Burba v. City of Vancouver, No. 55471-4

• Court: United States State Supreme Court of Washington
• Writing for the Court: DORE; CALLOW, C.J., UTTER, DURHAM, DOLLIVER, ANDERSEN, BRACHTENBACH and SMITH, JJ., and PEARSON
• Citation: 783 P.2d 1056,113 Wn.2d 800
• Docket Number: No. 55471-4
• Decision Date: 21 December 1989
• Parties: Ralph BURBA, Marvin Anderson, and Dick Grange, Appellants, v. CITY OF VANCOUVER, Washington, Respondent.

Page 800

113 Wn.2d 800 783 P.2d 1056 Ralph BURBA, Marvin Anderson, and Dick Grange, Appellants,
v.
CITY OF VANCOUVER, Washington, Respondent. No. 55471-4. Supreme Court of Washington,
En Banc. Dec. 21, 1989.

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James L. Sellers, James D. Hamilton, Vancouver, for appellants.

Sirianni & Youtz, Michael A. Small, Seattle, Jerry F. King, Vancouver City Atty., Vancouver, for respondent.

Sandra Driscoll, Kent City Atty., Carolyn Lake, Asst., Kent, Bruce E. Jones, Everett City Atty., Elmer E. Johnston, Jr., Sp. Counsel, Everett, amicus curiae, for respondent on behalf of Washington State Ass'n of Mun. Attys.

DORE, Justice.

Nonresident customers of the City of Vancouver's municipal utility brought a class action against Vancouver alleging that a city gross receipts tax levied against utility revenues received for water and sewer services from resident and nonresident retail customers was illegal and unconstitutional. We hold that the gross receipts tax assessed against resident and nonresident users is legal and constitutional. We affirm.

FACTS

The pertinent facts are undisputed. The City of Vancouver owns and operates a water and sewer utility serving wholesale and retail customers located inside and outside the city limits. The Utility provides water and sanitary sewer service to most of the metropolitan area through a single integrated utility system. The Utility makes no distinction between city residents and nonresidents in marketing water and sewer services.

The Utility's waterworks consist of 550 miles of transmission and distribution piping that delivers water from wells and reservoirs to industrial, commercial, and residential users. Although a majority of the Utility's customers reside outside the city limits, the Utility's largest wells and

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storage facilities are located within the city and approximately 70 percent of all water delivered[783 P.2d 1057] by the Utility comes from wells located in the city. While some nonresidents' water comes from wells located outside the city, they may receive water from city wells at times of peak usage.

Water drawn from city wells is treated by the Utility at the well site and stored in reservoirs or tanks inside the city. Treated water is transmitted to customers through pipes placed in city rights-of-way and, where applicable, in Clark County rights-of-way pursuant to a franchise agreement between the City and the County. The Utility operates the entire waterworks through a telemetry surveillance system which permits the Utility to monitor and control the flow of water in the system from a communication center located in the city.

The Utility collects, treats and discharges waste water through approximately 366 miles of sewer lines and various pumping stations. All waste water collected travels through the sewer system to one of the Utility's two treatment plants, which are located within the city.

All billing, accounting, purchasing and administrative functions for water and sewer utility operations are performed inside the city. All engineering and shopwork for the Utility take place in facilities located within the city. To obtain access to the Utility's water and sewer service lines, new customers enter into a written contract executed at the Utility's offices in the city.

Initially established to provide utility services to the residents of the city, the City has expanded its water and sewer systems to enable the Utility to provide services to the Utility's entire service area. The City's financial resources, its bonding capacity, its overall management capability and its responsibility for the system provide both direct and indirect benefits to the Utility and its resident and nonresident customers.

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Since 1954, the City has imposed a tax on the Utility. Pursuant to Vancouver Municipal Code 5.92.010 ¹, the utility tax is calculated as a percentage of the Utility's gross receipts from metered water and sewer service to retail customers residing both inside and outside of the city. The tax does not apply to nonrate revenues nor to receipts from the Utility's lone wholesale customer. The City collects the utility tax by transferring funds from the city utility fund to the city general fund. The Utility treats the tax as an operating expense and considers the tax when fixing utility rates for all retail customers.

Nonresident Utility customers brought a class action suit challenging the validity of the Utility's inclusion of the City's gross receipts tax in rates charged to nonresidents. The plaintiff class sought declaratory and injunctive relief and a refund of the portion of the tax allocable to revenues collected from nonresidents.

After a trial on exhibits and stipulated facts, the trial court found that the taxable events upon which the tax is levied occur within the city. The court also found that the rates charged to nonresidents were fair and reasonable and that the Utility would be justified in charging the same rates even if the gross receipts tax had not been factored into the rate structure. The trial court entered judgment in favor of the City. The plaintiffs appeal directly to this court.

KING CY. WATER DIST. 75 V. SEATTLE IS NOT CONTROLLING

The plaintiffs argue that the Utility's treatment of the tax as an operating expense factored into rates charged to

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both resident and nonresident users constitutes an attempt by the City to directly tax persons outside its political jurisdiction. In support of their argument, plaintiffs rely almost exclusively on King Cy. Water Dist. 75 v. Seattle, 89 Wash.2d 890, 577 P.2d 567 (1978). In District 75 this court held that the Seattle Water Department [783 P.2d 1058] could collect revenues to pay Seattle's business and occupation tax only from the beneficiaries of the tax, the utility customers residing in Seattle. District 75, at 903, 577 P.2d 567. The trial court found District 75 distinguishable from the present case. We agree.

In District 75, the Seattle Water Department supplied water to two classes of customers, both inside and outside of the city limits: (1) retail customers, and (2) wholesale customers. The Department's rate structure distinguished between the two classes of customers and attempted to apportion costs. District 75, at 892, 577 P.2d 567. King County Water District 75, a wholesale customer, filed suit against the Department challenging certain elements of the rate structure that established the purchase price between the Department and wholesalers. Pertinent to the present case, Water District 75 challenged the Department's inclusion of Seattle's B & O tax in rates charged to wholesalers located outside the city limits. The trial court ruled in favor of the Department's inclusion of the B & O tax in rates charged nonresident wholesalers. On appeal, this court reversed holding that the "[c]ollection of such taxes must be exacted from the beneficiaries thereof, that is, the citizenry of the City of Seattle." District 75, at 903, 577 P.2d 567.

The facts of District 75 differ substantially from the subject case. Water District 75 was located entirely outside the Seattle city limits. The Department sold the Water District water taken from rivers located outside the city and transported that water through water mains lying completely outside the city. More importantly, the plaintiff was a wholesale customer of the Department challenging the inclusion of the B & O tax in rates charged to nonresident wholesalers, not retail...