Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGLO 1979 No. 2 -
Attorney General Slade Gorton


A noncharter code city may levy a city business and occupation tax on the gross receipts of parimutuel machines at a horse race course that is situated within the corporate limits of the city.

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                                                                 January 15, 1979

Municipal Research Council
4719 Brooklyn Avenue N.E.
Seattle, Washington 98105                                                                                                                 Cite as:  AGLO 1979 No. 2


            By letter previously acknowledged you have requested our opinion on a question which we paraphrase as follows:

            May a noncharter code city levy a city business and occupation tax on the gross receipts of parimutuel machines at a horse race course that is situated within the corporate limits of the city?

            We answer your question in the affirmative for the reasons set forth in our analysis.


            I. Introduction:

            Although it is not identified in your question itself, the remainder of your letter informs us that the specific code city here involved is the city of Renton‑-within the territorial boundaries of which is located the Longacres Race Track.  The operation of this privately-owned facility,1/ in  [[Orig. Op. Page 2]] turn, is governed by, and licensed under, the provisions of chapter 67.16 RCW in accordance with the authority granted by that chapter to the Washington Racing Commission.  See, in particular, RCW 67.16.020-67.16.050, together with RCW 67.16.060 to which we will make further note below.  It is this latter statute which contains the underlying legislative sanction for the conduct of parimutuel wagering in conjunction with licensed horse racing within our state.

            We further note, preliminarily, that the city of Renton heretofore has, by appropriate ordinance, established an annual license fee or tax ". . . for the privilege of engaging in business activities . . ." within the city.  See, in general, § 5-103(A) of the Renton Municipal Code.  As a part of that ordinance, however, the city has also expressly exempted various described activities from the tax‑-including

            "Any person in respect to the business of conducting race meets for the conduct of which a license must be secured from the State Horse Racing Commission."

            See, Renton Municipal Code, § 5-107(D) and compare RCW 84.04.350 which contains an identical statutory exemption insofar as the state business and occupation tax is concerned.2/   Then, in addition, having so exempted licensed race meets from the foregoing business license fee or tax, the city of Renton has imposed a special horse race admission tax consisting, first, of a basic admission fee or tax upon the activity itself (to be paid by the operator) and, secondly, of an additional tax,

            ". . . levied upon every person who pays such an admission charge within the City limits of the City of Renton. . . ."3/

             Thus, in summary, the factual situation at the present time is this:  The gross revenues derived from parimutuel wagering at Longacres are not now subject to an excise tax imposed by the city of Renton because‑-

             [[Orig. Op. Page 3]]

            (a) The track operator is exempt from the city's general business license fee or tax by reason of an express provision of the ordinance relating thereto; and

            (b) The city's special excise tax on race meets only extends to admission charges.

            The issue here presented, in most basic terms, is whether there is any legal obstacle to an alteration of the foregoing‑-specifically (as we understand it) in the context of a proposed extension of the present city business license fee or tax to encompass the gross receipts of parimutuel wagering.

            The underlying legal basis for the existing taxing ordinance is to be found in a state statute, RCW 35A.82.020, and in certain related court decisions.  First, the statute (which is a part of the Optional Municipal Code‑-Title 35A RCW) provides, in its initial paragraph, that:

            "A code city may exercise the authority authorized by general law for any class of city to license and revoke the same for cause, to regulate, make inspections and to impose excises for regulation or revenue in regard to all places and kinds of business, production, commerce, entertainment, exhibition, and upon all occupations, trades and professions and any other lawful activity:  PROVIDED, That no such license or permit to engage in any such activity or place shall be granted to any who shall not first comply with the general laws of the state.

            ". . ."4/

             [[Orig. Op. Page 4]]

            In turn, by court decision, it is well established in this state that cities and towns of all classes possess the authority to 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.  See,e.g., Pacific Tel. & Tel. Co. v. Seattle, 172 Wash. 649, 21 P.2d 721 (1933) andWells & Wade Hardware v. Wenatchee, 64 Wn.2d 103, 390 P.2d 701 (1964).  As stated by the court in the first of these two cases, at p. 653:

            "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.  Fleetwood v. Read, 21 Wash. 547, 58 Pac. 665, 47 L.R.A. 205; Walla Walla v. Ferdon, 21 Wash. 308, 57 Pac. 796;Stull v. DeMattos, 23 Wash. 71, 62 Pac. 451, 51 L.R.A. 892;In re Garfinkle, 37 Wash. 650, 80 Pac. 188; Sumner v. Ward, 126 Wash. 75, 217 Pac. 502; Bucoda v. Swaney, 163 Wash. 43, 299 Pac. 652."

            At the same time, however, because of the subordinate relationship which cities, towns and other municipal corporations or political subdivisions bear to the state there are equally well-recognized limits on this same taxing power which fall, generally, under two headings:  (1) preemption and (2) exemption.  Where there has been a preemption the municipality may not tax because the state itself has fully occupied the field, so to speak.  An exemption, on the other hand, is usually the result of a specific state statute such as, for example, currently exists in the state liquor code, in the form of RCW 66.08.120, as follows:

            "No municipality or county shall have power to license the sale of, or impose an excise tax upon, liquor as defined in this title, or to license the sale or distribution thereof in any manner. . . ."

             [[Orig. Op. Page 5]]

            RCW 35A.82.020,supra, also acknowledges these dual concepts by further providing, in its second paragraph (not above quoted), that:

            ". . .

            "No such license shall be granted [by a code city] to continue for longer than a period of one year from the date thereof and no license or excise shall be required where the same shall have been preempted by the state, nor where exempted by the state, including, but not limited to, the provisions of RCW 36.71.090 and chapter 73.04 RCW relating to veterans."

            In responding to your question we will, therefore, first consider the possibility of a state preemption which would preclude any extension of the Renton business tax (as it now exists) to parimutuel wagering activities.  And then, in turn, we will analyze and dispose of certain arguments which have been made, on behalf of legal counsel for the licensee track, to the effect that there exists, at the present time, a state statutory exemption of parimutuel wagering from any local taxation.5/

            At the outset, we immediately note the total absence from chapter 67.16 RCW (the Horse Racing Act) of anything comparable to the express provision contained in RCW 66.08.120,supra, relative to the taxation of liquor sales by municipalities.  In short, there is in the Horse Racing Act no express statutory preemption or exemption.  What that actdoes say about parimutuel wagering receipts, on the other hand, is to be found, first, in so much of RCW 67.16.060, supra, as provides that:

            "It shall be unlawful to conduct pool selling, bookmaking, or to circulate hand books, or to bet or wager on any horse race other than by  [[Orig. Op. Page 6]] the parimutuel method,or for any licensee to take more than ten percent of the gross receipts of any parimutuel machine. . . ." (Emphasis supplied)

            In addition, there is a further allocation of parimutuel wagering receipts to be found in two other sections of the racing act, RCW 67.16.100 and 67.16.102, which read, in pertinent part, as follows:

            "In addition to the license fees required by this chapter the licensee shall pay to the commission five percent of the gross receipts of all parimutuel machines at each race meet, which sums shall be paid daily to the commission.

            ". . ." (RCW 67.16.100)

            "Notwithstanding any other provision of chapter 67.16 RCW to the contrary the licensee shall withhold and shall pay daily to the commission, in addition to the fifteen percent authorized by this chapter, one percent of the gross receipts of all parimutuel machines at each race meet which sums shall, at the end of each meet, be paid by the commission to the licensed owners of those horses finishing first, second, third and fourth Washington bred only at each meet from which the additional one percent is derived in accordance with an equitable distribution formula to be promulgated by the commission prior to the commencement of each race meet. . . ." (RCW 67.16.102)

            Because of these provisions of the Horse Racing Act, it has first been urged by counsel for the licensee track that an implied preemption exists by reason of a statutory allocation of the full amount of all parimutuel wagering revenues themselves;i.e., 10% to the licensee track,6/ 6% to the state and the remaining 84% to the holders of winning  [[Orig. Op. Page 7]] parimutuel tickets.  In response, however, we do not regard this as meaning that the state has preempted the field so as to preclude the extension of a municipal business and occupation tax to encompass the gross receipts derived by a licensee from parimutuel wagering.  The fallacy of the argument to the contrary is that it overlooks the fact that a business and occupation tax is not a property tax on the receipts themselves but, instead, is an excise tax imposed for the privilege of engaging in business‑-measured by the gross receipts of that business.  Accordingly, we are unpersuaded that any state preemption may properly be inferred from, or by reason of, the above‑described statutory allocation formula.

            Next, our attention has been directed to the fact (earlier noted) that ". . . the business of conducting race meets for the conduct of which a license must be secured from the Horse Racing Commission . . ." has been expressly made exempt from the state business and occupation tax by RCW 84.04.350,supra.  We fail to see any connection, however.  Merely because this particular activity is exempt from the state tax does not mean to us that it has likewise been exempted by the state from the imposition of a similar, but independent, municipal taxing system.  Or, stated otherwise, while it is true that the existing Renton ordinance contains an identical exemption of the business of horse racing from the present municipal business and occupation tax, there is nothing in RCW 84.04.350,supra, which requires this to be so.

            Counsel for the track's third and final argument in opposition to any extension of the tax to parimutuel wagering is, at first blush, somewhat more intriguing.  That argument is based in its entirety on certain provisions of chapter 9.46 RCW which both sanctions and regulates the conduct of various defined gambling activities.7/   As fully set forth in his written brief, the argument goes as follows:

             [[Orig. Op. Page 8]]

            ". . . When the legislature enacted the new gambling statute, Chapter 9.46 RCW, in 1973, authorizing charitable or non-profit organizations to conduct bingo games, raffles, and amusement games, it specifically authorized cities and counties of the state to tax these authorized gambling activities, subject to certain limitations and conditions, RCW 9.46.110, and further provided:

            "This chapter shall constitute the exclusive legislative authority for the taxing by any city, town, city-county or county of any gambling activity and its application shall be strictly construed [sic] to those activities herein permitted and to those persons, associations or organizations herein permitted to engage therein.  RCW 9.46.270

            "Parimutuel betting is exempted from the operation of Chapter 9.46 RCW by its exclusion from the definition of "gambling" in RCW 9.46.020(8).  The result of doing so was to exempt parimutuel betting from the city taxes authorized by chapter 9.46 RCW.  Read together, the gambling statutes and the Washington Horse Racing Act reveal a legislative intent that a specific grant of authority is required for a municipality to tax any gambling activity authorized in the state, and that the only such grant which is currently available to a municipality is that contained in RCW 9.46.030, which does not authorize a tax on the gross receipts of parimutuel betting."

            As we view it, however, there is also, upon closer analysis, a fatal flaw in this argument.  It is most certainly true that parimutuel wagering is exempted from the operation of chapter 9.46 RCW, and it is further true that this is so because it is expressly excluded from the definition of "gambling" which is contained in RCW 9.46.020(8) and reads, in material part, as follows:

            "(8) 'Gambling'.  A person engages in gambling if he stakes or risks something of value upon the outcome of a contest of  [[Orig. Op. Page 9]] chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome. . . ."

            But because of this special and qualified statutory definition of "gambling" for the purposes of chapter 9.46 RCW, it further necessarily follows that parimutuel wagering does not constitute a "gambling activity" within the meaning of RCW 9.46.270, quoted in counsel's brief and here repeated for ease of reference as follows:

            "This chapter shall constitute the exclusive legislative authority for the taxing by any city, town, city-county or county of any gambling activity and its application shall be strictly construed to those activities herein permitted and to those persons, associations or organizations herein permitted to engage therein.  (Emphasis supplied)

            Therefore, while the applicable section of chapter 9.46 RCW8/ most certainly does constitute the exclusive legislative authority for the taxing, by any city or other municipality, of any of those particular gambling activities authorized by chapter 9.46 RCW applies, it has nothing whatsoever to do with the authority of a city to tax those business activities which donot constitute "gambling" activities within the meaning of that law;i.e., as defined in RCW 9.46.020(8), supra.  Thus, in our opinion, RCW 9.46.110 does not preclude a code city, in the exercise of its delegated taxing authority under RCW 35A.82.020, supra, from levying a city business license tax on the basis of a licensee race track's gross receipts from parimutuel wagering under RCW 67.16.060,supra.

             [[Orig. Op. Page 10]]


            For the foregoing reasons our ultimate answer to your question is in the affirmative.  A non-charter code city may, in our opinion, levy a city business and occupation tax on the gross receipts of parimutuel machines at a horse race course that is situated within the appropriate limits of the city.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Deputy Attorney General

                                                         ***   FOOTNOTES   ***

1/The owner and operator of Longacres is the Washington Jockey Club, a private corporation.

2/We will have occasion further to note the legal significance of this state statutory exemption in our analysis below.

3/Renton Municipal Code, § 5-202.

4/See also, RCW 35A.82.050 which provides that:

            "Any code city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities.  This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW."

            For an analysis of this provision and its counterpart, RCW 35.21.710 (relating to all other cities and towns), both of which were enacted pursuant to chapter 134, Laws of 1972, 1st Ex. Sess., we would refer you to AGO 1972 No. 2.

5/We should indicate, parenthetically, at this juncture that following our receipt of your opinion request we contacted legal counsel for both the city of Renton and the Washington Jockey Club and invited them to submit written briefs on the question presented.   Both the Renton city attorney and Mr. Gerald Grinstein, representing the licensee track operator, have since done so.

6/Assuming that the track takes its allotted maximum, which it does.

7/The laws contained in chapter 9.46 RCW were all enacted by the legislature subsequent to the approval of a constitutional amendment by the voters of our state in 1971 whereby a previous constitutional prohibition against the conduct of lotteries was modified to read as follows:

            ". . . Lotteries shall be prohibited except as specifically authorized upon the affirmative vote of sixty percent of the members of each house of the legislature or, notwithstanding any other provision of this Constitution, by referendum or initiative approved by a sixty percent affirmative vote of the electors voting thereon."

            See, Washington Constitution, Article II, § 24 (Amendment 56).

8/I.e., RCW 9.46.110 which reads, in pertinent part, as follows:

            "The legislative authority of any county, city-county, city, or town, by local law and ordinance, and in accordance with the provisions of this chapter and rules and regulations promulgated hereunder, may provide for the taxing of any gambling activity authorized in RCW 9.46.030 as now or hereafter amended within its jurisdiction, the tax receipts to go to the county, city-county, city, or town so taxing the same. . . ."