Sewer, water district say proposed SeaTac utility tax is illegal; lawsuit possible

by Jack Mayne

The sudden and surprising proposal by the SeaTac City Council to impose a 6 percent utility tax on a variety of public utility district serving city customers is illegal under Washington state law, says a memo from sewer and water districts.

The memo was authored by the Highline Water District, the Valley View Sewer District, and King County Water Districts 20 and 125 and delivered this week to SeaTac Mayor Mia Gregerson and SeaTac Councilmembers.

The memo said that the city legally can levy a utility tax up to a maximum of 6 percent on private utilities that provide electricity, natural gas, steam energy and telephone service within SeaTac. But state law “does not authorize the city to impose a tax on the revenues of public utilities … .”

The memo said the sewer and water districts were established to provide services to “almost all of SeaTac’s 28,000 citizens,” but it’s also to about 70,000 customers “within seven cities and the county” and who are not SeaTac residents.

“If SeaTac enacts a tax on the districts, the districts will consider all of their options relative to the tax, including filing a lawsuit to obtain an order that the tax is unlawful,” the memo concluded.

The districts also said they were not informed of a possible tax and an opportunity to discuss it with the city in advance of its appearance on a Council study session agenda.

Pam Fernald

Councilmember Pam Fernald has asked that the city meet with the districts and asked for a public hearing on the utility tax issue, but was not supported by others on the Council.

She told The SeaTac Blog on Tuesday that she still wanted a meeting with the districts and the city.

“I don’t understand why the city did not reach out to the utilities in the beginning,” Fernald said. “Now, among other things, this has just fostered mistrust with our public partners.”

Money needs understood
The water and sewer district’s memo said they “understand the city’s need for stable, long term funding sources to provide city services, and we also understand the fiscal challenges cities face today in uncertain economic times.”

But the districts pointed to a 1984 Washington Supreme Court decision that said “one municipality cannot tax another municipality without express statutory authority” so cities “have not attempted to tax municipal utilities providing service within their boundaries.”

The memo noted a quote from SeaTac City Manager Todd Cutts was right when he “stated that 48 of the 51 cities in Washington sized from 15,000 to 75,000 impose a utility tax,” but the cities only impose the tax on private utilities.

But the memo to the city said, “none of those 48 cities impose a utility tax on municipalities operating within the boundaries of those cities.”

The districts said there are many reasons for not imposing a utility tax, “both legal and practical.”

Either the city should tax only private utilities or “simply do not tax the revenues of municipal utilities operating within the city’s limits.”

No warning from SeaTac
The districts asked, why didn’t the city warn us of the tax proposal?

“The districts have a good working relationship based on collaboration and transparency.”

But even so, the first word the districts got was “reviewing the city’s web site on Oct. 14.”

If there had been notice “we would have shared our concerns with the city, instead of providing input on the eve of the Council’s consideration of adopting the tax.”

Some of those concerns are, the district’s memo said, the fact the proposed tax is that “the definition of ‘gross income’ is not clear … and is probably void for vagueness.”

Then there are “burdensome and cumulative impacts” of the tax. Those include having to figure out and install computer software that can differentiate between residents living inside the city, thus taxable, and those outside.

A big concern, the memo said, was that the districts “have never been taxed by any city in which they operate … especially given the multiple jurisdictions in which they operate.”

“Again, Highline operates in seven cities, and if all of those cities tax Highline, it will be difficult to track, allocate and pay the tax to the appropriate city.”


3 Responses to “Sewer, water district say proposed SeaTac utility tax is illegal; lawsuit possible”
  1. Vicki Lockwood says:

    I sent the following email to the SeaTac Council, City Manager and City Attorney ….

    Council Members, Mr. Cutts and Ms. Mirante-Bartolo~
    I have read the letter to you from the conglomerate water and sewer districts serving our residents, and agree with their explanation of the historical “hands off” precedence of one government entity not taxing another government entity.

    If you decide to implement this proposed tax but only choose to tax private utilities (such as Comcast and PSE), this would be extremely unfair to those of us who are served by both of these Private Utilities. Obviously, City Light customers would be exempt, so those residents served by City Light (who already enjoy SIGNIFICANTLY cheaper electric rates than those of us living within PSE’s jurisdiction) would not pay the tax on their electrical usage. And those who get their television signals from providers other than Comcast would not pay the tax on their television signals. This would not be equitable to all citizens. Obviously, this issue is much more complicated than you may have anticipated and should require much more study before even suggesting such a significant change.

    I appreciate your taking the time to really understand the ramifications of your proposed utility tax. I hope we citizens don’t have to pay one dime for legal expenses to defend such a knee-jerk proposal.

    Our budget crisis didn’t magically fall out of the sky one day ~ it has been building for years. Every one of you knew that we were spending more money than we were receiving. The spending should have been curtailed years ago to be in line with our revenue. Now we need to make drastic cuts, eliminate programs, reduce staffing and curtail spending until we arrive at a balanced budget with a respectable rainy day fund.

    Vicki Lockwood

  2. Outside Observer says:

    “In a decision issued today (5/20/2014), Division III of the state court of appeals decided that a code city has the legal authority to impose its utility tax on the revenues of a public utility district’s provision of water service to customers within the city limits, except to the extent that the district’s revenues “were derived from governmental activities.” The court’s decision in City of Wenatchee v. Chelan County Pub. Util. Dist. No. 1 will have significance for all classes of cities and for other municipal entities, such as water-sewer districts, that provide utility service within cities.”

  3. jellybean says:

    From July 3-Oct 20 (111 days) City of Seatac has paid out $11,901.76 for food&supplies (at least that is whatthe PO is for) and why are they spending $1,800 for Seattle Symphony, $350 for fine art and 4 people are going to Washington DC for a conference they don’t even need to be there. At least 2-4 people are gone every month at a ‘conference’ maybe stop making tax payers pay their vacation and feeding them and they probably have more money to do something that needs to be done!