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AGO 1967 No. 31 - August 21, 1967
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John J. O'Connell | 1957-1968 | Attorney General of Washington


COUNTIES - TAXATION - LEASES - COUNTY STADIUM FINANCING UNDER CHAPTER 236, LAWS OF 1967.

(1) Under the provisions of chapter 236, Laws of 1967, a class AA county may enter into a lease agreement with private parties pursuant to which such parties would acquire real property and construct thereon a public stadium with associated facilities and upon completion of construction thereof lease the same to the county as lessee with the county's obligation to make rental payments over the term of the lease being secured by a pledge of the proceeds of the two percent excise tax on lodgings authorized by § 11 of the act.

(2) Such a county, having entered into such a lease agreement, may thereafter sublease the stadium and use the rental revenues derived from the sublease for the purpose of making the rental payments due under the primary lease; however, the county is not authorized to specifically pledge or assign such revenues for this purpose.

(3) Such a county may enter into a long-term lease of such a stadium, as lessee, provided (a) that the rental obligations can be met out of current revenues and (b) that it is good business for the county to enter into a long-term lease; the county may then sublease the stadium for such period and under such terms and conditions as the board of county commissioners may determine.

(4) A class AA county need not have assumed a legal obligation for expenditure of the special excise tax provided for by § 11, chapter 236, Laws of 1967, before it can levy and collect the tax; however, the tax can only be levied and collected in connection with, and as an adjunct of, an existing stadium financing plan which is to be put into effect within a reasonable period of time.

(5) Such special excise tax may not be levied retrospectively so as to impose the tax upon the furnishing of lodging between June 8, 1967, the effective date of chapter 236, Laws of 1967, and the effective date of the county ordinance providing for imposition of the tax.

                                                              - - - - - - - - - - - - -

                                                                 August 21, 1967

Honorable Francis E. Holman
State Representative, 1st District
1900 Washington Building
Seattle, Washington 98101

                                                                                                                 Cite as:  AGO 1967 No. 31

 [[Orig. Op. Page 2]]

Dear Sir:

            By letter previously acknowledged you have requested our opinion on several questions relating to a plan for financing a public stadium for a class AA county under the provisions of chapter 236, Laws of 1967.  The act to which you have referred is an act relating to public recreation, sports and culture, and, more specifically, is the basic enabling legislation enacted by the 1967 legislature to facilitate the acquisition, construction and operation of sports stadiums by counties, cities or towns.

            Your several questions are as follows:

            "1. May a Class AA County enter into a lease agreement with private parties pursuant to which such parties would acquire real property and construct thereon a public stadium with associated facilities and upon completion of construction thereof lease the same to the County as lessee, the County's obligation to make rental payments over the term of the lease being secured by a pledge of the proceeds of the two percent excise tax on lodgings authorized pursuant to Section 11 of the Act?

            "2. May such County, having entered into such lease agreement, thereafter sublease the stadium and assign the subrents as additional security for the rental payments due under the base lease?

            "3. What would be the maximum term of any such lease or sublease?

            "4. When may such County levy the special excise tax referred to in Section 11 of the Act?

            "5. May such levy be made retroactive so as to impose the special excise tax on the furnishing of lodging since June 8, 1967, the effective date of the Act?"

            We answer question (1) in the affirmative; question (2) partially in the affirmative and partially in the negative; and question (5) in the negative.  Questions (3) and (4) are answered in the manner set forth in our analysis.

                                                                     ANALYSIS

            Preliminarily, we note that the stadium financing plan with  [[Orig. Op. Page 3]] which your questions are concerned constitutes only one of several approaches to financing a public stadium through use, in part, of the authority granted by chapter 236, Laws of 1967.  Unlike other approaches which are also within the purview of the act, it does not involve the issuance of either general obligation or revenue bonds; rather, the basic idea here is one of initial site acquisition and stadium construction by private parties, with the class AA county to lease, as lessee, the completed facility and then to sublease it to others for purposes of operation.

            Of course, we limit ourselves to consideration of the specific questions which you have asked, which relate solely to various aspects of the financing plan.

            Question (1):

            The first portion of chapter 236, Laws of 1967, to be noted is § 1, which contains the following definitions:

            "'Municipality' as used in this act means any county, city or town of the state of Washington.

            "'Person' as used in this act means the federal government or any agency thereof, the state or any agency, subdivision, taxing district or municipal corporation thereof other than county, city or town, any private corporation, partnership, association, or individual."

            Thus, the term "municipality" as used in the act includes any county (as well as any city or town) of the state of Washington, and the term "person" includes ". . . any private corporation, partnership, association, or individual."

            Ensuing §§ 2 through 4 relate to the establishment of a stadium commission and outline its functions.  However, these sections do not require study for purposes of this opinion, for they relate, essentially, to stadium site selection rather than financing.  The next section to be noted is § 5, which provides as follows:

            "Any municipality is authorized either individually or jointly with any other municipality, or person, or any combination thereof, to acquire by purchase, gift or grant, to lease as lessee, and to construct, install, add to,  [[Orig. Op. Page 4]] improve, replace, repair, maintain, operate and regulate the use of public stadium facilities whether located within or without such municipality, including but not limited to buildings, structures, concession and service facilities, roads, bridges, walks, ramps and other access facilities, terminal and parking facilities for private vehicles and public transportation vehicles and systems, together with all lands, properties, property rights, equipment, utilities, accessories and appurtenances necessary for such public stadium facilities, and to pay for any engineering, planning, financial, legal and professional services incident to the development and operation of such public stadium facilities."

            Substituting the term "county" for the term "municipality," and likewise substituting the term "private corporation, partnership, association, or individual" for the term "person" in conformity with the definitions contained in § 1,supra, and reading only those parts of § 5 which pertain to the specific sort of arrangement contemplated by your first question, it is to be seen that the authority granted by § 5 may be paraphrased as follows:

            Any county (including a class AA county) is authorized either individually or jointly with any . . . private corporation, partnership, association, or individual . . . to acquire by purchase, gift or grant, to lease as lessee, and to construct, install, add to, improve, replace, repair, maintain, operate and regulate the use of public stadium facilities . . . and to pay for any engineering, planning, financial, legal and professional services incident to the development and operation of such public stadium facilities.

            Thus, the basic lease agreement described by your first question seems clearly to be authorized.  The only remaining issue to be considered is the authority of the county to secure its obligation to make rental payments over the term of the lease by pledging the proceeds of the two percent excise tax on lodging which is authorized by § 11 of the act.  This section provides as follows:

            "The legislative body of any class AA county is authorized to levy and collect, a special  [[Orig. Op. Page 5]] excise tax of not to exceed two percent on the sale of or charge made for the furnishing of lodging by a hotel, rooming house, tourist court, motel, trailer camp, and the granting of any similar license to use real property, as distinguished from the renting or leasing of real property: PROVIDED, That it shall be presumed that the occupancy of real property for a continuous period of one month or more constitutes a rental or lease of real property and not a mere license to use or to enjoy the same.1/

             For purposes of your question, this section must further be read in conjunction with § 14, which provides as follows:

            "All taxes levied and collected under section 11 of this act shall be credited to a special fund in the treasury of the county imposing such tax.  Such taxes shall be levied only for the purpose of paying all or any part of the cost of acquisition, construction, or operation of stadium facilities or to pay or secure the payment of all or any portion of general obligation bonds or revenue bonds issued for such purpose or purposes under this act, and until withdrawn for use, the moneys accumulated in such fund or funds may be invested in interest bearing securities by the county treasurer in any manner authorized by law."

            Thus, it is to be seen that the taxes levied and collected by a class AA county under § 11 can only be used for the following specific purposes:

            (1) To pay all or any part of the cost of acquisition, construction, or operation of stadium facilities; and/or

            (2) to pay or secure the payment of all or any portion of general obligation bonds or revenue bonds issued for such  [[Orig. Op. Page 6]] purpose or purposes.

            As we noted at the outset, the arrangement contemplated by your first question does not involve the issuance of either general obligation bonds or revenue bonds.2/   It does, however, involve the acquisition, construction and operation of stadium facilities.  Specifically, as far as the county is concerned, the primary lease described in your first question would result in the county acquiring a leasehold interest in stadium facilities constructed by private parties.  Thus, the rental payments to be made by the county under the lease agreement would be its costs of acquisition of the stadium facilities.

            From this it follows, in our opinion, that the proceeds derived from the taxes levied and collected by a class AA county under § 11, supra, may be used by the county in paying the rentals due under the lease agreement; furthermore, we can see no legal objection to the county specifically pledging in the lease agreement that such revenues as are derived from the levy and collection of the tax in question will be set aside as a secured source of moneys for payment of the lease obligation.

            Question (2):

            Repeated for ease of reference, your second question is as follows:

            "May such County, having entered into such lease agreement, thereafter sublease the stadium and assign the subrents as additional security for the rental payments due under the base lease?"

            The answer to this question is basically to be found in § 10 of the act, which reads as follows:

            "The legislative body of any municipality owning or operating public stadium facilities acquired or developed pursuant to this act shall have power to lease to any municipality or person, or to contract for the use or operation by any municipality or person, of all or any part of the stadium facilities authorized by this act, including but not limited to parking facilities,  [[Orig. Op. Page 7]] concession facilities of all kinds and any property or property rights appurtenant to such stadium facilities, for such period and under such terms and conditions and upon such rentals, fees and charges as such legislative body may determine, and may pledge all or any portion of such rentals, fees and charges and all other revenue derived from the ownership and/or operation of stadium facilities to pay and to secure the payment of general obligation bonds and/or revenue bonds of such municipality issued for authorized public stadium purposes."

            Accordingly, again substituting for defined terms as before, we find that:

            The legislative body of any county (including a class AA county) . . . operating public stadium facilities acquired or developed pursuant to this act shall have power to lease to any municipality or private corporation, partnership, association, or individual . . . all or any part of the stadium facilities authorized by this act . . . for such period and under such terms and conditions and upon such rentals, fees and charges as such legislative body may determine, and may pledge all or any portion of such rentals, fees and charges and all other revenue derived from the . . . operation of stadium facilities to pay and secure the payment of general obligation bonds and/or revenue bonds of such municipality issued for authorized public stadium purposes.

            From this, it seems clear that a county, as lessee operating a stadium facility constructed under the provisions of the act, has authority to sublease the facility to another public or private operator.  However, the statute then becomes rather specific with regard to the purposes for which rental revenues may be pledged.  Here, we find a limitation that does not appear in § 14, supra, concerning the use of the special taxes collected under § 11.  Specifically, we find that the only authority of a county to pledge rentals or other revenues derived from the ownership or operation of stadium facilities, is authority to pledge these revenues ". . . to secure the payment of general obligation bonds and/or revenue bonds of such municipality issued for authorized public stadium purposes."

            Of course, as we have pointed out, the plan contemplated by your questions does not involve the issuance of either general  [[Orig. Op. Page 8]] obligation or revenue bonds.  Therefore, though there would be no legal objection to the county, under your arrangement, using its rental revenues derived from the sublease for the purpose of paying its obligation on the primary lease, it does not appear that the county would be authorized to specifically pledge or assign such revenues for this purpose.

            Question (3):

            Your third question makes reference to the lease contemplated by question (1) and the sublease contemplated by question (2), and asks:

            "What would be the maximum term of any such lease or sublease?"

            We shall consider first the matter of the maximum term of the primary lease.  Section 5 of the act, supra, which constitutes the authority for the primary lease, does not contain any specification as to the term of such lease.  It neither expressly allows long-term leases, not expressly prohibits them.  In the absence of any such specification, we believe the appropriate rule of law to be applied is the rule which was announced by our supreme court in State ex rel. Wash. Etc. v. Yelle, 47 Wn.2d 705, 289 P.2d 355 (1955).  In that case our court, speaking of the authority of the state to enter into leases, said:

            "The state may contract to lease property from private corporations or individuals if the obligations can be met out of current revenues.  If it is good business to enter into a long term lease, it may do so. . . ."  (P. 712.)

            Thus, the conditions under which a county, under authority of § 5 of the act here under consideration, may enter into a long-term lease of a stadium facility are:

            (1) That the rental obligations can be met out of current revenues in this case, operating revenues or sublease rental revenues together with revenues derived from the tax collected under § 11, and any other available current county revenues; and

            (2) that it is good business for the county to enter into a long-term lease.

             [[Orig. Op. Page 9]]

            As for the term of the sublease referred to in your second question, it will be noted that § 10 of the act, which constitutes the authority for the sublease, specifically provides that the lease may be ". . . for such period and under such terms and conditions . . . as such legislative body may determine, . . ."

            Therefore, the determination of the appropriate term of the sublease rests solely in the discretion of the governing body of the municipality here, the county commissioners of the class AA county involved.

            Question (4):

            Your next question again refers to the special excise tax levied and collected under § 11 of the act.  You ask:

            "When may such County levy the special excise tax referred to in § 11 of the Act?"

            The principal issue you have raised in connection with this question is whether it is necessary for the class AA county to have assumed some legal obligation for expenditure of the tax before it can collect the tax.  We find no such condition or limitation in the pertinent sections of the statute.  Section 11 simply grants authority to the legislative body of any class AA county to levy and collect the special excise tax.  Section 14, as we have seen, spells out the purposes for which the tax may be levied.  Obviously, therefore, the revenues derived from the tax cannot be used in any other manner; however, § 14 further provides that:

            ". . . until withdrawn for use, the moneys accumulated in such fund or funds [i.e., funds derived from the special excise tax] may be invested in interest bearing securities by the county treasurer in any manner authorized by law."

            Thus, the statute expressly contemplates and provides for situations in which the tax would be levied and collected prior to the time its expenditure became necessary.  Accordingly, we believe that the legislature intended to allow a class AA county to commence levying and collecting the special excise tax referred to in § 11 of the act prior to the time that it has actually assumed any legal obligation either through the issuance of bonds or through the execution of lease agreements or other contracts, to expend the revenues thus derived.

             [[Orig. Op. Page 10]]

            However, since the tax can only be levied for the purpose ". . . of paying all or any part of the cost of acquisition, construction, or operation of stadium facilities or to pay or secure the payment of all or any portion of general obligation bonds or revenue bonds issued for such purpose or purposes under this act, . . ." it follows, in our opinion that the statute is not to be read as simply authorizing the levy and collection of the special excise tax on the assumption that at some time in the indefinite future the proceeds will be used for the specified purposes.  Rather, we believe, the tax can only be levied and collected in connection with, and as an adjunct of, an existing stadium financing plan (whether it involves the issuance of bonds or alternatively, an arrangement such as is contemplated by your question) which is to be put into effect within a reasonable period of time.3/

             Question (5):

            Assuming the development of a stadium financing plan which is to be put into effect within a reasonable period of time, and assuming further that as an adjunct thereof the board of county commissioners determines to levy and collect the special excise tax provided for in § 11, supra, your final question arises which is:

            "May such levy be made retroactive so as to impose the special excise tax on the furnishing of lodging since June 8, 1967, the effective date of the Act?"

            The general rule of constitutional law regarding retrospective excise taxes is well stated in an annotation appearing in 146 A.L.R. 1011, at 1012, as follows:

            "The mere fact that an excise, license, or privilege tax statute has a retroactive effect is not sufficient, of itself, to establish its unconstitutionality.  Generally, in the absence of a constitutional provision expressly forbidding  [[Orig. Op. Page 11]] retrospective legislation, such a tax statute is not unconstitutional, if it is not arbitrary nor unreasonably or oppressively discriminatory, so long as it does not otherwise violate due process of law, disturb vested rights, or impair the obligations of contracts."

            The Washington court, inBates v. McLeod, 11 Wn.2d 648, 120 P.2d 472 (1941), a case involving retroactive imposition of unemployment compensation taxes, paid lip service to this rule, but nevertheless held the retrospective feature of the particular tax law to be unconstitutional, stating at pp. 656-7:

            "It is true that the mere fact that a tax is retroactive in operation is not of itself sufficient to justify a holding that it is unconstitutional.  Many, if not most, Federal income tax acts provide that they shall apply to income received since the first of the year in which they are enacted, or even during the year preceding the enactment of the statute, but there is a difference between an income tax which imposes a tax upon income received during a short period prior to the passage of the act and a tax upon the privilege of employing others during a period previous to the passage of the act.

            "Income taxes are true taxes, impositions levied for the direct support of the general government.  As Mr. Justice Holmes said, in his dissenting opinion in Untermyer v. Anderson, 276 U.S. 440, 446, 72 L.Ed. 645, 48 S.Ct. 353:  'We all know that we shall get a tax bill every year,' and, again, in the prevailing opinion inSeattle v. Kelleher, 195 U.S. 351, 360, 49 L.Ed. 232, 25 S.Ct. 44, liability for taxes, under retroactive legislation, has been 'one of the notorious incidents of social life.'  But even when a tax has been imposed for the support of the general government, it has been held that, if it is novel in character, a retroactive application may be subject to constitutional objection as being violative of due process.  This was held as to Federal gift taxes in Blodgett v. Holden, 275 U.S. 142, 72 L.Ed. 206, 48 S.Ct. 105.  See, also, the majority opinion in Untermyer v. Anderson, supra; Nichols v. Coolidge, 274 U.S. 531,  [[Orig. Op. Page 12]] 71 L.Ed. 1184, 47 S.Ct. 710.  This court has accepted and applied the rationale of these decisions in In re McGrath's Estate, 191 Wash. 496, 71 P.2d 395.

            "Chapter 162, Laws of 1937, supra, imposes a tax, or, as the act phrases it, a 'contribution,' for the privilege of employing others -a privilege the exercise of which had formerly been freely enjoyed without the imposition of any similar burden.  In so far as it purports to exact such contributions with respect to the period of January 1, 1937, to March 16, 1937, we hold that it is unconstitutional."

            Thus, were we to be faced with a necessity of answering your final question solely on the basis of whether retrospective imposition of the special excise tax would be constitutional, we would be confronted with the difficult task of determining whether the well-recognized general rule, as first above noted, or the apparent Washington supreme court exception enunciated inBates, is applicable.  However, as we view it, we need not reach this constitutional issue; rather, we conclude, on the basis of the terms of the statute itself, that the legislature did not intend to authorize a class AA county to levy and collect the special excise tax provided for by § 11,supra, on transactions occurring prior to the effective date of the county ordinance providing for imposition of this tax.

            This conclusion is essentially based upon § 12 of the stadium financing act (chapter 236, Laws of 1967), which reads:

            "Any seller, as defined in RCW 82.08.010, who is required to collect any tax under section 11 of this act for any municipality shall pay over such tax to such municipality as provided in section 13 and such tax shall be deducted from the amount of tax such seller would otherwise be required to collect and to pay over to the tax commission under chapter 82.08 RCW."

            Chapter 82.08 RCW is the codification of the various statutes relating to the state retail sales tax.  Thus, by § 12, the legislature has in effect simply provided for collection and payment over to the taxing municipality in the form of the special excise tax authorized by § 11 of a portion of the  [[Orig. Op. Page 13]] retail sales tax revenue which would otherwise go to the state under RCW 82.08.060-82.08.070.  Therefore, it is to be seen that the special excise tax collection and remittance procedure can only operate prospectively; i.e., as to sales tax collections made after the effective date of the county ordinance imposing the special excise tax.  Any sales tax revenues previously collected would have already been remitted to the state in full, and hence, would not remain in the hands of the "seller" in order to permit him to deduct therefrom the municipal special excise tax.

            Therefore, we must conclude that though, in accordance with our answer to question (4), a class AA county could have commenced levying and collecting the special excise tax immediately upon the effective date of the act4/ - by action which would be wholly prospective it may not now go back, by a retrospective tax levy, and impose the tax upon transactions already consummated and with respect to which the retail sales tax has already been collected and remitted in full to the state.

            We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

PHILIP H. AUSTIN
Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/We note at this point, that though any county in the state may, as a "municipality" (§ 1, supra), exercise the authority granted by § 5,supra, only a class AA county may levy and collect this special excise tax.  However, since your question is limited to a class AA county, we may nevertheless proceed.

2/See §§ 8 and 9 of the act for provisions regarding these types of bonds.  See, also, in general, the provisions of chapter 166, Laws of 1967, relating to the participation of counties and cities in financing multi-purpose [[multipurpose]]sports stadia.

3/E.g., within the terms of existing members of the board of county commissioners rather than at some time in the future by a board which could not be legally bound by the existing board to proceed with a plan developed but not implemented by its predecessor.  See, 10 McQuillin, Municipal Corporations, § 29.101, pp. 492-493.

4/Assuming the existence of an appropriate stadium financing plan.

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