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AGO 1951 No. 021 - April 20, 1951
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Smith Troy | 1941-1952 | Attorney General of Washington

TAXATION ‑- EXCISES ‑- EXEMPTION ‑- DISCRIMINATION MUNICIPAL CORPORATIONS ‑- EXCISE TAXES ‑- DISCRIMINATION.

An excise tax levied by a city on persons distributing and selling electrical energy measured by the gross revenues from such business, but exempting from the tax revenues derived from the sale of electricity to manufacturers, is not invalidated by reason of such exemption.

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                                                                   April 20, 1951

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington                                                                                                Cite as:  AGO 51-53 No. 21

Attention:  !ttA. E. Hankins, Chief Examiner, Division of Municipal Corporations

Dear Sir:

            This is in answer to your request for our opinion as to the validity of a certain provision of an ordinance of the City of Vancouver.  You have furnished us with a copy of this ordinance which imposes an excise upon those persons engaged in the distribution and sale of electricity measured by the gross revenues therefrom, but exempting revenues derived from the sale of electricity to manufacturers, and have asked whether the ordinance is rendered invalid by such exemption.

            Our conclusion may be summarized as follows:

            An excise tax levied by a city on persons distributing and selling electrical energy measured by the gross revenues from such business, but exempting from the tax revenues derived from the sale of electricity to manufacturers, is not invalidated by reason of such exemption.

                                                                     ANALYSIS

             [[Orig. Op. Page 2]]   We have before us a copy of an ordinance of the City of Vancouver enacted January 24, 1951, levying a tax upon                                                                             

            "* * * every person, firm, corporation and municipal corporation which operates in the city of Vancouver works, plants or facilities for the distribution and sale of electricity, a tax in the amount of three per cent (3%) of the gross revenues derived from the sale of electricity within the city of Vancouver."

            A further provision defines the term "gross revenues" to exclude revenues derived from the sale of electricity to persons, firms and corporations engaged in manufacturing.

            We are informed that the sale and distribution of all electrical energy within the city of Vancouver is performed by the Clark County Public Utility District.  Therefore, this tax is in reality one imposed by the city of Vancouver upon this public utility district.  Authority for such an exaction is found in section 3, chapter 245, Laws of 1941 (§ 11616-3 Rem. Supp. 1941), which section provides as follows:

            "Any city or town in which a public utility district operates works, plants or facilities for the distribution and sale of electricity shall have the power to levy and collect from such district a tax on the gross revenues derived by such district from the sale of electricity within the city or town, exclusive of the revenues derived from the sale of electricity for purposes of resale.  Such tax when levied shall be a debt of the district, and may be collected as such.  Any such district shall have the power to add the amount of such tax to the rates or charges it makes for electricity so sold within the limits of such city or town."

            The first question which arises is whether the ordinance, in exempting manufacturers, goes beyond the powers conferred upon the city by that statute.  We do not think that it does.  We believe that a city has power under this statute to tax only a portion of the revenues derived by a public utility district from the sale of electricity within the city.  The question  [[Orig. Op. Page 3]] which arises because of the exemption is not whether the city haspower under the statute to make such an exemption, but whether the exemption is unreasonable or marks adiscrimination against other users of electricity supplied by the same company.  Because the public utility district may pass on the amount of the tax as a part of its rate, it is apparent that the rates of only the nonmanufacturer users will be increased.

            It is our opinion that the exemption of manufacturers is not unreasonable or discriminatory.  The classification of persons subject to an excise tax is a legislative problem, and the classifications so set up will be set aside by the courts only where the classifications are unreasonable or discriminatory.  The Supreme Court of Washington has on many occasions upheld a wide variety of classifications in the field of excise tax legislation, both on the state and on the local level.  Particularly apropos, because they involve a city's power to levy an excise, are the decisions of the Supreme Court of Washington in Pacific Tel. & Tel. Co. v. City of Seattle, 172 Wash. 649, 21 P. (2d) 721 (affirmed 291 U.S. 300) and Puget Sound Power & Light Co. v. City of Seattle, 172 Wash. 668, 21 P. (2d) 727 (affirmed 291 U.S. 619).  See also, concerning state excise taxes,State ex rel. Stiner v. Yelle, 174 Wash. 402, 25 P. (2d) 91;Supply Laundry Co. v. Jenner, 178 Wash. 72, 34 P. (2d) 363;Texas Co. v. Cohn, 8 Wn. (2d) 360, 112 P. (2d) 522.  The case ofDrury the Tailor v. Jenner, 12 Wn. (2d) 508, 122 P. (2d) 493 is somewhat in point for it involved the classification of a retail tailor as a manufacturer for the purpose of the imposition of the state's business and occupation tax.  It was there held not to be discriminatory to make such a classification and thereby require such a tailor's payment of the tax under two classifications in competition with others who sold similar clothing but were required to pay the tax but once.

            From our examination of the ordinance it appears that only those revenues of the public utility district which are derived from true consumers are subject to the tax while the revenues of those who use electricity for the purpose of producing articles for resale are not taxed.  We cannot see that this classification is unreasonable.  All manufacturers are entitled to this benefit, so there is no question of discrimination among those situated in similar circumstances.  To our mind the Vancouver excise tax is not rendered invalid by the exemption granted for the revenues derived from the sale of electricity to manufacturers.

Very truly yours,

SMITH TROY
Attorney General

C. JOHN NEWLANDS
Assistant Attorney General

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