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Bob Ferguson

AGLO 1974 No. 51 -
Attorney General Slade Gorton

It would not be constitutional for the legislature, in imposing an excise tax upon the harvesting of timber, to impose a special surtax applicable only to that timber which is exported.

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                                                                   April 18, 1974 
Honorable R. Frank Atwood
State Senator, 42nd District
Legislative Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1974 No. 51
Dear Senator Atwood:
            This is written in response to your letter of April 17, 1974, asking for an opinion on the constitutionality of a certain amendment to Substitute House Bill No. 1185 that has been adopted by the state House of Representatives.
            RCW 82.04.220 provides that:
            "There is levied and shall be collected from every person a tax for the act or privilege of engaging in business activities.  Such tax shall be measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be."
            The rate of this "business and occupation" excise tax, in the case of persons engaged in the business of harvesting timber, is set forth in RCW 82.04.291.  Substitute House Bill No. 1185 proposes to amend that statute, in material part, as follows:
            "(1) Upon every person engaging within this state in business as a harvester of timber; as to such persons the amount of tax with respect to such business shall be equal to the stumpage value of timber harvested for sale or for commercial or industrial use multiplied by the appropriate rate as follows:
            ". . .
             [[Orig. Op. Page 2]]
            "(c) For timber harvested ((on or after)) between October 1, 1974 and December 31, 1978 inclusive, the rate shall be ((determined and fixed by the first session of the legislature commencing on or after January 1, 1973, whether regular or extraordinary, in accordance with the purposes and intent of RCW 84.33.180)) six and one‑half percent;"
            Prior to its passage by the House of Representatives on April 16, 1974, a further amendment was added to this bill.  This further amendment, with respect to which you have asked our opinion, proposes to add to subparagraph (c), supra, the following proviso:
            "PROVIDED, That any timber harvested in the state which is subject to the tax imposed by this section and which is subsequently exported from the state after harvesting without processing shall be subject to a surtax in an amount equal to fifty percent of the rate established by this act";
            From our reading of this proviso it is unclear whether its drafters intended their proposed surtax to be a property tax upon the exported timber or an additional excise tax upon the harvester.  Either way, however, it is our opinion that the tax would be unconstitutional.
            If it is a property tax, the surtax proposed by the house amendment would be in violation of Article I, § 10, P 2 of the United States Constitution which states that:
            "No state shall, without the consent of the congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws:  . . ."
            See, in general, 51 Am.Jur., Taxation, §§ 103-107, and cases cited therein.  While it is permissible for a state to impose a general tax upon property even though  [[Orig. Op. Page 3]] certain items of the property thus taxed are later exported to a foreign country,1/ the surtax here proposed would not constitute such a general tax but, instead, would be a special additional tax imposed on designated property because it is exported.
            Conversely, if the surtax is an additional excise tax imposed upon a timber harvester for the privilege of harvesting timber which is subsequently exported, it would, instead, be in violation of another provision of the United States Constitution, Article I, § 8, which empowers the congress to ". . . regulate commerce with foreign nations, and among the several states . . ."
            The decisions of the United States Supreme Court as well as those of our own state supreme court have made it unmistakably clear that an excise tax, even though admittedly upon a local activity, i.e., an activity which is not part of the process of interstate or foreign commerce, is nevertheless invalid if, taking the taxing scheme as a whole, the taxing scheme discriminates against interstate or foreign commerce.  See, Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 10 L.Ed. 2d, 202, 83 S.Ct. 1201 (1963), and PUD No. 2 of Grant Cy. v. State, 82 Wn.2d 232,      P.2d      (1973).
            To illustrate the operation of this "discrimination test" the Grant County case is of special interest.  It is not only the latest decision of our state supreme court applying this test, but it also involves a tax on a strictly local activity, i.e., the generation of power.
            The tax was there attacked on the ground that, although imposed upon the privilege of engaging in a purely local activity, it nevertheless constituted a discrimination against interstate commerce for purposes of application of the commerce clause because it applied only with respect to power generated for resale to consumers outside the state.  In upholding the tax, the basis of the court's decision was the fact that there was also a tax, at the same rate, on sales of power to consumers within this state.  It is clear from the court's opinion that absent this second tax the generating tax on exported power would have been invalid, under such cases as Halliburton Oil Well Cementing Co. v. Reily, supra.
             [[Orig. Op. Page 4]]
            Examining the timber excise tax, including the proposed surtax, there is nothing in the bill which would operate in a similar manner to save the surtax from an attack on the grounds that it discriminates against foreign commerce.
            We trust that the foregoing will be of some assistance to you.
Very truly yours,
Attorney General
Deputy Attorney General
Assistant Attorney General

                                                         ***   FOOTNOTES   ***
1/Brown v. Houston, 114 U.S. 622, 29 L.Ed. 257, 55 S.Ct. 291 (1885); Empresa Siderurgica, S.A. v. Merced, 337 U.S. 154, 93 L.Ed. 1276 (1949).