City of Snoqualmie v. King Cnty. Exec. Dow Constantine

• Decision Date: 22 December 2016
• Docket Number: No. 91534-2,91534-2
• Citation: 187 Wash.2d 289,386 P.3d 279
• Court: Washington Supreme Court
• Parties: CITY OF SNOQUALMIE, a municipal corporation, Respondent, v. KING COUNTY EXECUTIVE DOW CONSTANTINE, an individual, in his official capacity; King County Assessor Lloyd Hara, an individual, in his official capacity; and King County, Defendants, and The State of Washington Department of Revenue, Appellant.

187 Wash.2d 289

386 P.3d 279

CITY OF SNOQUALMIE, a municipal corporation, Respondent,

v. KING COUNTY EXECUTIVE DOW CONSTANTINE, an individual, in his official capacity; King County Assessor Lloyd Hara, an individual, in his official capacity; and King County, Defendants,andThe State of Washington Department of Revenue, Appellant.

No. 91534-2

Supreme Court of Washington, En Banc.

Argued May 5, 2016

Filed Dec. 22, 2016

David M. Hankins, Kelly Owings, Kelly Owings, Andrew J. Krawczyk, Atty. General's Office/Revenue Division, Dept. of Revenue A.G., Office Attorney at Law, 7141 Cleanwater Lane S.W., P.O. Box 40123, Olympia, WA, 98504-0123, for Appellant.

Bob C. Sterbank, Attorney at Law, P.O. Box 987, Snoqualmie, WA, 98065-0987, Matthew J. Segal, Taki V. Flevaris, Pacifica Law Group LLP, 1191 2nd Ave., Ste. 2000, Seattle, WA, 98101-3404, for Respondent.

Patrick Barrett Anderson, 4919 Morgan Dr., Blaine, WA, 98230-9612, Daniel Brian Heid, City of Auburn, 25 W. Main St., Auburn, WA, 98001-4998, for Amicus Curiae on behalf of Washington State Association of Municipal Attorneys.

Robert Leighton Otsea, Jr., Richard Reich, Muckleshoot Indian Tribe, 39015 172nd Ave. S.E., Auburn, WA, 98092-9763, William Colwell Severson, William C. Severson, PLLC, 1001 4th Ave., Ste. 4400, Seattle, WA, 98154-1192, Michelle DeLappe, Garvey Schubert Barer, 1191 2nd Ave., Ste. 1800, Seattle, WA, 98101-2939, for Amicus Curiae on behalf of Muckleshoot Indian Tribe.

Duana Theresa Kolouskova, Johns Monroe Mitsunaga Kolouskova PLLC, 11201 S.E. 8th

St., Ste. 120, Bellevue, WA, 98004-6457, Trisna Tanus, The City of Bellevue, 450 110th Ave. N.E., Bellevue, WA, 98004-5514, for Amicus Curiae on behalf of Master Builders Association of King and Snohomish Counties.

Margaret A. Pahl, Office of the Prosecuting Attorney, 516 3rd Ave., Rm. W400, Seattle, WA, 98104-2388, for Other Parties.

OWENS, J,

¶1 Article VII of the Washington Constitution imposes a set of requirements on taxes for the protection of the taxpayers; however, not all governmental charges are "taxes" that are subject to those requirements. At issue in this case is whether a certain governmental charge imposed on Indian tribes is a tax. After the legislature amended a statute to expand the types of tribal property that are eligible for a property tax exemption, the Muckleshoot Indian Tribe applied for and received an exemption on its Salish Lodge property pursuant to the amendment. As required by statute, the tribe negotiated and paid an amount to the county in lieu of taxes. Today, we are asked to consider the constitutionality of this payment in lieu of tax (PILT). We find that the PILT is not a tax at all but, rather, a charge that tribes pay to compensate municipalities for public services provided to the exempt property. Since the PILT is not a tax, it is not subject to article VIPs tax requirements and thus we reverse the trial court and uphold the constitutionality of the provision.

FACTS

¶2 The Washington Constitution gives the legislature the authority to exempt property from taxation, CONST . art. VII, § 1. In 2004, the Washington Legislature added tribal property to the list of tax-exempt property. LAWS OF 2004, ch. 236, § 1. Tribal property is exempt from state taxation if the property is owned by a recognized tribe and used for " ‘essential government services,’ " including operations like "tribal administration, public facilities, fire, police, public health, education, sewer, water, environmental and land use, transportation, and utility services " Id. § 1 (2).

¶3 In 2014, the legislature passed Engrossed Substitute House Bill (ESHB) 1287, which expanded qualifying exempt property and created a payment in lieu of property tax for some of it, LAWS OF 2014, ch. 207. To do so, it expanded the qualifying list of "essential government services" to include "economic development," thereby expanding the types of properties eligible for the tax exemption. LAWS OF 2014, ch. 207, § 5(3)(b); RCW 84.36.010(3)(b). "Economic development" is defined as "commercial activities, including those that facilitate the creation or retention of businesses or jobs, or that improve the standard of living or economic health of tribal communities." LAWS OF 2014, ch. 207, § 5(3)(c).

¶4 If a tribe takes advantage of the property tax exemption, it does not pay property taxes, but the statute still requires the tribe to make some payment. Where tribes lease the property to a third party, the private lessee must pay a leasehold excise tax essentially for the "privilege of occupying or using" the land. RCW 82.29A.030. If the land is not leased, then the tribe must make a "payment in lieu of leasehold excise taxes." RCW 82.29A.055(1). This PILT is owed to the county if (1) the property is used exclusively for economic development, (2) there is no taxable leasehold interest in the tax-exempt property, (3) the property is not on the tribe's reservation, and (4) the property is not otherwise exempt from taxation under federal law. Id. The amount of the PILT is to be determined through good faith negotiation between the tribe and the county in which the property is located. RCW 82.29A.055(2). If they cannot agree, the Department of Revenue will determine the PILT amount, which cannot exceed the leasehold excise tax amount that would be due if the land were leased to a third party. Id.

¶5 PILTs are nothing new. In 1976, the federal government established the payments in lieu of taxes (referred to as PILT or PILOT) program, whereby the government pays sums of money to state governments or localities where its property sits, in spite of its tax-exempt status. See 31 U.S.C. §§ 6901 -6907. The purpose for PILT payments was to mitigate the burden on state governments created by the tax-exempt land that still requires public services from the state. As one report explained, "Federal lands cannot be taxed but may create a demand for services such as fire protection, police cooperation, or longer roads to skirt the federal property." M. LYNNE CORN, CONG. RESEARCH SERV ., RL31392, PILT ( PAYMENTS IN LIEU OF TAXES ): SOMEWHAT SIMPLIFIED , "Summary" (2015), https://www.fas.org/sgp/crs/misc/RL31392.pdf [http://perma.cc/4P9R-CGUC]. For instance, federal land in the state of Washington is some 12 million acres of mostly wildlife and forestland, representing about one-quarter of the state's total acreage. The federal government ameliorates the impact of these tax-exempt lands by paying PILTs to the State for the various state public services needed to support these lands. Washington also has PILT programs for property owned by other governmental agencies, such as the Washington State Department of Fish and Wildlife and the Washington State Department of Natural Resources. See , e.g. , RCW 77.12.201 ; RCW 79.71.130.

¶6 Various Washington tribes took advantage of the 2014 amendment expanding the off-reservation tribal property exemption for around 190 properties. One of those properties is the Salish Lodge, an off-reservation hotel and spa in the city of Snoqualmie and King County, owned by the Muckleshoot Indian Tribe, Pursuant to the 2014 amendment, the tribe applied for and received a property tax exemption on the Salish Lodge as a property used for "economic development." Clerk's Papers at 416-34. The tribe negotiated a PILT payment with King County and agreed to pay 25 percent of the property taxes it paid in 2014.

¶7 The city challenged the constitutionality of ESHB 1287. It contended that the Salish Lodge would generate about $93,500 in property tax revenue to the city, which would be roughly 1.6 percent of the city's total property tax levy. The city stated in its complaint that the exemption of the lodge created a tax shift to its taxpayers (raising their individual tax liability due to the loss in overall revenue) and also raised the city's property tax levy rate. Furthermore, the city points to the tribe's planned development expansion of the Salish Lodge, which could generate an additional $600,000 of property tax revenue—however, due to the expanded property tax exemption of ESHB 1287, the city would not realize it. The city challenged the PILT as an unconstitutional property tax, arguing that it violates the uniformity clause and the antisurrender clause, and that it is an improper delegation of the legislature's tax power. CONST . art. VII, §§ 1, 9. The trial court granted partial summary judgment in favor of the city, finding that (1) the city has standing to challenge the constitutionality of ESHB 1287 and (2) the PILT is a property tax that violates article VII's uniformity requirement and antisurrender clause, and thus is unconstitutional.¹ The department appealed directly to this court, and we retained the case for review.

¶8 Three amicus curiae briefs were filed in this case. The Muckleshoot Indian Tribe filed a brief in support of upholding the PILT. The Master Builders Association of King and Snohomish Counties and the Washington State Association of Municipal Attorneys both filed briefs in support of the city's contention that the PILT is an unconstitutional tax.

ISSUES

¶9 1. Does the city of Snoqualmie have standing to challenge the constitutionality of the PILT?

¶10 2. Is the PILT an unconstitutional tax?

ANALYSIS

1. The City of Snoqualmie Has Standing To Pursue Its Constitutional Claims

¶11 The city of Snoqualmie has standing to challenge the PILT, both on its own behalf and in the form of representative standing on behalf of its residents. As explained below, we find that the city has direct standing under the more liberal standing requirements we apply when a case involves an issue of public importance. Separately, the city also has representative standing to bring the lawsuit on behalf of its citizens. Either suffices to grant the city standing in this case. We review the legal question of standing de novo. In re Estate of Becker , 177 Wash.2d 242, 246, 298 P.3d 720 (2013).

a. The City Has Direct Standing To Challenge ...