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AGO 1958 No. 192 - May 07, 1958
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John J. O'Connell | 1957-1968 | Attorney General of Washington



A city may exempt a city transit system, whether municipally or privately owned, from its business and occupation tax.

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                                                                    May 7, 1958

Honorable Daniel J. Evans, Chairman
Subcommittee on City Transit and Motor
Vehicle Exemptions
Joint Fact Finding Committee on Highways,
Streets and Bridges
4323 East 44th Street
Seattle 5, Washington                                                                                    Cite as:  AGO 57-58 No. 192

Dear Sir:

            You recently requested our opinion as to whether or not a city may exempt a city transit system whether municipally owned or privately owned, from the city's business and occupation tax.

            We answer your question in the affirmative as to both municipally and privately owned systems.


            Your inquiry presents the question of whether such an exemption violates either the privileges and immunities clause of Article I, § 12, of the Washington Constitution or the equal protection clause of the Fourteenth Amendment to the Federal Constitution.

            The business and occupation tax imposed by cities and towns in Washington are license taxes authorized by express grants of power from the legislature.  See  [[Orig. Op. Page 2]] RCW 35.22.280 (33), first class cities; RCW 35.23.440 (9), second class cities; RCW 35.24.290 (7), third class cities; RCW 35.27.370 (9), towns.

            In upholding Seattle's business and occupation tax in Pacific Telephone and Telegraph Co. v. Seattle, 172 Wash. 649, 653, the court stated:

            "This Court has held in numerous cases that cities and towns, under the powers granted, have the right to impose license taxes either for the purpose of regulation or revenue.  (citing cases)"

            The city business and occupation tax is an excise levied upon the right to do business, not upon the right to exist; nor upon the property.  Pacific Telephone and Telegraph Company v. Seattle, supra.

            The power of a legislative body to classify businesses for the purpose of imposing an excise tax on one and exempting another is extremely broad.  In Puget Sound Power and Light Company v. Seattle, 172 Wash. 668, 672, the court held:

            "The expediency of imposing excise taxes and the classification of persons and occupations affected is a legislative problem, so long as the exaction is not inherently oppressive and the classification is reasonable."

            Discussing what is a reasonable classification for the purpose of excise taxation, the court said inTexas Company v. Cohn, 8 Wn. (2d) 360, 387:

            ". . . A classification of commodities, businesses, or occupations, for excise tax purposes, under which the classes are taxed at unequal rates, or one class is taxed and another is exempted, will be upheld as constitutional if it is not arbitrary nor capricious and rests upon some reasonable basis of difference or policy.  The difference between classes need not be great . . .  Classification may also be permissible if it is reasonably related to some lawful taxing policy of the state, such as greater ease or economy in the administration or collection of a tax, the selection of a fruitful source of revenue with the exemption of sources less promising or equalization of the burdens of taxation. . . ."

             [[Orig. Op. Page 3]]

            The acute financial condition of the several city transit systems in the state of Washington together with a real public interest in their continued operation, provides a reasonable basis for classifying transit systems for favorable tax treatment.

            We conclude that exemption of a municipally owned or privately owned transit system from a city business and occupation tax is clearly within the legislative power of a city council and is prohibited by neither the privileges and immunities clause of the state constitution (Art. I, § 12) nor the equal protection clause of the Fourteenth Amendment to the Federal Constitution.

            We hope the above will be of assistance to you.

Yours very truly,

Attorney General

Special Assistant Attorney General

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