislature, not in municipalities. It makes sense to require express
delegations of taxing authority to ensure that municipalities exercise no more
authority than the legislature intended to give them. Rather than being harmful, the
3
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, No. 96585-4
(Johnson, J., dissenting)
express delegation requirement protects citizens from municipalities exercising
broad taxing authority.
The majority seems to suggest that this case is one of the rare occasions
where the legal underpinnings of our precedent have changed and describes the
express delegation rule we embraced in Algona as an outdated vestige of “Dillon’s
Rule,” which has purportedly been statutorily rejected. The majority traces the
express authority requirement from Algona to School District 37, asserting that
School District 37 failed to cite a source of authority for adopting the express
requirement and asserted that the case likely relied on Dillon’s Rule. See State ex
rel. Sch. Dist. 37 v. Clark County, 177 Wash. 314, 322, 31 P.2d 897 (1934). The
inaccuracy of this assertion is quickly revealed when the express requirement from
School District 37 is viewed in its larger context:
Section 9, Art. VII, and § 12, Art. XI, of the state constitution,
providing that the power to assess and collect taxes may be vested in
the corporate authorities of all municipal corporations, do not grant
such power, “but leaves it to be granted by the legislature, attended by
such conditions and limitations as that body may prescribe.” Great
Northern R. Co. v. Stevens County, 108 Wash. 238, [243-44,] 183 Pac.
65 [1919].
We repeat, county authorities must have express authority,
either under the constitution or an act of the legislature, to levy taxes.
They have no right to levy taxes for county purposes at a rate
exceeding the limitation fixed by either the constitution or act of the
legislature.
4
Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, No. 96585-4
(Johnson, J., dissenting)
Sch. Dist. 37, 177 Wash. at 322-23. Contrary to the majority’s characterization of
the express requirement as unsupported, this rule is anchored in our precedent and
in article VII, section 9 and article XI, section 12 of our constitution. School
District 37 does not mention or rely on Dillon’s Rule. The express delegation rule
cannot be fairly attributed to Dillon’s Rule. Instead, requiring delegations of
authority to be express is a constitutional principle that prevents delegations of
taxing authority from being extended beyond the legislature’s intentions. Properly
applied, our cases require invalidation of the tax at issue here.
Significantly, the majority’s new approach establishes no limitations on
local taxing authority. The record in this case discloses that several municipalities
have enacted similar taxes with rates varying from 1.5 percent to 36 percent. Often
where the legislature chooses to expressly delegate authority, limitations are
established. For example, RCW 35.21.870 provides that a city may not tax
electrical energy, telephone, natural gas, or steam energy businesses at a rate
exceeding six percent.
The constitutional power to delegate taxing authority should remain with the
legislature, which should decide whether this taxing authority should be granted,
not this court. The trial court should be reversed.
5