AGO 1978 No. 2 - Jan 24 1978
TAXATION—STATE—LEGISLATURE—REIMPOSITION OF TIMBER EXCISE TAX
Given that the timber excise tax imposed by RCW 82.04.291 will expire on December 31, 1978, under existing legislation, if the legislature were to reimpose the tax during its next (1979) regular session, effective January 1, 1979, such an enactment would be constitutionally valid; moreover, this would be so even if the rate of the tax as reimposed were to be different than the present rate; however, in order to strengthen the defensibility of any such legislation it is recommended that it be enacted into law and signed by the governor on or before March 1, 1979.
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January 24, 1978
Honorable Hubert F. Donohue
Senate Committee on Ways and Means
105 Public Lands Building
Olympia, Washington 98504
Cite as: AGO 1978 No. 2
By letter previously acknowledged you have requested the opinion of this office on several questions which we have paraphrased as follows:
(1) Given that the timber excise tax imposed by RCW 82.04.291 will expire on December 31, 1978 under existing legislation, if the legislature were to reimpose the tax during its next (1979) regular session, effective January 1, 1979, would such an enactment be constitutionally valid?
(2) If question (1) is answered in the affirmative, is there any time limit by which such a reimposition of the tax must be accomplished?
(3) If question (1) is answered in the affirmative, must the rate of the tax as thus reimposed, effective January 1, 1979, be the same rate as was in effect prior to that date?
We answer question (1) in the affirmative, question (3) in the negative and question (2) as set forth in our analysis.
RCW 82.04.291 (1) imposes an excise tax on timber harvesters at a specific rate, multiplied by the stumpage value of timber harvested for sale. This statute originated through the passage of § 7, chapter 294, Laws of 1971, 1st Ex. Sess., and was most recently reenacted by § 1, chapter 347, Laws of 1977, 1st Ex. Sess. In the meantime it was amended in 1972 (by § 1, chapter 148, Laws of 1972, 1st Ex. Sess.), in 1974 (by § 1, chapter 187, Laws of 1974, 1st Ex. Sess.), and twice in 1976 (by § 1, chapter 33, Laws of 1975-76, 2nd Ex. Sess., and, again, by § 7, chapter 123, Laws of 1975-76, 2nd Ex. Sess.). The current rate of the tax, for the period commencing October 1, 1974, and ending December 31, 1978, is 6.5% as provided for in RCW 82.04.291 (1) (b). It should also be noted that this rate and time period were originally established by § 1, chapter 187, Laws of 1974, 1st Ex. Sess., supra—neither of the two intervening 1976 amendments having affected the rate or its expiration. For ease of reference the full relevant text of the statute now reads 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:
*2 “(a) For timber harvested between October 1, 1972 and September 30, 1973 inclusive, the rate shall be one and three-tenths percent;
“(b) For timber harvested between October, 1, 1973 and September 30, 1974 inclusive, the rate shall be two and nine-tenths percent and between October 1, 1974 and December 31, 1978, inclusive, six and one-half percent.”
Given the plain language of this provision, it is apparent from subsection (1) (b) thereof that in the absence of some further legislative action, the tax will expire on December 31, 1978. Thereafter, until and unless such action is taken, no timber excise tax will be imposed. Nevertheless, it also bears notice that both the (current) 1977 and 1974 acts imposing the tax do make provision for the disposition of revenues realized from the tax for various designated periods of time subsequent to that date. Thus, under subsection (5) of RCW 82.04.291, as amended by § 1, chapter 347, Laws of 1977, 1st Ex. Sess., supra, provision for the disposition of those revenues is made for the years 1973 to 1982 as well as 1983 and thereafter, as follows:
“(5) There are hereby created in the state treasury a state timber tax account A and a state timber tax reserve account in the state general fund and any interest earned on the investment of cash balances shall be deposited in these accounts. The revenues from the tax imposed by subsection (1) of this section shall be deposited in state timber tax account A and state timber tax reserve account as follows:
“YEAR OF COLLECTION ACCOUNT A RESERVE ACCOUNT
“1973 through 1982 100% 0% 1983 and thereafter 0% 100%
With this statutory background in mind let us turn to your questions:
Your first question assumes that, for one reason or another, no further legislative action occurs during 1978. Then, however, at its next (1979) regular session, the legislature reimposes the timber excise tax (either at the same or a different rate), effective January 1, 1979. Your inquiry is whether such legislation would be constitutionally valid.
The issue of allegedly unconstitutional retroactivity in state tax laws has been before our state supreme court on three occasions during the last 40 years. See, In re McGrath’s Estate, 191 Wash. 496, 71 P.2d 395 (1937), Bates v. McCleod, 11 Wn.2d 648, 120 P.2d (1941) and Japan Line v. McCaffree, 88 Wn.2d 93, 558 P.2d 211 (1977). In addition, the same issue has also recently been before the state court of appeals in Drum & Bugle Corps. v. Seattle, 14 Wn.App. 845, 545 P.2d 1235 (1976). Moreover, in the first two of these four cases the supreme court did invalidate the retroactive tax statutes which were involved. Conversely, however, in the most recent of the cases, Japan Line v. McCaffree, supra, the tax was upheld by the supreme court—as was also the result in the court of appeals in Drum & Bugle Corps, supra. Based upon the reasoning of these latter two cases we believe that the correct answer to your present question is in the affirmative.
*3 The starting point for our analysis is the observation of the court in Bates, supra, that “. . . the mere fact that a tax is retroactive in operation is not of itself sufficient to justify a holding that it is unconstitutional. . . . ”
In fact, as the United States Supreme Court long ago observed in Seattle v. Kelleher, 195 U.S. 351, 360 (1904), liability for taxes under retroactive legislation has been “one of the notorious incidents of social life.” What, then, was the true nature of the problem in the Bates and McGrath cases? For the answer to that question, as well as the underlying basis for our response to your present inquiry, we next turn to Japan Line v. McCaffree, supra, where, at P. 96, the court first explained as follows:
“In Bates v. McCleod, . . . the tax in question was an excise tax upon the privilege of employing others. The novelty of the tax, the taxing of a privilege which had formerly been freely enjoyed, rather than the retroactivity itself, caused the tax to be unconstitutional.” (Emphasis supplied)
Then, at P. 97, the court similarly disposed of its other previous invalidation of a “retroactive” tax law, in McGrath, supra, by likewise stating that the basis for that decision was “. . . the unexpected nature of the tax. . .” and not, per se, its mere retroactivity.
What Japan Line, supra, was all about, as you will recall, was the new state leasehold excise tax imposed by chapter 61, Laws of 1975-76, 2nd Ex. Sess. (now codified as chapter 82.29A RCW). Although it was not signed into law until March 1, 1976, the tax provided for by the act was made effective as of January 1, 1976. Nevertheless, it was upheld by the supreme court which, after discussing the Bates and McGrath cases as above indicated, specified the following test with respect to the question:
“. . . in judging the constitutionality of the retroactive application of the leasehold tax before us, we examine the tax to determine whether it has been imposed for the support of the general government or for some narrow purpose and whether it is novel in character.”
In so ruling the supreme court essentially followed the reasoning of the court of appeals in its decision, a year earlier, in Drum & Bugle Corp. v. Seattle, supra, which it specifically cited with approval at P. 97. In that case, the question posed was the validity of a certain city ordinance which imposed an excise tax on gambling revenues received before the effective date of the ordinance. The court, however, upheld the ordinance on the following ground:
“The ordinance imposes a tax upon gambling revenues to include those received a short time prior to its passage. A tax on gambling is not novel; certainly, the tax was anticipated by the organizations as ‘one of the notorious incidents of social life.’ There is nothing to justify holding the ordinance unconstitutional on that ground.”
*4 Applying the foregoing principles to a 1979 act reimposing the timber tax effective January 1, 1979, it first seems to us even more clear than in either Japan Line, supra, or Drum & Bugle Corps, supra, that such a tax could not be characterized as “novel” in nature within the meaning of Bates or McGrath—for here, the very tax which would thus be reimposed has been in effect since 1971. Moreover, the further fact that the same enactment as imposes the current tax also includes provision for the disposition of revenue from the tax beyond its present December 31, 1978, expiration date strongly negates any argument that a 1979 reimposition of the tax would be “unexpected.”
In somewhat the same vein there is a further point to be noted as well. Although we have earlier characterized the tax here in question as “expiring” on December 31, 1978, what literally is involved is simply an expiration of any prescribed rate. Admittedly, a tax cannot be effectively imposed without a rate and, accordingly, without further legislation the tax will expire on December 31, 1978, just as effectively as it would if the “imposing” language itself were to expire. At the same time, however, the fact that the imposing language does not thus expire indicates, we believe, a legislative intent that the tax be continuouswith not time gaps in its imposition. And this is so even though it will take further legislative action to implement that intent (i.e., in reestablishing the rate), and even though the gap might be filled only retroactively as contemplated by your question. The point we would make is that by retaining the “imposing” language as a part of its continuing legislation, with no expiration date, the legislature has already given fair warning that it will do that which is necessary also to continue the tax itself on into the future.
As for the second element of the Japan Line, supra, test, i.e., whether the tax in question would be imposed for the support of the general government or for some narrow purpose, the answer in this case appears equally clear. Here, § 2 of chapter 347, Laws of 1977, 1st Ex. Sess., supra, provides, in general, that the bulk of the revenues that are derived from the timber excise tax are to be distributed to the timber growing counties of the state for use by each taxing district within those counties for its own purposes. The remainder, in accordance with § 2 (2), are to go “. . . to the state general fund for the support of the common schools. . . .” That these provisions establish that the timber tax is a tax for the support of general government seems beyond question; c.f., Sator v. Dep’t of Revenue, 89 Wn.2d 338, 348-349, P.2d (1977).
Having so answered your first question in the affirmative, we now turn to your second which, repeated for ease of reference, is as follows:
“If question (1) is answered in the affirmative, is there any time limit by which such a reimposition of the tax must be accomplished?”
*5 Our response to this question is, perhaps, more a practical or pragmatic answer than it is a purely legal one. In japan Line, supra, the court upheld the new leasehold excise tax imposed by chapter 61, Laws of 1975-76, 2nd Ex. Sess., supra, even though it was not signed into law until March 1, 1976, yet was made effective January 1, 1976. Therefore, so long as a 1979 law reimposing the timber excise tax, effective January 1, 1979, is similarly enacted into law by no later than March 1, 1979, the Japan Line case will fully support the retroactive feature of such a law. After that March 1, 1979, date, on the other hand, the answer to your question becomes progressively more speculative.
Finally, your third question also assumes an affirmative answer to question (1), supra, and asks whether the rate of a reimposed timber excise tax, effective January 1, 1979, must be the same rate as was in effect prior to that date.
In our opinion, this question is answerable in the negative. First, of course, as far as any speculation as to a lower rate than the present one is concerned, no legal argument against such a rate is discernible. Surely, if a simple reimposition of the present 6.5% rate is constitutionally permissible, as we have earlier concluded, the reimposition of the tax at a lesser rate would likewise be valid.
Nor, on the other hand, do we perceive of any legal difficulty with reimposing the timber excise tax at a rate higher that the present 6.5% rate. While this issue has not been presented squarely to the Washington court, it seems clear to us that if a retroactive tax is constitutionally valid then, a fortiori, a somewhat higher retroactive tax should also meet with no constitutional difficulties. After all, in Drum & Bugle Corps, supra, the court of appeals upheld a retroactive gambling tax where no such tax at all had been imposed before. And, in Japan Line, supra, though in a somewhat different context, the supreme court virtually assumed that the new leasehold excise tax would place “a heavier burden” on taxpayers than did the ad valorem tax which it replaced. Yet, to say the least, this circumstance was not viewed by the court in any critical way. In short, therefore, the precise rates selected by the legislature for a retractive 1979 reimposition of the timber excise tax would appear to us to be of no significance insofar as the constitutional validity of such a reimposition is concerned.
For the foregoing reasons it is therefore our opinion that if a bill reimposing the timber excise tax now provided for in RCW 82.04.291 were to be enacted by the legislature and signed into law by the governor on or before March 1, 1979, such a bill would be constitutionally valid even though the tax itself was made “retroactively” effective to January 1, 1979, and the particular tax rate selected would have no constitutional significance.
*6 We trust that the foregoing will be of some assistance to you.
Very truly yours,
Richard H. Holmquist
Senior Assistant Attorney General
1. Under RCW 82.04.291 (3), the stumpage values used for purposes of the timber excise tax are determined by the Department of Revenue every six months.
5. Notably, the time span involved in Drum & Bugle Corps v. Seattle, supra, was somewhat shorter in that the gambling tax ordinance involved was enacted into law on August 13, 1973, and was made effective July 16, 1973. 14 Wn.App. at 846.
6. We need not here consider any issue based upon the “gift” prohibition of Article VIII, § 5, of the Washington constitution since in this instance, unlike the circumstances in Japan Line, supra, a 1979 reimposition of the timber excise tax would not “replace” another tax but, instead, would occupy a field where no tax would have been imposed at all but for the 1979 enactment.