COUNTIES ‑- HOME RULE CHARTER ‑- TAXATION ‑- AUTHORITY OF A "HOME RULE" CHARTER COUNTY TO IMPOSE A COUNTY-WIDE BUSINESS AND OCCUPATION TAX
A county, including a county which has adopted a "home rule" charter under Article XI, § 4 (Amendment 21) of the Washington Constitution, does not have the authority, in the absence of some form of statutory authorization by the state legislature, to impose a county-wide business and occupation tax.
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March 12, 1980
Honorable David S. McEachran
311 Grand Avenue
Bellingham, Washington 98255
Cite as: AGO 1980 No. 9
By letter previously acknowledged you requested our opinion on a question which we paraphrase as follows:
Where a county has adopted a "home rule" charter under Article XI, § 4 (Amendment 21) of the Washington Constitution and, in that charter, has provided that the county council shall have the power ". . . to levy taxes, appropriate revenue and adopt budgets for the county . . .", does that county thereby have the authority, in the absence of some form of statutory authorization by the state legislature, to impose a county-wide business and occupation tax?
We answer the foregoing question in the negative for the reasons set forth in our analysis.
Let us, preliminarily, make two pertinent observations. First, as explained in AGLO 1979 No. 2, cities and towns of all classes possess the authority to license and [[Orig. Op. Page 2]] tax businesses for the purpose of revenue and to measure the amount of such a license tax on the basis of the gross receipts of the licensed businesses. Accord,Pacific Telephone & Telegraph Co. v. Seattle, 172 Wash. 649, 21 P.2d 721 (1933) and Wells & Wade Hardware v. Wenatchee, 64 Wn.2d 103, 390 P.2d 701 (1964). In all instances, however, the underlying basis for that power is purely statutory, even in the case of a first-class, charter, city such as Seattle. Pacific Telephone & Telegraph Co. v. Seattle, supra; and see also, P. Lorillard Co. v. Seattle, 8 Wn.App. 510, 507 P.2d 1212 (1973) wherein the Court, in discussing the power of the City of Seattle to levy a business and occupation tax, said, at pp. 512-513:
"The power of a municipality to support the performance of its functions through taxation is derived from the state. Article 11, section 12 of the Washington State Constitution provides:
The legislature shall have no power to impose taxes upon counties, cities, towns or other municipal corporations, or upon the inhabitants or property thereof, for county, city, town, or other municipal purposes, but may, by general laws, vest in the corporate authorities thereof, the power to assess and collect taxes for such purposes.
"The reservation to the state of the complete power to tax is presumed. Tacoma v. State Tax Comm'n, 177 Wash. 604, 612, 33 P.2d 899 (1934); State ex rel. Tacoma School Dist. v. Kelly, 176 Wash. 689, 30 P.2d 638 (1934); Outlook Irrigation Dist. v. Fels, 176 Wash. 211, 28 P.2d 996 (1934). Municipal corporations possess only such taxing power as has been granted to them by the state constitution or the statutes; and if there is a doubt as to whether a power has been granted, it must be denied. Pacific First Fed. Sav. & Loan Ass'n v. Pierce County, 27 Wn.2d 347, 178 P.2d 351 (1947). A city is a municipal corporation and as an agency of the state exercises only delegated taxing powers. State ex rel. Pacific Tel. & Tel. Co. v. Department of Pub. Serv., 19 Wn.2d 200, 272, 142 P.2d 498 (1943).
[[Orig. Op. Page 3]]
"It was said in State ex rel. King County v. State Tax Comm'n, 174 Wash. 668, 671, 26 P.2d 80 (1933):
The power of taxation is an attribute of sovereignty residing in the state alone. Municipal corporations, as such, have no inherent right to levy taxes. If the power to tax is not conferred directly upon them by the constitution, it must be granted by the legislature. Our constitution makes no direct grant of the taxing power to municipal corporations, but provides that the legislature may vest them with this power."
Conversely, there presently exists no comparable statutory authorization for any class ofcounty to (in the words of AGLO 1979 No. 2, supra) ". . . license and tax businesses for the purpose of revenue and to measure the amount of such a license tax on the basis of the gross receipts of the licensed business . . .", or, in other words, to impose a business and occupation tax. And therefore it is clear, at least in the case of a non-charter county, that such taxing power does not exist. See, e.g.,Great Northern Ry. v. Glover, 194 Wash. 146, 77 P.2d 598 (1938) together withPacific First Federal Savings & Loan Ass'n v. Pierce County, 27 Wn.2d 347, 178 P.2d 351 (1947) which, although dealing, specifically, with the taxing powers of a port district, stated the applicable principle in somewhat broader terms as follows:
"Unlike the sovereign state, counties and other municipal subdivisions possess no inherent power to taxation. The constitution itself does not grant them the taxing power, but, by Art., VII, § 9, the legislature is authorized to vest them with this power."
Our second preliminary observation relates to the oft-cited case ofWinkenwerder v. Yakima, 52 Wn.2d 617, 328 P.2d 873 (1958). There, in upholding the authority of the City of Yakima to allow commercial advertising on its municipal parking meters, the Court said, at page 622:
"Yakima is a city of the first class. With respect to the powers of a city of the first class, we said in State ex rel. Ennis v. Superior Court (1929), 153 Wash. 139, 279 Pac. 601:
[[Orig. Op. Page 4]]
"'It is evident from the constitution of this state and legislative enactments that, in Washington, cities of the first class, are vested with very extensive powers, and that, under Rem. Comp. Stat., § 8982, supra, the statutes of this state concerning the same must be liberally construed by the courts for the purpose of carrying out the manifest intent of the legislature to establish cities of the first-class as self-governing bodies, only "subject to the controlled by general laws."'
"It is clear from theEnnis case and from many other decisions of this court that the only limitation on the power of cities of the first class is that their action cannot contravene any constitutional provision or any legislative enactment. SeeState ex rel. Billington v. Sinclair (1947), 28 Wn. (2d) 575, 183 P.2d 813;State ex rel. Griffiths v. Superior Court (1934), 177 Wash. 619, 33 P. (2d) 94;Walker v. Spokane (1911), 62 Wash. 312, 113 Pac. 775. (Cf.Washington Fruit & Produce Co. v. Yakima (1940), 3 Wn.2d 152, 100 P.2d 8, 103 P.2d 1106, 128 A.L.R. 159; and Brennan v. Seattle (1929), 151 Wash. 665, 276 Pac. 886, relative to the broad police powers of a city of the first class.) The principles adhered to in the preceding cases clearly indicate that a city of the first class has as broad legislative powers as the state, except when restricted by enactments of the state legislature." At 622. (Emphasis supplied.)
In view of the similarities between Article XI, § 10 (Amendment 40) of our state constitution relating to first-class city charters and Article XI, § 4 (Amendment 21),supra, relating to "home rule" county charters, we have previously advised that the basic concept of the Winkenwerder case is equally applicable to a charter county. See,e.g., our letter opinions (copies enclosed) of October 4 and October 7, 1971, to then State Representative Norwood Cunningham and to the King County Prosecuting Attorney, respectively, relating to the establishment of a county transit system in King County. ButWinkenwerder simply did not involve the particular power here at issue;i.e., to impose taxes for the purpose of revenue. And, therefore, in our opinion, whatever else that case may mean in terms of a distinction between charter [[Orig. Op. Page 5]] cities (or counties) and non-charter municipalities with regard to other categories of governmental power, it is not in point insofar as the taxing power is concerned. Accord,P. Lorillard Co. v. Seattle, supra, wherein the Court, in identifying the underlying basis for Seattle's business and occupation tax, made no mention whatsoever of theWinkenwerder case but, instead, cited Pacific First Federal Savings & Loan Ass'n v. Pierce Co., supra.
The reason forWinkenwerder's inapplicability to municipal taxing power stems, in our judgment, from the existence of certain other provisions of the state constitution which deal, specifically, with that power. We have reference, first, to Article VII, § 9, which reads as follows:
"The legislature may vest the corporate authorities of cities, towns and villages with power to make local improvements by special assessment, or by special taxation of property benefited. For all corporate purposes, all 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." (Emphasis supplied.)
In addition, of the same import, but here with an express reference to counties as well as cities, towns and other municipal corporations, is Article XI, § 12 of the constitution which provides that:
"The legislature shall have no power to impose taxes upon counties, cities, towns or other municipal corporations, or upon the inhabitants or property thereof, for county, city, town, or other municipal purposes,but may, by general laws, vest in the corporate authorities thereof, the power to assess and collect taxes for such purposes." (Emphasis supplied.)
Taken together, these two sections of our state constitution clearly contemplate that counties and cities derive their taxing authority solely from legislative enactment. Two related points should also be noted. First, these two provisions are theonly ones in the constitution which expressly speak about the source of taxing authority for counties and cities. And secondly, both Article VII, § 9, and Article XI, § 12, supra, should be contrasted with Article XI, § 11 which speaks about the source ofpolice power of [[Orig. Op. Page 6]] counties and cities in the following manner:
"Any county, city, town or township may make and enforce within its limits all such local police, sanitary and other regulations as are not in conflict with general laws."
In short, when the framers of the constitution wanted to give a self-executing source of authority to counties and cities to do something they knew how to do it, for that is precisely what they did in Article XI, § 11,supra. But they did no such thing when it came to the power to impose taxes. Instead, they made that particular governmental power dependent upon authorization by the legislature. And that is why, in the case of all classes of cities and towns, the Court has looked to the statutes rather than the constitution itself in searching for the source of authority to impose business license fees (i.e. a business and occupation tax) for the purpose of revenue1/ ‑-even in the case of a first-class city operating under its own charter and thus governed, generally, by the principles ofWinkenwerder v. Yakima, supra.
But what, then, is the effect of a county charter provision such as that involved in your question? That charter provision, as you have described it, provides that the county council shall have the authority ". . . to levy taxes, appropriate revenue, and adopt budgets for the county. . . ."
However, insofar as that provision purports to confer upon the council the power to levy taxes independent of any legislative enactment, our response must be that it is legally ineffective.2/
[[Orig. Op. Page 7]]
First, as we have earlier explained, the rule that units of local government (including counties) derive their taxing power only from legislative enactment is based upon the explicit constitutional language found in Article VII, § 9 (cities and towns) and Article XI, § 12 (counties, cities, towns, and other municipal corporations), supra. And the court has so recognized these two constitutional provisions as the source of that rule, as evidenced by P. Lorillard Co. v. Seattle, supra, andPacific First Federal Savings and Loan Assn. v. Pierce County, supra.
Secondly, the constitutional provision under which counties are authorized to frame "home rule" charters, Article XI, § 4 (Amendment 21),supra, in no way purports to create an exception to this rule for "home rule" counties. Indeed, it clearly contemplates that this rule, as embodied in Article XI, § 12, shall continue to apply to "home rule" counties. Note, particularly, the following portions of Article XI, § 4 (Amendment 21):
"Any county may frame a 'Home Rule' charter for its own government subject to the Constitution and laws of this state, . . .
"After the adoption of such charter, such county shall continue to have all the rights, powers, privileges and benefits then possessed or thereafter conferred by general law. . . .
"The provisions of sections 5, 6, 7, and the first sentence of section 8 of this Article as amended shall not apply to counties in which the government has been established by charter adopted under the provisions hereof. . . ."
Thus, the "home rule" charter is to be subject to all provisions of the state constitution relating to counties, except those explicitly mentioned in Article XI, § 4 itself. And Article XI, § 12 is not among those so mentioned.
Accordingly, in summary, it is our opinion that while a county in adopting a "home rule" charter has considerable flexibility in the structuring of its government, it does not have the authority to endow itself with taxing authority. The authority of any county, including a home rule county, to levy taxes only exists to the extent the state legislature [[Orig. Op. Page 8]] has authorized the exercise of taxing authority. We therefore must answer your question (as above paraphrased) in the negative.
We trust the foregoing will be of assistance to you.
Very truly yours,
TIMOTHY R. MALONE
Assistant Attorney General
*** FOOTNOTES ***
1/P. Lorillard Co. v. Seattle, supra; Wells & Wade Hardware v. Wenatchee,supra; andPacific Tel. & Tel. Co. v. Seattle,supra.
2/This does not mean, however, that a charter provision such as that involved in your question is of no legal effect at all. Rather, it simply means that its effect is to vest the county council, and not in some other office created under the charter, with the power to levy taxes as authorized by statute. Though it thus creates no taxing power it does determine which body or office shall exercise such taxing powers as are conferred by state statute.