Dravo Corp. v. City of Tacoma

• Decision Date: 04 May 1972
• Docket Number: No. 41906,41906
• Citation: 496 P.2d 504,80 Wn.2d 590
• Parties: DRAVO CORPORATION, a Pennsylvania corporation, and Al Johnson Construction Co., a Delaware corporation, Joint Venturers, d/b/a Dravo-Johnson, Appellants/Cross-Respondents, v. CITY OF TACOMA, a municipal corporation, Respondent/Cross-Appellant.
• Court: Washington Supreme Court

Page 590

80 Wn.2d 590

496 P.2d 504

DRAVO CORPORATION, a Pennsylvania corporation, and Al

Johnson Construction Co., a Delaware corporation, Joint Venturers, d/b/a Dravo-Johnson, Appellants/Cross-Respondents, v. CITY OF TACOMA, a municipal corporation, Respondent/Cross-Appellant.

No. 41906.

Supreme Court of Washington, En Banc.

May 4, 1972.

DeGarmo, Leedy, Oles & Morrison, Richard M. Stanislaw, Seattle, for appellant.

Robert R. Hamilton, F. H. Chapin, Jr., Tacoma, John R. Kramer, for respondents.

STAFFORD, Associate Justice.

This is an appeal from a judgment of the superior court declaring a portion of Tacoma's business and occupation tax unconstitutional. The challenged provision imposed a tax on the gross receipts of contracts made with the city, whether performed within or without its boundaries.

In 1964, pursuant to the authority of RCW 35.92.050, Tacoma issued an invitation for bids to build the Mossyrock dam, powerhouse and appurtenances on property it had acquired for that purpose in Lewis County. Section 1.08 of the Instructions to Bidders gave notice that Tacoma's business and occupation tax (hereinafter called a B&O tax) would apply to the prospective contract.

Dravo-Johnson is a joint venture formed for the specific purpose of bidding on and constructing the Mossyrock Project. It is composed of two corporations: the Dravo Corporation, a Pennsylvania corporation with its principal place of business in Pittsburgh, and the Al Johnson Construction Company, a Delaware corporation with its principal place of business in Minneapolis, Minnesota. Both corporations were qualified to do business in the state of Washington. The Dravo Corporation maintained its principal Washington office in Bellevue. Neither at the time of contracting nor thereafter did the Dravo Corporation, the Al Johnson Construction Company, or their joint venture have an office or place of business in Tacoma. The office and principal place of business of the joint venture (hereinafter called Dravo) was located at the dam site.

Having been informed of the B&O tax by the Instructions to Bidders, Dravo included within its bid an amount to cover such expenditure based on the applicable tax rate. Dravo's representative personally delivered its bid to the city clerk In Tacoma.

Dravo's low bid was accepted by the city In Tacoma. The formal contract was drawn on a form provided by the city. It was signed by representatives of the two jointly participating corporations at their respective home offices and submitted to Tacoma by mail on January 21, 1965. The following day, the contract document was finalized In Tacoma upon being signed by representatives of the city.

Tacoma collected a B&O tax of $40,184.38 on the contract. It was paid quarterly throughout the four year construction period, being based on and paid from the gross quarterly amounts advanced by Tacoma to Dravo under the contract. In addition to the amount paid by Tacoma, under the basic contract, the city also contracted to have Dravo perform extra work on the Mossyrock Project. On the subsequent contracts, Dravo paid the city.$3,418.36 in B&O taxes. There is no evidence that Dravo paid B&O taxes other than those in issue.

In September 1967, Dravo filed a claim for refund of the B&O tax paid from October 15, 1965 to July 15, 1967. In June 1969, it filed a claim for refund of a like tax paid from October 15, 1967 to March 27, 1969. The total refund claimed was $40,184.38. The record does not indicate that a claim for refund was made for the.$3,418.36 paid in B&O taxes based upon the extra work contracts. The claims were denied.

This action was brought to have the questioned provision of Tacoma's B&O tax ordinance declared unconstitutional and to obtain a refund of the amounts paid thereunder. In the alternative, Dravo requested an apportionment of said taxes upon their activities in the city. The city's answer pleaded as a bar, the statute of limitations, unjust enrichment and estoppel. Both parties moved for summary judgment.

At the hearing for summary judgment, the trial court ruled that, as applied to this case, the section of the ordinance imposing a B&O tax on persons contracting with the city was unconstitutional, and that the statute of limitations did not bar Dravo from recovering a tax refund. It left for trial Tacoma's affirmative defenses of unjust enrichment and estoppel.

At trial the court decreed that Dravo was entitled to recover the taxes paid on the extra work contracts (I.e.,.$3,418.36), but denied recovery as to the tax paid under the terms of the basic contract (I.e., $40,184.38) on the ground of unjust enrichment. Both parties have appealed.

It is well settled that the cities of this state have authority to levy B&O taxes. State ex rel. Pac. Telephone & Telegraph Co. v. Department of Pub. Serv., 19 Wash.2d 200, 272, 142 P.2d 498 (1943); Pacific Telephone & Telegraph Co. v. City of Seattle, 172 Wash. 649, 652, 21 P.2d 721 (1933).

Pursuant to that authority, Tacoma enacted a B&O tax ordinance which reads in pertinent part as follows:

6.68.225 Transactions subject to tax. Except where such a tax is otherwise levied and collected by the City from such person, there is hereby Levied upon and there shall be Collected from every person as set forth and provided in Section 6.68.220 of this chapter, A tax on the act or privilege of engaging in business activities and transactions with the City involving the purchase of materials, supplies, equipment, Improvements, and other contractual services. Such tax shall be Levied on the privilege of accepting and executing the contract, and shall be Collected whether such business activities or transactions occur or take place Within or without the City and whether or not such person has his office or place of business within or without the City.

Any person engaging in such business activities and/or transactions with the City shall be taxed on the contractual transactions in the same manner and form and under the same rules and regulations and at the same rates of tax as if they were doing business within the City of Tacoma.

(Italics ours.) It is this section which the trial court held unconstitutional, as applied to Dravo.

Initially, we note that a taxing authority has no power to levy a tax upon activities which occur outside its territorial limits. Connecticut Gen. Life Ins. Co. v. Johnson, 303 U.S. 77, 80, 58 S.Ct. 436, 82 L.Ed. 673 (1938); James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155 (1937). As we said in Lone Star Cement Corp. v. City of Seattle, 71 Wash.2d 564, 572, 429 P.2d 909, 913 (1967):

The phrase, 'the privilege of doing business,' used in section 3 of Seattle's ordinance, is all-inclusive; but taxation of that privilege must be confined to a standard within the territorial limits of Seattle, for the city has no power either to authorize, license, or tax activities beyond its territorial limits.

In Lone Star, Seattle sought to impose a tax for the 'privilege of engaging in business activities' upon persons doing business within the city as manufacturers or sellers at wholesale or retail. The measure of the tax was the value of the products manufactured or the gross proceeds of such sales. Where the activity taxed occurred partially within and partially outside of the city, provision was made for apportionment.

Lone Star manufactured cement in two plants, one in Seattle, the other in Concrete, Washington. Over 88 per cent of the cement products manufactured and sold at the Concrete plant were delivered to destinations outside of Seattle. The Seattle office took no part therein other than to receive information thereon at the end of each day. Seattle sought to tax the entire gross proceeds of sales from the Concrete plant.

Lone Star paid the tax on the gross proceeds from sales of all cement products (manufactured at its Concrete plant) which entered Seattle and were subsequently sold in or outside the city. We held that Seattle could not constitutionally tax the remaining 88 per cent of sales made from the city of Concrete.

In Lone Star the taxable events were sales made Outside the city. We held the city could impose a B&O tax only if the taxable event occurred Within its territorial limits.

In the case at bar, we must first determine the taxable events upon which Tacoma levied its B&O tax. In this regard § 6.68.225 provides:

Such tax shall be levied on the privilege of accepting and executing the contract . . .

Thus, 'accepting and executing the contract' is the taxable event.

Next, to decide where the taxable event occurred, we must determine the meaning of the phrase 'accepting and executing the contract'. A basic rule for construing revenue measures provides that if there is any doubt as to the meaning of a taxing statute or ordinance, it must be construed most strongly against the taxing power in favor of the citizen. Foremost Dairies, Inc. v. State Tax Comm., 75 Wash.2d 758, 763, 453 P.2d 870 (1969); Buffelen Lbr. & Mfg. Co. v. State, 32 Wash.2d 40, 43, 200 P.2d 509 (1948). However, there is a corollary which provides that the foregoing rule is inapplicable unless it can be automatically assumed, or proved, that the statute in question is ambiguous or its meaning is doubtful. Guinness v. State, 40 Wash.2d 677, 685, 246 P.2d 433 (1952).

Interpreted in light of the whole ordinance, the phrase 'accepting and executing the contract' is not ambiguous. It refers to the taxpayer's activity of Entering into a contract with Tacoma under which there will be a 'purchase of materials, supplies, equipment, improvements, and other contractual services.' It does not refer to the taxpayer's activity of Performing the contract. Here, the contract Entered into was for the purchase, by Tacoma, of an improvement (I.e., a dam) to be built by Dravo.

As provided in ordinance § 6.68.225, the capacity in which Dravo was taxed and its rate of taxation were determined by §...