February 4, 2002
Supreme Court opinion has implications for state-wide water districts
by Jeanette Knutson
Like most of us, Ken Goodwin wears a couple of hats. He is a Woodinville Water District commissioner, and he is the finance director for the Alderwood Water District, the largest water and sewer district in the state, spanning from Everett south to the King/Snohomish border.
In his capacity as finance director for the Alderwood Water District, Goodwin suspected that the Washington Department of Revenue had inappropriately applied a public utility tax to sewage collection within his district.
Goodwin asked the Alderwood board if he could take the Department of Revenue to court. He got the nod to do so.
The district assembled an impressive legal team that included retired Washington State Supreme Court Justice Phil Talmadge. But before the district began its own journey through the Washington state court system, its legal team found a similar case - City of Spokane, by and through its Wastewater Management Department, as Taxpayer, v. Washington State Department of Revenue - and petitioned the court for permission to, in essence, join in that case.
The City of Spokane case had already wound its way through the court system for five years. Its next, and final, venture was the Washington Supreme Court.
In short, the City of Spokane (and the Alderwood Water District through its affiliation with the case) challenged the methodology used by the Department of Revenue in applying its public utility tax.
There are two taxes applied to sewage, one at the point of collection - the higher public utility tax - and one at the point of transportation - the lower business and occupation tax. At the crux of the matter was, when did the higher tax go into effect. When did sewage collection stop and sewage transportation begin?
The difference in opinion between the City of Spokane and the Department of Revenue was quite distinct. Spokane figured 23.99 percent of its piping assets as collection sewerage, with the remaining 76.01 percent engaged in transfer and treatment. The Department of Revenue figured 99.39 percent of the city's pipes were collection sewerage, with less than one percent as transfer sewerage.
This was a complicated tax issue rooted in semantics. But in the end, in a unanimous decision, the Supreme Court of the State of Washington sided with the City of Spokane.
Bob Beaumier Jr., counsel for the City of Spokane, emphasized, "The Department of Revenue was not overreaching. It was a difficult legal issue, argued in good faith from both sides. We've gone back and forth (on this issue) for a good five years. There were five levels of review. We won twice; they (the Department of Revenue) won three times. But the only one that counts is the last one (at the Supreme Court level)."
Said Goodwin of the Alderwood Water District, "This decision has statewide significance." It could mean, he said, millions of dollars being refunded to water districts and water and sewer departments around the state.
But whether or not a refund is forthcoming to a particular district depends upon how the Department of Revenue applied the rates to that particular sewer district.
Said Goodwin, "As a member of the Washington Association of Sewer and Water Districts, I encourage all sewer district members to review the tax calculation in light of the Supreme Court's opinion."
Alderwood district figures it will get about a $200,000 refund based on the Jan. 24 opinion.
The City of Spokane's Wastewater Management Department might get in the neighborhood a half million dollars, said Beaumier.
What, if anything, other water districts might receive depends upon the facts of each individual case.
"The Woodinville Water District is reviewing the Department of Revenue's tax methodology as we speak," said Goodwin, wearing his Woodinville Water District Commissioner hat.
Though this opinion is a win for the ratepayers statewide, the refunds will go to the individual water/sewer districts. All refunds, of course, will be used for the benefit of the ratepayers.
With the refund money, a district could choose not to raise rates as much the next time it needed to, suggested Goodwin. Or, a district could choose to use the refund money for capital projects or acquisitions, which would reduce the amount of money a district would have to borrow, he added.
Joining cases (with Alderwood Water District) was "tremendously helpful," said Counsel for the Petitioners Beaumier.
"The philosophy on taxes - on either side of this case - has been 'The taxpayer has to pay every penny, but not a penny more,' he said. "We have to get as precise as we can. The public has a right to that."