WPPA v. State, Dept. of Revenue

• Decision Date: 30 January 2003
• Docket Number: No. 71934-9.,71934-9.
• Parties: WASHINGTON PUBLIC PORTS ASSOCIATION, Appellant, Port of Olympia; and Port of Port Angeles, Plaintiffs, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.
• Court: Washington Supreme Court

62 P.3d 462

148 Wash.2d 637

WASHINGTON PUBLIC PORTS ASSOCIATION, Appellant, Port of Olympia; and Port of Port Angeles, Plaintiffs, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 71934-9.

Supreme Court of Washington, En Banc.

Argued November 13, 2002.

Decided January 30, 2003.

Lane, Powell, Spears & Lubersky, George Mastrodonato, Robert Hauth, Olympia, Lane, Powell, Spears, Lubersky, Michael King, Seattle, for Appellant.

Christine Gregoire, Atty. Gen., David Hankins, Asst. Atty. Gen., Olympia, for Respondent.

Thomas Tanaka, Seattle, amicus curiae on behalf of Port of Seattle.

Dennis Dunphy, Seattle, amicus curiae on behalf of Port of Vancouver Wash.

BRIDGE, J.

The Washington Public Ports Association (WPPA) has appealed a trial court ruling denying its petition for a declaratory judgment invalidating the leasehold excise tax (LET) provisions of WAC 458-29A-500 (Rule 500). WPPA argues that the Department of Revenue (DOR) exceeded its statutory authority under RCW 82.29A.050 by holding public port districts liable in certain situations for unpaid or uncollected LET under Rule 500. WPPA also claims that Rule 500 violates state constitutional prohibitions against the taxation of publicly owned lands and the lending of government money or credit to private individuals. We disagree.

I

WPPA is a trade association consisting of 69 public port districts in Washington State.¹ Although WPPA is a nonprofit corporation, the public port districts are municipal corporations.² Public port districts often lease publicly owned facilities and real property within their boundaries to private individuals and businesses. The private lessees of publicly owned property are subject to a LET, and as required by chapter 82.29A RCW, public port districts regularly collect the LET from their private lessees and remit the same to DOR. In the process of collecting and remitting the excise tax to DOR, public lessors are held, per statute, fully liable.³ To regulate the collection of the LET, DOR promulgated a series of rules including Rule 500. This rule provides that DOR may hold the public lessor responsible for payment of the LET in cases where the lessor fails to notify DOR in writing of a private lessee's nonpayment of rent and/or taxes, or in cases where the public lessor collects the LET, but fails to remit the same to DOR.⁴

In January 2001, the ports of Olympia and Port Angeles⁵ and WPPA filed a petition for declaratory relief and request for refund of assessed LET with Thurston County Superior Court. The ports and WPPA claimed that under RCW 82.29A.050, public port districts should be held liable only when the LET is collected but not remitted to DOR. They argued that the law makes only the private lessee liable for unpaid or uncollected LET, and nothing in chapter 82.29A RCW justifies a rule imposing personal liability upon the public lessor. The ports and WPPA also asserted that Rule 500's imposition of excise tax liability on public lessors effected an unconstitutional tax on the property of municipal corporations, which is in violation of article VII, section 1 of the Washington State Constitution. Finally, WPPA claimed that Rule 500 violates article VIII, sections 5 and 7, since it forces public lessors to make unconstitutional loans or gifts of public money to private individuals and businesses.

The trial court denied the ports and WPPA's petition for declaratory judgment and request for tax refund. The trial court held that RCW 82.29A.050 was clear and unambiguous, and DOR had the discretion to impose tax liability on public lessors who fail to collect and remit LET from their private lessees. The trial court also held that the promulgation of Rule 500 did not exceed DOR's statutory authority, that the rule was not arbitrary and capricious, and that Rule 500 was constitutional.

WPPA alone⁶ petitioned this court for direct review challenging the trial court's interpretation of the LET statute and Rule 500. We accepted direct review because this case raises fundamental and urgent issues of broad public import requiring prompt and ultimate determination. See RAP 4.2(a)(4).

II Overview of RCW 82.29A.050 and WAC 458-29A-500

A LET is imposed on private parties or individuals for "the act or privilege of occupying or using publicly owned real or personal property through a leasehold interest" at a rate of 12 percent of taxable rent. RCW 82.29A.030(1).⁷ Chapter 82.29A RCW defines "leasehold interest" as

an interest in publicly owned real or personal property which exists by virtue of any lease, permit, license, or any other agreement, written or verbal, between the public owner of the property and a person who would not be exempt from property taxes if that person owned the property in fee, granting possession and use, to a degree less than fee simple ownership[.]

RCW 82.29A.020(1). Under article VII, section 1 of our state constitution, publicly owned real or personal property is exempt from taxation. By leasing publicly owned property, private lessees receive significant benefits in the form of services by the government. RCW 82.29A.010(1)(a). Therefore, the LET is intended "to fairly compensate governmental units for services rendered to such lessees of publicly owned property." RCW 82.29A.010(1)(c). The LET is measured by the private lessee's "taxable rent," which is defined as

contract rent ... where the lease or agreement has been established or renegotiated through competitive bidding, or negotiated or renegotiated in accordance with statutory requirements regarding the rent payable, or negotiated or renegotiated under circumstances, established by public record, clearly showing that the contract rent was the maximum attainable by the lessor[.]

RCW 82.29A.020(2).⁸

Under RCW 82.29A.050, the LET is paid by the lessee to the lessor, and the "lessor shall collect such tax and remit the same" to DOR. RCW 82.29A.050(1). Upon receiving the LET from the private lessee, the public lessor must remit it to DOR "on or before the last day of the month following the month in which the tax is collected." RCW 82.29A.050(2). Further, "[t]he lessor shall be fully liable for collection and remittance of the tax." Id. (emphasis added).

Upon enactment of the LET statutes in 1976,⁹ the legislature authorized DOR to make rules and regulations consistent with the Administrative Procedure Act (APA), chapter 34.05 RCW, that are "necessary to permit its effective administration including procedures for collection and remittance of taxes." RCW 82.29A.140. However, DOR did not promulgate any LET rules until 1999 when Rule 500 took effect. See WAC 458-29A-500 (effective November 1, 1999). Rule 500 states in relevant part:

(2) Lessor's responsibility to collect and remit tax. The public lessor is responsible for collecting and remitting the leasehold excise tax from its private lessees. If the public lessor collects the leasehold excise tax but fails to remit it to the department, the public lessor is liable for the tax.

(a) Where the public lessor has attempted to collect the tax, but has received neither contract rent nor leasehold excise tax from the lessee, the department will proceed directly against the lessee for payment of the tax and the lessee shall be solely liable for the tax, provided, the lessor notifies the department in writing when the lessor is unable to collect rent and/or taxes, and the amount of the leasehold excise tax arrearage is $1000 or greater. If the lessor fails to notify the department, the department may, in its discretion, look to the public lessor for payment of the tax.

(b) If, upon examining all of the facts and circumstances, the department determines that the public lessor in good faith believed the lessee to be exempt from all or part of the leasehold excise tax, the department will look to the public lessor for assistance in collection of the tax due, but will not hold the public lessor personally liable for payment of such tax. To satisfy the requirement of "good faith" the public lessor must have acted with reasonable diligence and prudence to determine whether the leasehold excise tax was due from the lessee.

WAC 458-29A-500 (emphasis added).

WPPA and DOR have conflicting interpretations of the LET statute and Rule 500. WPPA's interpretation would place liability on the public lessor if it collects, but fails to remit the LET to DOR, or if the public lessor fails to make a good faith effort to collect the LET. Whereas, DOR's interpretation places total liability on public lessors for the collection and remittance of the LET. We are in agreement with DOR.

III Standard of Review

The standard of review we utilize in an agency rule challenge is governed by the APA. The burden of demonstrating the invalidity of an agency rule is on the party asserting the invalidity—in this case, WPPA. See RCW 34.05.570(1)(a). This court may declare an agency rule invalid if it: (1) violates constitutional provisions; (2) exceeds statutory authority of the agency; (3) was adopted without compliance to statutory rule-making procedures; or (4) is arbitrary and capricious. RCW 34.05.570(2)(c). WPPA asserts that Rule 500 is invalid because the DOR exceeded its statutory authority in promulgating the rule. Determining the extent of DOR's rule-making authority is a question of law. Local 2916, IAFF v. Pub. Employment Relations Comm'n, 128 Wash.2d 375, 379, 907 P.2d 1204 (1995).

The construction and meaning of a statute is also a question of law, which we review de novo. Dep't of Ecology v. Campbell & Gwinn, L.L.C., 146 Wash.2d 1, 9, 43 P.3d 4 (2002). If the statute's meaning is plain on its face, we must give effect to that plain meaning as an expression of legislative intent. Id. at 9-10, 43 P.3d 4. The "plain meaning" rule includes not only the ordinary meaning of the words, but the underlying legislative purposes and closely related statutes to determine the proper meaning of the statute. Id....