COUNTIES ‑- TAXATION ‑- INTERLOCAL COOPERATION ACT
A county may not, through an interlocal cooperation agreement with a city or other municipal corporation, use county revenue generated under the tax imposed pursuant to RCW 82.46.010(1) to fund capital improvements on property owned by the city or municipal corporation, unless the county can show that the improvements relate to a county function or serve a county purpose.
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September 27, 1988
Honorable Seth R. Dawson
3000 Rockefeller Avenue
Everett, WA 98201
Cite as: AGO 1988 No. 19
Dear Mr. Dawson:
By letter previously acknowledged, you requested our opinion on several questions pertaining to the use of county revenues generated through imposition of the excise tax authorized by RCW 82.46.010(1). We have paraphrased your questions as follows:
1. May a county, through an interlocal agreement with a city or other municipal corporation, use its revenues generated under the tax imposed pursuant to RCW 82.46.010(1) to fund capital improvements of property owned by such city or other municipal corporation and not the county?
2. If the answer to the foregoing question is affirmative, are there any limitations on the circumstances in which such funding arrangements could validly be made?
[[Orig. Op. Page 2]]
3. If the answer to the first question is negative, would the propriety of using the revenues be different if the county retained the ownership of the actual improvements but still did not own the underlying real property?
4. May a county utilize these real estate excise tax revenues to fund improvements to real property which it owns jointly with one or more municipalities?
5. May a county use these real estate excise tax revenues to fund improvements to real property in which the county has a long-term lease which allows the county to make improvements to the real property when the term of the lease equals or exceeds the projected life of the improvements?
We answer your first question in the qualified negative, and your third, fourth, and fifth questions as set forth in the analysis below. Because of our answer to your first question, we do not reach your second question.
Each of your questions concerns the excise tax on real estate sales authorized by RCW 82.46.010(1) and the permissible uses for tax revenues generated thereunder. RCW 82.46.010(1) provides in part that:
[T]he governing body of any county or any city may impose an excise tax on each sale of real property in the unincorporated areas of the county for the county tax and in the corporate limits of the city for the city tax at a rate not exceeding one‑quarter of one percent of the selling price.
RCW 82.46.030 sets forth how these tax revenues are to be used:
(1) The county treasurer shall place one percent of the proceeds of the taxes imposed under RCW 82.46.010 in the county current expense fund to defray costs of collection.
(2) The remaining proceeds from the county tax under RCW 82.46.010(1) shall be placed in a county capital improvements fund. The remaining proceeds from city or town taxes under RCW 82.46.010(1) shall be distributed to the respective cities and towns monthly and placed by the city treasurer in a municipal capital improvements fund. These capital improvements funds
[[Orig. Op. Page 3]]
shall be used by the respective jurisdictions for local improvements, including those listed in RCW 35.43.040.
With these statues in mind, we now turn to your questions.
Your first question asks whether a county, through an interlocal agreement, may use its taxes generated under RCW 82.46.010(1) to fund capital improvements of property owned by a city or other municipal corporation, but not by the county. We believe the critical question, under both the relevant statutes and the state constitution, is whether the capital improvement at issue is to be constructed or operated for a county purpose. The statutes do not establish a per se requirement that the improvement itself or the underlying real property be owned by the county. Where neither factor is present, however, it is highly problematical whether the improvement is truly intended to serve a county purpose. Absent any additional facts indicating that such a purpose would be served by the capital improvements referred to in your question, we conclude that the funding of such improvements would not be authorized.
We start with the fundamental principle that taxes levied for a a particular purpose may not be used for other purposes unless otherwise authorized by statute. 16 E. McQuillin,Municipal Corporations § 44.186 (3d. ed. rev. 1984), at 608-609. We thus must turn to the language of RCW 82.46.010(1) and 82.46.030(2) to determine the purposes for which taxes generated thereunder properly may be spent. In construing these statutes, we view them as a whole to ascertain the overall legislative intent. State v. Malone, 106 Wn.2d 607, 611, 724 P.2d 364 (1986).
The statutes reveal a straightforward legislative intent to provide for two separate excise taxes and two separate types of funds. A county is allowed to levy a .25-percent excise tax only on real property sales in the unincorporated areas of the county, and the tax proceeds are to be placed in a "county capital improvements fund". A city may levy the tax only on real property sales within the city's corporate limits, and the tax proceeds are to be placed in a "municipal capital improvements fund". It seems clear that the Legislature intended to establish a county fund to be used only for county purposes and, likewise, intended to establish city funds to be used only for city (municipal) purposes. Such a reading of the statutes is consistent with the general common law rule in this area:
[[Orig. Op. Page 4]]
The authority of the local corporation [city, county, etc.] to raise revenue by taxation is limited to taxation for municipal or corporate purposes, namely, purposes which are germane to the objects of the creation of the municipal corporation or which have a legitimate connection therewith.
16. E. McQuillin, Municipal Corporations, § 44.35, at 114 (3d ed. rev. 1984) (footnote omitted). Moreover, this reading of the statutes is mandated by article 7, section 9 of the state constitution, which provides in part: "For all corporate purposes, all municipal corporations may be vested with authority to assess and collect taxes ..." The State Supreme Court has interpreted this provision as requiring that county taxes be expended only for county purposes. Intermediate Sch. Dist. 105 v. Yakima Cy., 81 Wn.2d 443, 447-48, 503 P.2d 104 (1972).
What qualifies as a "county purpose" cannot be defined with precision. The improvement should confer a direct benefit of reasonably general character to a significant portion of the county's inhabitants. SeeUnited States v. North Bonneville, 94 Wn.2d 827, 833-34, 621 P.2d 127 (1980); 15 E. McQuillin, § 39.19, at 31.32; 16 E. McQuillin, § 44.35, at 114. Some courts in other jurisdictions have held that city taxes may not be levied to assist a county in the performance of purely county functions, nor to repair county buildings which are located within the city limits. Lexington v. Hager, 337 S.W.2d 27 (Ky. 1960); Deady v. Village of Lyons, 39 App. Div. 139, 57 N.Y.S. 448 (1899). Similar reasoning would seem to limit the ability of a county to finance purely city functions with county taxes. Whether a county purpose is being served will, of course, depend upon the facts of each particular case.
Having established that the relevant statues, RCW 82.46.010 and 82.46.030, require a county purpose, your question is whether the county may use an interlocal agreement with a city to fund capital improvements where the county will own neither the improvements nor the underlying real property. RCW 82.46.030(2) simply states that "[t]hese capital improvements funds shall be used by the respective jurisdictions for local improvements, including those listed in RCW 35.43.040." The statute does not expressly mandate that the local improvement, or the real property on which it is constructed, be owned by the county. Nor do we believe such a requirement is necessarily inherent in the term "local improvement". The local improvement statute (RCW 35.43 [chapter 35.43 RCW]) defines this term to encompass all such improvements which are "owned or operated" by the relevant municipality. RCW 35.43.005, 35.43.010. Moreover, McQuillin has acknowledged that a county or other municipality may have authority in appropriate circumstances to construct improvements on property it does not own. See 13 E. McQuillin, § 37.11a, at 54. Thus, while county [[Orig. Op. Page 5]] ownership of the proposed improvement or underlying real property would be an important factor to consider in determining compliance with the statutes, it is not an absolute statutory requirement.
Nevertheless, we reiterate that where county tax revenues generated under RCW 82.46.010(1) are expended for local improvements, the improvement must be for a county purpose. Your first question is devoid of any facts indicating that the contemplated improvement is calculated to further this end. We therefore must conclude that this use of tax revenues would not be authorized by RCW 82.46.030(2).
In reaching this conclusion, we note that your question posits an interlocal agreement between the county and a city or other municipal corporation, under which agreement you contemplate that the county tax revenues generated pursuant to RCW 82.46.010 be made available to fund the proposed capital improvement. Chapter 39.34 RCW authorizes "public agencies" (which term includes cities and counties,see RCW 39.34.020) to enter into interlocal agreements whereby they can exercise their powers jointly under certain conditions; it also authorizes interlocal contracts. RCW 39.34.030, 39.34.080. (See also RCW 35.51.020 (authorizing cities and counties to jointly acquire or construct public improvements). Interlocal agreements, however, do not confer any additional substantive authority on counties. A county may not use an interlocal agreement to do that which would otherwise be prohibited by law. AGO 1969 No. 8, at 5 (copy enclosed). In other words, a county may not use an interlocal agreement as a means of making its tax revenues, collected pursuant to RCW 82.46.010 for county capital improvements, available to others for construction of capital improvements that are not intended to further county purposes. Our answer to your first question, therefore, does not depend on the presence or absence of an interlocal agreement.
Because we have answered your first question in the qualified negative, we do not reach your second question.
Your remaining three questions each propose variations on the facts set forth in question 1. In short, you have asked whether a county may fund capital improvements using the tax revenues generated under RCW 84.46.010-84.46.030, where (1) the county owns the improvements but not the underlying real property, or (2) the county and another municipality jointly own the underlying real property, or (3) the county has a long-term lease in the underlying real property allowing it to make improvements [[Orig. Op. Page 6]] on such property, and the term of the lease equals or exceeds the projected life of the improvements.
As we have indicated in our response to question 1, we do not believe that the validity of capital improvements made pursuant to RCW 84.46.010-84.46.030 necessarily depends on county ownership of either the improvements or the underlying real property. The statutes do not contain any per se ownership requirements. Such factors must be considered along with all other pertinent facts, however, in determining whether the intended improvements serve a genuine county purpose. Any proposed capital improvement in which the county does have an interest, either as owner or long-term lessee, undoubtedly would be looked upon more favorably by a court in evaluating whether there has been compliance with RCW 84.46.010-84.46.030. As is true in all cases of this nature, however, the outcome will necessarily turn on the specific facts of each case. The critical factor, as we have repeatedly emphasized, is whether the improvement to be funded by the statutorily authorized "county capital improvements fund" will serve a genuine county purpose.
We trust that the above will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
GREGORY J. TRAUTMAN
Assistant Attorney General