Japan Line, Ltd. v. McCaffree

• Decision Date: 07 January 1977
• Docket Number: No. 44217,44217
• Citation: 558 P.2d 211,88 Wn.2d 93
• Parties: , 1977 A.M.C. 1883 JAPAN LINE, LTD., a corporation, et al., Petitioners, v. Mary Ellen McCAFFREE, Director of the Washington State Department of Revenue, Respondents.
• Court: Washington Supreme Court

Page 93

88 Wn.2d 93

558 P.2d 211, 1977 A.M.C. 1883

JAPAN LINE, LTD., a corporation, et al., Petitioners, v. Mary Ellen McCAFFREE, Director of the Washington State Department of Revenue, Respondents.

No. 44217.

Supreme Court of Washington, En Banc.

Jan. 7, 1977.

Howard, Le Gros, Buchanan & Paul, Richard W. Buchanan, James F. Whitehead, III, Seattle, for petitioners.

Slade Gorton, Atty. Gen., Richard H. Holmquist, Leroy E. Dreisbach, Olympia, for respondents.

DOLLIVER, Associate Justice.

This is an application for a writ of mandamus. The petitioners are owners and operators of container vessels engaged in foreign commerce between Japan and Seattle. In July of 1969, they entered into a written contract, currently effective until November 1, 1977, with the Port of Seattle which permitted berthing of their vessels at the Port and the utilization of one of its container cranes.

During 1975, the King County Assessor, under applicable state law, placed an assessed value on the 'leasehold estate' of each petitioner in the amount of $159,080. In October of 1975, the King County Council enacted an ordinance fixing the amount of the real and personal property tax levy. After the County Board of Equalization had corrected errors on the assessment rolls, the King County Council amended its prior ordinance and in December of 1975 set the amounts of the tax levies to raise the amounts needed for the estimated expenditures of the county and the various taxing units within the county for the ensuing year.

The county assessor then extended the ad valorem property taxes against individual property on the tax rolls. Petitioners' leasehold estate assessments were included. In January of 1976, the assessor certified the list of taxes levied which was delivered to the county comptroller. The comptroller established the tax roll and placed the property tax statements on the rolls. On February 14, 1976, he mailed the statements to all taxpayers.

On February 16, 1976, the Governor signed Laws of 1975--76, 2nd Ex.Sess., ch. 10, p. 19, to delay collection of property taxes in the state until March 1, 1976. On March 1, he signed into law House Bill No. 971, Laws of 1975--76, 2nd Ex.Sess., ch. 61, p. 225. It provides, in relevant part Sec. 3. There is hereby levied and shall be collected a leasehold excise tax on the act or privilege of occupying or using publicly owned real or personal property through a leasehold interest on and after January 1, 1976, at a rate of twelve percent of taxable rent . . .

Sec. 16. The department of revenue of the state of Washington shall make such rules and regulations consistent with chapter 34.04 RCW and the provisions of this 1976 amendatory act as shall be necessary . . .

On Narch 2, 1976, petitioner Mitsui O.S.K. Lines, Ltd., paid to the comptroller $1,070.69 which is one half the total sum indicated on the property tax statement pertaining to the petitioner's leasehold estate.

The Department of Revenue, by letter dated March 3, 1976, advised all county assessors and treasurers that they should immediately cancel all 1975 property tax assessments or levies for collection in calendar year 1976 on leasehold estates. The Department notified the Port of Seattle of its position that the new law canceled all assessments and levies of personal property taxes on leasehold interests for collection in 1976 and that the first remittance of the 12 percent leasehold excise taxes collected for the quarter commencing January 1, 1976, would be deemed delinquent if not paid by May 30, 1976.

This leasehold tax results in a tax billing to each of the petitioners of approximately $9,919 during 1976. According to a revenue estimate prepared by the Department, and utilized by the legislature in the passage of this bill, the ad valorem property taxes and in lieu excise taxes on public leasehold estate would have been approximately.$4.1 million if the old law had continued in effect for 1976 collections. Total statewide leasehold tax revenues from the tax imposed by adoption of House Bill No. 971 would be approximately $5.1 million.

The respondent has questioned whether petitioners have standing to institute this action. While there may be some substance to respondent's position (See Tacoma v. O'Brien, 85 Wash.2d 266, 534 P.2d 114 (1975); Herrold v. Case, 42 Wash.2d 912, 917, 259 P.2d 830 (1953); State ex rel. Gebhardt v. Superior Court, 15 Wash.2d 673, 131 P.2d 943 (1942)), we prefer to rest our decision on the merits. See State ex rel. Clithero v. Showalter, 159 Wash. 519, 293 P. 1000 (1930).

The first issue raised by the petitioners is whether the imposition of the leasehold tax retroactive to January 1, 1976, constitutes a violation of due process. We have held in two previous cases that a tax which had a retroactive application was violative of due process. Bates v. McLeod, 11 Wash.2d 648, 120 P.2d 472 (1941); In re McGrath's Estate, 191 Wash. 496, 71 P.2d 395 (1937). However, we emphasize the position taken in Bates v. McLeod, supra at 656, 120 P.2d at 476, that 'the mere fact that a tax act is retroactive in operation is not of itself sufficient to justify a holding that it is unconstitutional.' There we noted that most, if not all, federal income tax acts apply to income received since the first of the year in which they are enacted or even received during the year preceding the enactment of the statute. The legislature has broad plenary powers in its capacity to levy taxes. It can fix the subject of taxation and exempt property; it can limit or extend the time of payment. See Gasaway v. Seattle, 52 Wash. 444, 100 P. 991 (1909). The Supreme Court observed in Seattle v. Kelleher, 195 U.S. 351, 25 S.Ct. 44, 49 L.Ed. 232 (1904), that liability for taxes under retroactive legislation has been 'one of the notorious incidents of social life.'

We have imposed narrow and specific limits on the legislature's broad powers in regard to a retroactive tax which are applicable to the disposition of this case. In Bates v. McLeod, supra, 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. We relied in part upon Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 72 L.Ed. 206 (1927), in which the Supreme Court held that the retroactive application of the federal gift tax was violative of due process. That court focused on the fact that the taxpayer had disposed of his property by gift 'in entire good faith and without the slightest premonition of such consequence.' In In re McGrath's Estate, supra, holding that the retroactive application of an inheritance tax was violative of due process, we again noted the unexpected nature of the tax. In that case, the McGrath Candy Company purchased life insurance policies 2 months prior to the decedent's death and before the passage of a statute which, for the first time, made such assets a part of the decedent's estate for inheritance tax purposes.

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. Bates v. McLeod, supra; see also Imperial Drum & Bugle Corps v. Seattle, 14 Wash.App. 845, 545 P.2d 1235 (1976). In regard to the first of these criteria, Laws of 1975--76, 2nd Ex.Sess., ch. 61, § 1, p. 225, provides in part:

The legislature hereby recognizes . . . that private lessees of . . ....