Division I of the state Court of Appeals has released its decision in Group Health Cooperative v. City of Seattle, a municipal B&O tax case in which AWB submitted an amicus curiae brief. The taxpayer actually prevailed for the most part in the case but it was an underlying issue that interested us -- the first precedential interpretation of the remedy provision of 2003's landmark municipal tax fairness legislation, EHB 2030.
Here's what we wrote about EHB 2030 in 2003:
AWB’s tenacious six year effort to bring municipal tax fairness to Washington has finally paid off! EHB 2030 was signed into law by Gov. Gary Locke in early April. The signing of EHB 2030 marks the end of confusing local B&O tax codes, the elimination of the potential for double taxation and the preservation of the rules of fair tax treatment. Soon business taxpayers will be on the receiving end of a long-awaited, model B&O tax ordinance that creates uniformity, certainty, predictability and fairness in local taxation. Introduced by Rep. Lynn Kessler (D-Hoquiam), EHB 2030 ends differing interpretations of tax laws from the state to local level and from city to city. Thanks to this legislation, businesses that operate in multiple cities will no longer be forced to pay double or triple taxes on the same revenue. A long time priority of AWB, the Governor’s Competitiveness Council and the Gates Tax Study Commission is now a reality.
This bill, an executive request bill from then-Governor Gary Locke and Competitiveness Council priority, was enacted over the strenuous opposition of the cities. One reason? Section 14 of the bill, or RCW 35.102.140, provided a strong incentive for cities to come into compliance with the uniformity requirement:
A city that has not complied with the requirements of sections 2 through 13 of this act by December 31, 2004, may not impose a tax that is imposed by a city on the privilege of engaging in business activities.
In other words, comply with this law or lose the legislative authorization to impose a B&O tax while out of compliance. In this case, it was pretty clear the City of Seattle was not complying with one of the provisions of the law relating to refund calculation -- in fact, an e-mail from the city's tax manager obtained through a public records request showed the city was actively thumbing its nose at the 2003 law.
Nevertheless, on this point, the Court of Appeals decided the Legislature couldn't have possibly meant such a draconian remedy for non-compliant cities:
While it is true that the legislative history supports the conclusion that the legislature intended the requirements of [EHB 2030] to be mandatory for cities imposing B&O taxes, there is nothing whatsoever in the legislative history suggesting that the legislature's objective was to impose a retroactive B&O tax revenue "death penalty" on municipalities found to have unwittingly enacted provisions of the model ordinance that were drafted in such a manner so as to be inconsistent with the statute.
Of course it isn't so much the Legislative history as the text of the law itself ("A city that has not complied . . . may not impose a tax . . .") where the Legislature's objective was clear -- and since we helped draft the statute, we felt pretty confident on this point.
But, this decision is another reminder -- like last month's unemployment insurance decision from the Supreme Court repudiating another major 2003 enactment -- that what seems so clear before the Legislature often looks completely different through the prism of the judiciary.
