King County Water Dist. No. 68 v. Tax Com'n

• Decision Date: 25 May 1961
• Docket Number: No. 35533,35533
• Citation: 362 P.2d 244,58 Wn.2d 282
• Court: Washington Supreme Court
• Parties: KING COUNTY WATER DISTRICT NO. 68, Respondent, v. TAX COMMISSION of the State of Washington, Appellant.

Page 282

58 Wn.2d 282

362 P.2d 244

KING COUNTY WATER DISTRICT NO. 68, Respondent, v. TAX COMMISSION of the State of Washington, Appellant.

No. 35533.

Supreme Court of Washington, Department 2.

May 25, 1961.

John J. O'Connell, Atty. Gen.,

Henry W. Wager, Asst. Atty. Gen., for appellant.

Cartano, Botzer & Chapman, John D. Cartano, Seattle, for respondent.

HUNTER, Judge.

This action was instituted by King County Water District No. 68, a municipal corporation located at Bellevue, Washington (hereafter referred to as the Water District), for a refund of excise taxes paid pursuant to an assessment under the public utility tax, Title V, Revenue Act of 1935, as amended and codified in RCW chapter 82.16, as in effect prior to the 1959 amendment thereto. The state tax commission included in the measure of the tax, receipts from the following transactions.

(A) The Water District constructed and installed an extension of its main water system on property belonging to Safeway, Inc., for the purpose of serving a plant of that company. The Water District charged and Safeway, Inc., paid for this installation. Title to the extention remained in the Water District.

(B) The Water District constructed and installed an extention of its main water system on property belonging to school district No. 405 at Bellevue, Washington, for the purpose of serving the school district. The Water District charged and the school district agreed to pay for this construction and installation in installments. The state tax commission assessed the tax on the basis of the full cost of this installation and construction since the books of the school district were kept on an accrual basis. Title to this extension also remained in the Water District.

(C) The Water District charged its customers and was paid the cost of installing water meters. This charge included the cost of pipe or connections with coupling and fittings from the main water line to the meters. Title to these installations remained in the Water District.

(D) The Water District charged its customers and was paid the cost of inspecting water main extensions, to serve customers, which were not constructed by the Water District but which were required to meet the District's specifications.

The state tax commission included these receipts in the measure of the tax on the ground that they constituted 'operating revenue' within the meaning of RCW 82.16.010(12) as the statute existed prior to the 1959 amendment. The Water District paid the tax in full and filed a petition with the state tax commission for a partial refund. The total amount of taxes in dispute was $3,172.24. After consideration, an order was entered denying the petition on November 28, 1958. From this order an appeal was taken to the superior court for Thurston county. The trial court held these receipts did not constitute 'operating revenue' within the meaning of RCW 82.16.010 (12) as the statute existed prior to the 1959 amendment, and entered judgment ordering the state tax commission to refund so much of the tax which had been based upon the receipts from the above transactions. From this judgment, the tax commission appeals.

The pertinent parts of RCW chapter 82.16 in effect during the period from 1935 through June 30, 1957, which were applicable to our consideration of this appeal, are as follows:

RCW 82.16.020: 'There is levied and there shall be collected from every person a tax for the act or privilege of engaging within this state in any one or more of the businesses herein mentioned. The tax shall be equal to the gross operating revenue of the business, multiplied by the rate set out after the business, as follows:

'(1) Railroad, express, railroad car, water distribution, light and power, telephone and telegraph businesses: Three per cent: * * *'.

RCW 82.16.010(4): "Water distribution business' means the business of operating a plant or system for the distribution of water for hire or sale; * * *'.

RCW 82.16.010(12): "Gross operating revenue' means the value proceeding or accruing from the performance of the particular public service or transportation business involved, including operations incidental thereto, but without any deduction on account of the cost of the commodity furnished or sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without any deduction on account of losses; * * *'.

Both parties agree that the sole question in this appeal is whether the above-mentioned receipts constituted 'operating revenue' of the Water District within the purview of RCW chapter 82.16 as it existed prior to the 1959 amendment.

The issue posed requires that we determine whether the statute makes a distinction between nonoperating and operating revenue of a water utility business. The respondent argues first, that the transactions in the instant case were not within the operation of a water distribution business as defined under RCW 82.16.010(4). We agree. The statute specifically provides that a "Water distribution business' means the business of operating a plant or system for the distribution of water for hire or sale.' This presupposes the existence of a plant to operate. Constructing, installing, and inspecting facilities for the purpose of operating a plant do not constitute operations of such facilities as expressly provided for under this statutory definition. Thus it follows that money received as reimbursement for the cost of constructing, installing, and inspecting facilities for the purpose of operating a water distribution system would not be within the operation of the Water District's distribution business.

The respondent further...