Harbour Village Apts. v. City of Mukilteo

Decision Date16 December 1999
Docket NumberNo. 66920-1.,66920-1.
Citation139 Wash.2d 604,989 P.2d 542
CourtWashington Supreme Court
PartiesHARBOUR VILLAGE APARTMENTS; Pinnacle Realty Management Company, a Washington corporation; Don Vell, a limited partnership; Gerald M. Anderson and Carol Anderson, a partnership; United States Fidelity and Guaranty Company, a Maryland corporation; Essex Property Trust, Inc., a Maryland corporation; Royce and Agdalee Church, as a marital community; Security Capital Pacific Trust, a Maryland investment trust, and that class of persons and entities similarly situated, Appellants, v. CITY OF MUKILTEO, a municipal corporation, Respondent.

Groen & Stephens, John Maurice Groen, Bellevue, Robin L. Rivett, Pacific Legal Foundation, Sacramento, Amicus Curiae on Behalf of Pacific Legal Foundation.

William L. Cameron, Kennewick City Attorney, Kennewick, Amicus Curiae on Behalf of Association of Washington Cities.

Christine Gregoire, Attorney General, Donald F. Cofer, Cameron G. Comfort, Asst. Attorneys General, Olympia, Amicus Curiae on Behalf of Department of Revenue. Garvey, Schubert & Barer, William C. Severson, Norman J. Bruns, Seattle, for Appellants.

Ogden, Murphy & Wallace, James Edward Haney, Robert James McGill, Keating, Bucklin & McCormack, Michael Charles Walter, Seattle, for Respondent.


The issue here is whether the City of Mukilteo's residential dwelling unit fee (RDU fee) is a constitutional excise tax or an unconstitutional property tax. The trial court held in favor of the city on summary judgment, characterizing the tax as an excise. However disappointed property owners sought and obtained direct review in this court. And we reverse.

Mukilteo licenses businesses located within its corporate limits for regulation and revenue. Mukilteo Municipal Code (MMC) § 5.04.010. A base license fee is imposed for each business location in the amount of $61.00; however for businesses which rent or lease real property an RDU fee of $80.60 per dwelling unit rented, leased, or offered for rent or lease is imposed in addition to the base license fee. MMC § 5.04.070(A)(3). Unlike rental housing businesses, other businesses are taxed on the basis of $41.60 per full-time equivalent employee in addition to the base license fee. MMC § 5.04.070(A)(4).

Appellant property owners do not challenge the $61.00 base license fee but claim the $80.60 per unit RDU fee is in reality a tax on the rental property itself, neither authorized by statute nor calculated on the constitutionally required basis for a property tax. Both sides concede the proper characterization of the tax is dispositive however differ as to how it should be characterized.

Appellants are residential apartment owners in Mukilteo. In late 1996 Mukilteo enacted Ordinance 905, which amended preexisting municipal code provisions regarding business licensure and regulation, subjecting the renting, leasing, or offering of residential dwelling units to licensure and taxation.

The RDU fee first became due in 1997, and applies to the rental units owned by apartment owners. The RDU fee is imposed on residential rental properties rented or offered for rent. It does not apply to owner-occupied residential property or to any nonresidential real estate. The fee is not measured by the value of the property or the amount of rent collected, but simply is an annual flat fee on each rental dwelling unit actually rented or offered for rent in Mukilteo. Although the stated purpose of Ordinance 905 is to license residential dwelling units for regulation and revenue, and not to impose a property tax, income tax, or any other tax upon the act of owning property (MMC § 5.04.010), we are asked to substantially and independently characterize the nature of the tax.

Aggrieved by the enactment of the RDU fee, the apartment owners commenced this action in the Snohomish County Superior Court, requesting: (1) a declaration the RDU fee is invalid; (2) an injunction barring Mukilteo from collecting the RDU fee; and (3) an order requiring Mukilteo to refund all RDU fees previously collected. The trial court, the Honorable Larry McKeeman, heard cross-motions for summary judgment and ruled in favor of Mukilteo, finding the RDU fee was an excise tax within Mukilteo's authority. However, apartment owners disagree.


First, although it is denominated a "fee" in Ordinance 905, it is clear the RDU fee is, in fact, a tax because its central purpose is to raise revenue. See Covell v. City of Seattle, 127 Wash.2d 874, 879-89, 905 P.2d 324 (1995)

. All parties appear to concede the RDU fee is a tax.

The central inquiry is therefore whether the RDU fee is an excise tax or a property tax. To answer this question we must recall "[t]he character of a tax is determined by its incidents, not by its name." Jensen v. Henneford, 185 Wash. 209, 217, 53 P.2d 607 (1936) (citations omitted).1 The "incident" or measure of this tax is the mere ownership of that subclass of real property defined by its rental use. Each rental unit is directly taxed at $80.60 regardless of whether it is actually rented, the number of rental transactions associated with the property, or any other factors normally associated with ongoing business activity, including income. Nor is this RDU tax an excise on the mere privilege to conduct a rental business—that is already separately taxed at the rate of $61.00 per business location. Rather the incident of this tax is on rental property as such—and a tax on rental property is no less a tax on property.

Both Jensen, 185 Wash. 209, 53 P.2d 607, and Apartment Operators Ass'n of Seattle, Inc. v. Schumacher, 56 Wash.2d 46, 351 P.2d 124 (1960), concerned a tax on rental income rather than a tax on the property itself. We held the distinction was without a difference as "the mere right to own and hold property cannot be made the subject of an excise tax, because to tax by reason of ownership of property is to tax the property itself." Jensen, 185 Wash. at 218, 53 P.2d 607 (citations omitted).

To the same effect is Schumacher where we held "a tax upon rents from real estate is a tax upon the real estate itself and an invalid property tax. Schumacher, 56 Wash.2d at 47, 351 P.2d 124. Once again, and obviously, a tax on the property itself—that which we have here—is the ultimate evil which was only approximated in Schumacher.

The city misplaces its reliance on Black v. State, 67 Wash.2d 97, 406 P.2d 761 (1965). There Black was subjected to a $17,000 sales tax on a $425,000 ship lease payment because it was "an excise tax on the transaction of leasing tangible personal property. It is not a tax on property." Id. at 99, 406 P.2d 761. But here it is not the rental transaction which is taxed—indeed there need not even be a rental transaction—rather it is the fact of ownership of rental property which is taxed.

As this ordinance imposes a tax on rental property, and only rental property, it violates the constitutional prohibitions against nonuniform taxation of real property. Wash. Const. art. VII, § 1 (amend. 81).2 As it is based on the number of units, not value, it violates the ad valorem requirement. Wash. Const. art. VII, § 2 (amend. 79). And because it is a nonstatutorily authorized tax on property, it is also in excess of the statutory, and hence, constitutional taxing authority of the municipality. Wash. Const. art. VII, § 5;3 San Telmo Assocs. v. City of Seattle, 108 Wash.2d 20, 23, 735 P.2d 673 (1987) ("[W]hile Const. art. 7, § 9 and Const. art. 11, § 12 authorize the Legislature to grant municipalities the power under certain conditions to levy taxes, there must be a specific legislative pronouncement allowing for the tax in order for the tax to be valid." (citations omitted)); Hillis Homes, Inc. v. Snohomish County, 97 Wash.2d 804, 808, 650 P.2d 193 (1982).

The trial court is reversed, the RDU fee is invalidated, and this case is remanded to the trial court for further appropriate proceedings consistent with this opinion. Appellants shall recover their costs.


TALMADGE, J. (dissenting).

This case presents the controversy of whether a fee imposed by a city on the business of renting or offering for rent residential units and measured at a rate of $80.60 per dwelling unit is an excise or property tax.4 If the fee is a property tax, various residential apartment owners (apartment owners) contend it violates the Uniformity Clause of Washington's Constitution, article VII, section 1. If an excise tax, they also contend the City of Mukilteo (Mukilteo) lacks statutory authority to impose such a fee and that the fee violates constitutional equal protection principles.

The majority pays scant attention to our recent cases differentiating between an excise tax and a property tax, and, in an opinion short on analysis, finds any tax that merely mentions property to be the equivalent of an ad valorem property tax. I dissent. I would affirm the trial court's judgment that Mukilteo's Residential Dwelling Unit (RDU) fee is an excise tax Mukilteo had the authority to impose.

We have previously set forth bases for determining whether a disputed fee is a property tax or an excise tax in a long series of cases involving a variety of taxes. See, e.g., State ex rel. Stiner v. Yelle, 174 Wash. 402, 405-07, 25 P.2d 91 (1933) (business and occupation tax measured as tax on gross income of business upheld as excise); Morrow v. Henneford, 182 Wash. 625, 626-31, 47 P.2d 1016 (1935) (sales tax upheld as excise); Vancouver Oil Co. v. Henneford, 183 Wash. 317, 320-21, 49 P.2d 14 (1935) (use tax upheld as excise); State ex rel. Hansen v. Salter, 190 Wash. 703, 705-06, 70 P.2d 1056 (1937) (motor vehicle tax measured as percentage of vehicle's value upheld as excise); City of Spokane v. State, 198 Wash. 682, 89 P.2d 826 (1939); (tax on use of personal property purchased at retail upheld as excise); Klickitat...

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