Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGLO 1971 No. 75 -
Attorney General Slade Gorton

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                                                                   May 25, 1971
Honorable Hal Zimmerman
State Representative, 17th District
1432 N. E. 6th
Camas, Washington 98607
Honorable Albert Bauer
State Representative, 17th District
13611 N. E. 2th Avenue
Vancouver, Washington 98664                                                            Cite as:  AGLO 1971 No. 75 (not official)
            Last month, during the 1971 special legislative session, the two of you jointly wrote us requesting an opinion outlining the permissible limits within which tax exemptions may be granted by the legislature under our state constitution.  In addition, you asked for our advice regarding the constitutionality of then pending House Bills Nos. 1, 82 and 757 in the light of these constitutional guidelines.
            We regret that it was not possible for us to complete our work on your opinion request before adjournment of the legislature; however, as you are most likely aware, the several members of our staff who are particularly well versed in the laws relating to taxation were extremely busy, during the concluding weeks of the session, rendering day to day advice regarding the various important revenue measures then pending, and it simply was not possible for them to complete their assigned functions in connection with your request until just this past week.
            In the meantime, as you are no doubt also aware, the second of the three bills to which you have referred, House Bill No. 82, was passed by the legislature and has been signed into law by the governor.  Accordingly, this measure must now be presumed to be constitutional, in line with the long-standing policy of this office in this regard.  See, AGO 1971 No. 12 [[to Gordon L. Walgren, State Senator on March 16, 1971]], copy enclosed.  On the other hand the remaining two bills which you have cited in your request failed to pass, and thus any question as to their constitutionality is now moot unless either or both should be reintroduced at the next legislative session.
            Accordingly, at this time it is appropriate that we limit our response to your request to one of answering your first, and more generalized question regarding the permissible constitutional limits within which tax exemptions may be granted in this state.  However, if, at some later date, a determination is made to proceed further with counterparts to either of the  [[Orig. Op. Page 2]] two non-enacted bills above mentioned, please advise us and we will be happy then to give our specific attention to these measures.
            Any discussion of our state's power of taxation must begin with a reference to Article VII, § 1, of the Washington constitution, as amended.1/   This section provides as follows:
            "The power of taxation shall never be suspended, surrendered or contracted away.  All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only.  The word 'property' as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.  All real estate shall constitute one class:  Provided, That the legislature may tax mines and mineral resources and lands devoted to reforestation by either a yield tax or an ad valorem tax at such rate as it may fix, or by both.  Such property as the legislature may by general laws provide shall be exempt from taxation.  Property of the United States and of the state, counties, school districts and other municipal corporations, and credits secured by property actually taxed in this state, not exceeding in value the value of such property, shall be exempt from taxation.  The legislature shall have power, by appropriate legislation, to exempt personal property to the amount of three hundred ($300.00) dollars for each head of a family liable to assessment and taxation under the provisions of the laws of this state of which the individual is the actual bona fide owner."  (Emphasis supplied.)
             [[Orig. Op. Page 3]]
            In addition, note must be made of Article VII, § 10 (Amendment 47) which provides that:
            "Notwithstanding the provisions of Article 7, section 1 (Amendment 14) and Article 7, section 2 (Amendment 17), the following tax exemption shall be allowed as to real property:
            "The legislature shall have the power, by appropriate legislation, to grant to retired property owners relief from the property tax on the real property occupied as a residence by those owners.  The legislature may place such restrictions and conditions upon the granting of such relief as it shall deem proper.  Such restrictions and conditions may include, but are not limited to, the limiting of the relief to those property owners below a specific level of income and those fulfilling certain minimum residential requirements."
            Summarizing the various categories of tax exemptions which are either directly granted or otherwise authorized by these two provisions, it will be seen, first, that property of the United States and this state and its subdivisions is mandatorily made exempt by the self-executing language of Article II, § 1.  See, Puget Sound Power and Light Company v. Cowlitz County, 38 Wn.2d 907, 234 P.2d 506 (1951).
            Secondly, this same section also provides the legislature with the specific authority to exempt up to $300 worth of personal property for each head of a family, an authority which the legislature has exercised by its enactment of RCW 84.36.110.
            Thirdly, the legislature is also authorized ‑ this time by the second of the two foregoing provisions ‑ to exempt from taxation the property of certain "retired property owners."  See, RCW 84.36.128 ‑ 84.36.129 for the legislature's implementation of this authority.
            And finally the legislature is authorized, over and above the foregoing, to exempt "Such property as [it] may by general law provide shall be exempt from taxation.  . . ."  See, Article VII, § 1 (Amendment 14), supra, which also, in effect, limits the exercise of this general power by providing, first, that
             [[Orig. Op. Page 4]]
            "All real estate shall constitute one class"; and secondly, that
            ". . . All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax . . ."
            In the case of the first of these two limitations, it is clear that there may be exemptions for different classes of real property if the classification is reasonable.  Public Utility District No. 1 v. Superior Court, 199 Wash. 146, 90 P.2d 737 (1939); see, also, AGO 59-60 No. 155 [[to Donald Sampson, Legislative Council on October 31, 1960]], page 5, copy enclosed.
            Likewise, in the case of the requirement of uniformity ‑ again, this has been held not to preclude the legislature from granting exemptions based upon "reasonable classification," where the exemption is granted by a general rather than a special law.  See, Libby, McNeill & Libby v. Ivarson, 19 Wn.2d 723, 144 P.2d 258 (1943), holding that
            "In classifying property for taxation or exemption therefrom, the legislature has wide discretion, and its exercise is not subject to review by the courts unless clearly arbitrary or unreasonable and beyond its power.  . . ."
            In AGO 59-60 No. 155, supra, we discussed this concept of "reasonable classification" to some further extent ‑ not only in terms of Article VII, § 1 (Amendment 14), supra, but, as well, from the standpoint of Article I, § 122/ (special privileges and immunities) and the comparable "equal protection" guarantees of Amendment 14 to the United States Constitution.  The similarity of each of these restrictions upon classification for tax or other purposes was commented upon as follows:
            "In State ex rel. Bacich v. Huse, 187 Wash. 75, 59 P.2d 1101 (1936), our court said:
            "'The aim and purpose of the special privileges and immunities provision of Art. I, § 12, of the state constitution and of the equal protection clause of the fourteenth amendment of the Federal constitution is to secure equality of treatment of all persons, without undue favor on the one hand or hostile discrimination on the other.
            "'To comply with these constitutional provisions, legislation involving classifications must meet and satisfy two requirements:  (1) The legislation must apply alike to all persons within the designated class; and (2) reasonable ground must exist for making a distinction between those who fall within the class  [[Orig. Op. Page 5]] and those who do not.
            "'Within the limits of these restrictive rules, the legislature has a wide measure of discretion and its determination, when expressed in statutory enactment, cannot be successfully attacked unless it is manifestly arbitrary, unreasonable, inequitable, and unjust.  State v. McFarland, 60 Wash. 98, 110 Pac. 792; State ex rel. Davis-Smith Co. v. Clausen, 65 Wash. 156, 117 Pac. 1101, 37 L.R.A. (N.S.) 466; Litchman v. Shannon, 90 Wash. 186, 155 Pac. 783; State v. Cannon, 125 Wash. 515, 217 Pac. 18; Northern Cedar Co. v. French, 131 Wash. 394, 230 Pac. 837; Garretson Co. v. Robinson, 178 Wash. 601, 35 P.2d 504.'  (pp. 80-81)
            "See also Mosebar v. Moore, 41 Wn.2d 216, 248 P.2d 385 (1952).  However, for purposes of the question before us, Article I, § 12 would seem to present no problems really distinct from those presented by the Fourteenth Amendment, the question under both constitutional provisions is the same, viz, whether the proposed classification and the special treatment to corporations so classified is reasonable and therefore constitutionally permissible."
            Thus, in summary, the basic test of the constitutional validity of a tax exemption granted by the legislature under the general authority of Article VII, § 1 (Amendment 14), supra, is its "reasonableness."  To this ephemeral concept, little can be added that will outline specific limits to the power to provide exemptions.  The limitations are flexible by nature.  However, it may be fairly said that the state legislature has "broad discretion" in making classifications while exercising the taxing power.  Texas Company v. Cohn, 8 Wn.2d 360, 112 P.2d 522 (1941); Inland Empire Refineries v. State, 8 Wn.2d 723, 112 P.2d 541 (1941).  The breadth of this discretion is perhaps best described in the language of Mister Justice Roberts, speaking for the United States Supreme Court in Tax Commissioners v. Jackson, 283 U.S. 527, 75 L.Ed. 1248, 51 S.Ct. 540 (1931), as follows:
            "'The principles which govern the decision of this cause are well settled.  The power of taxation is fundamental to the very existence of the government of the States.  The restriction that it shall not be so exercised as to deny to any the equal protection of the laws does not compel the adoption of an iron rule of equal taxation, nor prevent variety or differences in taxation, or discretion in the selection of subjects, or the classification for taxation of properties, businesses, trades, callings, or occupations.  Bell's Gap R. C. v. Pennsylvania, 134 U.S. 232; Southwestern  [[Orig. Op. Page 6]] Oil Co. v. Texas, 217 U.S. 114; Brown-Forman Co. v. Kentucky, 217 U.S. 563.  The fact that a statute discriminates in favor of a certain class does not make it arbitrary, if the discrimination is founded upon a reasonable distinction, American Suger Rfg. Co. v. Louisiana, 179 U.S. 89, or if any state of facts reasonably can be conceived to sustain it.  Rast v. Van Deman & Lewis Co., 240 U.S. 342; Quong Wing. v. Kirkendall, 223 U.S. 59.  As was said in Brown-Forman Co. v. Kentucky, supra, at p. 573:
            "'"A very wide discretion must be conceded to the legislative power of the State in the classification of trades, callings, businesses or occupations which may be subjected to special forms of regulation or taxation through an excise or license tax.  If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law."
            "'It is not the function of this Court in cases like the present to consider the propriety or justness of the tax, to seek for the motives or to criticize the public policy which prompted the adoption of the legislation.  Our duty is to sustain the classification adopted by the legislature if there are substantial differences between the occupations separately classified.  Such differences need not be great.  The past decisions of the Court make this abundantly clear.'"3/
             Although this language referred to excise and license taxes, its application to classifications in general would reach property taxes.  The furthest limits of the discretion of the legislature may be marked by the following language, also  [[Orig. Op. Page 7]] by the United States Supreme Court, in A. Magnano v. Hamilton, 292 U.S. 40, 78 L.Ed. 1109, 59 S.Ct. 599 (1934):4/
            "The point may be conceded that the tax is so excessive that it may or will result in destroying the intrastate business of appellant; but that is precisely the point which was made in the attack upon the validity of the ten per cent tax imposed upon the notes of state banks involved in Veazie Bank v. Fenno, 8 Wall. 533, 548.  This court there disposed of it by saying that the courts are without authority to prescribe limitations upon the exercise of the acknowledged powers of the legislative departments.  'The power to tax may be exercised oppressively upon persons, but the responsibility of the legislature is not to the courts, but to the people by whom its members are elected.'  . . ."

            It is important to note the extent to which the Washington supreme court regards the language of the United States Supreme Court as being applicable in weighing the constitutional validity of taxing classifications.  On this issue the court in Texas Co. v. Cohn, supra, at p. 374, has said:
            ". . . this court regards the equal privileges and immunities provision of Art. I, § 12, of the state constitution and the equal protection clause of the fourteenth amendment to the constitution of the United States as substantially identical."5/
             Thus, in summary, there is a large body of decisional law in the field of tax exemptions ‑ from the standpoint of permissible versus nonpermissible classifications.  Beyond this, little would be gained by listing and discussing every case of this type.  In accordance with the foregoing, each classification will have to be measured on the basis of its own merits.  In each case, the basic test will be whether the classification rests upon some reasonable basis.
             [[Orig. Op. Page 8]]
            It is hoped that the foregoing general discussion with regard to the permissible constitutional limits within which tax exemptions may be granted in this state will be of some assistance to you.
Very truly yours,
Assistant Attorney General
                                                         ***   FOOTNOTES   ***
1/See, Amendment 3 (Laws of 1899, p. 121, § 1) (adopted in 1900) and Amendment 14 (Laws of 1929, p. 499, § 1) (adopted in 1930).
2/Article I, § 12, provides as follows:
            "No law shall be passed granting to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which upon the same terms shall not equally belong to all citizens, or corporations."
3/The Washington supreme court has quoted this language, in whole or in part, with approval on several occasions.  See, Puget Sound Power & Light Company v. Seattle, 172 Wash. 668, 21 P.2d 727 (1933); Benjamin Franklin Thrift Stores v. Henneford, 187 Wash. 472, 60 P.2d 86 (1936); Casco Company v. Thurston County, 163 Wash. 666, 2 P.2d 677 (1931); and Supply Laundry Company v. Jenner, 178 Wash. 72, 34 P.2d 363 (1934).
4/Cited with approval in Texas Co. v. Cohn, supra, p. 369.
5/See, also, State v. Pitney, 79 Wash. 608, 140 Pac. 918 (1914); and State v. Hart, 125 Wash. 520, 217 Pac. 45 (1923).