CITIES AND TOWNS—TAXATION—DISTRICT, PUBLIC UTILITY—Method For Measuring Municipal Public Utility Taxes
A city or town may impose a public utility tax on the revenue generated by an investor-owned utility under RCW 35.22.280(32), and on the revenue generated by a public utility district under RCW 54.28.070. The definition of “gross revenue” in RCW 54.28.011 applies to tax imposed on the revenue of a public utility district but not on the revenue of an investor-owned utility.
September 11, 2018
The Honorable Ann Rivers
Dear Senator Rivers:
By letter previously acknowledged, you have requested our opinion on a question we have paraphrased as follows:
Do the definitions and any other provisions in RCW 54.28, such as the definition of “gross revenue” in RCW 54.28.011, limit the authority of First Class cities to levy a utility tax using their authority under RCW 35.22.280(32)?
The answer to your question depends upon the nature of the entity subject to the tax. The authority of a city to impose a utility tax on a private, investor-owned utility derives from RCW 35.22.280(32), which is the general business licensing authority of a city. Taxes imposed under RCW 35.22.280(32) are not limited by RCW 54.28. In contrast, the authority of a city to impose a utility tax on a public utility district (PUD) is found in RCW 54.28.070, and that statute expressly limits the tax based on the definition of “gross revenue” found in RCW 54.28.011. Therefore a city utility tax imposed on a private, investor-owned utility is not limited by the definition of “gross revenue” in RCW 54.28.011, while a similar tax imposed on a public utility district is so limited.
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Your question arises in relation to a city within your district that imposes a city utility tax under the authority of the city’s general business licensing authority. That statute provides a First Class city with the authority to “grant licenses for any lawful purpose, and to fix by ordinance the amount to be paid therefor[.]” RCW 35.22.280(32). The city measures its tax on “the gross revenue derived from the sale of electricity within the city limits[.]” Vancouver Mun. Code § 5.96.020. The city imposes this tax on electricity sold by “every person, firm, corporation and municipal corporation, including any public utility district.” Vancouver Mun. Code § 5.96.020. Utilities, however, pass the local tax on to their customers, collecting from them the amount of the tax in addition to other charges for electricity.
The state also imposes a utility tax, specifically on electricity sold by PUDs. RCW 54.28.020. The state tax is imposed pursuant to a series of statutes codified in RCW 54.28. The state tax is measured by the gross revenue derived from engaging in the business “of operating works, plants or facilities for the generation, distribution and sale of electric energy.” RCW 54.28.020. The legislature has statutorily defined “gross revenue” to mean
the amount received from the sale of electric energy, which also includes any regularly recurring charge billed to consumers as a condition of receiving electric energy, and excluding any tax levied by a municipal corporation upon the district pursuant to RCW 54.28.070.
RCW 54.28.011. Thus, for the state tax, gross revenue does not include the amount of tax levied by a municipal corporation, such as a city. RCW 54.28.011.
RCW 54.28.070 authorizes “[a]ny city or town in which a public utility district operates works, plants or facilities for the distribution and sale of electricity . . . to levy and collect from such district a tax on the gross revenues derived by such district from the sale of electricity within the city or town[.]” Thus, if a city levies a tax on a PUD, the same definition of “gross revenue” found in RCW 54.28.011 applies, and, as a result, the amount of gross revenue would not include the amount of any tax levied by the city.
You ask whether any provision of RCW 54.28, including the definition of “gross revenue” in RCW 54.28.011, limits the authority of First Class cities to levy a utility tax using their authority under RCW 35.22.280(32).
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Washington cities depend on legislative grants of authority to impose taxes, lacking any inherent authority to do so under the state constitution. Const. art. VII, § 9; art. XI, § 12; see also Cmty. Telecable of Seattle, Inc. v. City of Seattle, 164 Wn.2d 35, 41, 186 P.3d 1032 (2008). Your question concerns two statutory delegations of authority under which cities may tax utilities: RCW 35.22.280(32) and RCW 54.28.070. We consider each of them in turn, as well as the statutory restrictions on that authority. We answer your question by concluding that RCW 35.22.280(32) authorizes the imposition of a municipal utility tax against investor-owned utilities. The revenue against which this tax is calculated may include revenue that the utility collects by passing on the tax to its customers. RCW 54.28.070 provides a city with authority to tax PUDs, but the definition of “gross revenue” in RCW 54.28.011 governs how the tax is measured.
“RCW 35.22.280 enumerates the broad legislative powers delegated to first class cities[.]” Watson v. City of Seattle, 189 Wn.2d 149, 167, 401 P.3d 1 (2017). This statute authorizes First Class cites to “grant licenses for any lawful purpose, and to fix by ordinance the amount to be paid therefor[.]” RCW 35.22.280(32). This licensing authority serves dual purposes: “(1) For regulation; (2) for revenue.” Pacific Tel. & Tel. Co. v. City of Seattle, 172 Wash. 649, 654, 21 P.2d 721 (1933).
First class cities have “broad statutory taxing authority pursuant to RCW 35.22.280(32)” to tax businesses for the privilege of doing business within city limits, unless otherwise restricted by statute. Watson, 189 Wn.2d at 171. RCW 35.22.280(32) grants First Class cities sufficiently broad authority to impose a public utility tax. Puget Sound Energy, Inc. v. City of Bellingham, 163 Wn. App. 329, 337, 259 P.3d 345 (2011) (cities have broad authority to impose utility taxes without regard to the state tax). A city’s authority under RCW 35.22.280(32) is not limited by the fact that the state also imposes its own utility tax under RCW 54.28.020. The similarity in name and subject of the tax notwithstanding, “the city is not required to classify for taxation purposes the activities [of the taxpayer] in the same manner as does the state[.]” Id. at 337.
The authority to tax under RCW 35.22.280(32) is limited by its own terms, however. RCW 35.22.280(32) is, by its own terms, authority to license a business. See Watson, 189 Wn.2d at 167 (describing the authority granted by RCW 35.22.280(32) as the authority to levy an excise tax associated with a business license). In contrast, the tax authorized by RCW 54.28.070 applies only to a city’s taxation of the revenue of a PUD. RCW 54.28.070.
Construing RCW 35.22.280(32) as authority to tax investor-owned utilities but not PUD’s harmonizes the statue with the separate authority for a city to impose a utility tax against a PUD. RCW 54.28.070. Am. Legion Post 149 v. Dep’t of Health, 164 Wn.2d 570, 588, 192 P.3d 306 (2008) (“Statutes are to be read together, whenever possible, to achieve a ‘harmonious total statutory scheme . . . which maintains the integrity of the respective statutes.’” (Alteration in original source.)). If RCW 35.22.280(32) and RCW 54.28.070 did not differ, then one or the other
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of them would be superfluous, a result that statutory construction seeks to avoid. In re Det. of Strand, 167 Wn.2d 180, 189, 217 P.3d 1159 (2009) (“Under rules of statutory construction ‘no part of a statute should be deemed inoperative or superfluous unless it is the result of obvious mistake or error.’”).
RCW 54.28.070 allows a city to impose a tax on a PUD’s gross revenue from the sale of electricity. The term “gross revenue” for purposes of that statute is defined to exclude “any tax levied by a municipal corporation upon the district[.]” RCW 54.28.011. Therefore, by its own terms, the municipal utility tax authorized by RCW 54.28.070 applies only to “gross revenue” as defined by RCW 54.28.011. That definition excludes “any tax levied by a municipal corporation upon the district pursuant to RCW 54.28.070.” RCW 54.28.011.
Reading RCW 35.22.280(32) and RCW 54.28.070 together, we conclude that the former statute authorizes a First Class city to impose a utility tax against investor-owned utilities, while the latter authorizes a municipal utility tax against PUDs. For a tax on electricity sold by an investor-owned utility, the tax may be assessed against amounts that the utility collects from its customers to pay the tax. Puget Sound Energy, 163 Wn. App. at 338-39. For a tax on electricity sold by a PUD, the tax is measured by “gross revenue” as defined in RCW 54.28.011.
We trust that the foregoing will be useful to you.
ROBERT W. FERGUSON
JEFFREY T. EVEN
Deputy Solicitor General
 Although your question arises with regard to a specific city, our analysis is necessarily general. Attorney General Opinions do not focus on specific disputes, but address state law more generally. AGO 2016 No. 1, at 3. Our analysis is, however, limited to the law applicable to cities of the First Class, which are addressed in RCW 35.22. The law with regard to other classes of cities may be similar or different.