Tax exemption puts Spokane and county at odds

When city leaders encouraged Spokane voters to pass last year’s street levy, they promised that existing property tax rates wouldn’t change.

Now that promise is in jeopardy.

The state Department of Revenue says a long-standing tax exemption doesn’t apply to the levy, which passed with 77 percent of the vote. And now about 4,000 low-income senior citizens and people with disabilities in Spokane may face unwelcome tax bills as a result.

“The Department of Revenue’s interpretation of the law disagrees with our interpretation,” said Marlene Feist, a city spokeswoman.

City officials are pushing back – taking on Spokane County, which has found itself caught in the middle of the city’s dispute with the revenue department.

The county is bound to follow the directions of the revenue department in collecting taxes. If it extends such a tax break, the county could face stiff penalties.

“I believe that we could be liable for refunds and all the administrative and logistical issues from that,” Spokane County Commissioner Todd Mielke said. “That would come out of our general fund.”

According to documents filed in a city court action against the county, the city’s utilities chief, Rick Romero, said the county twice confirmed the “exemption would continue to be available” for the street levy. Mielke said it was unclear who in the county provided that information.

The county treasurer’s office collects all taxes in the county, including those paid by city residents.

In January, the county assessor’s office reversed course after the state revenue department said the exemption violated state law, according to court documents filed by the city of Spokane. But the county says it raised questions about whether the ballot measure would lead to tax increases in December. Tax law interpretation is the responsibility of the state, not the city or county, the revenue department noted.

In response, the City Council passed an emergency ordinance this month authorizing a local tax exemption for the 4,000 low-income residents. In all, tax collected from that group would amount to about $107,000, according to the city.

On Friday, the city filed a court injunction to block the county from mailing tax bills as the two jurisdictions sorted through the issue.

Then on Tuesday, Spokane Mayor David Condon and Council President Ben Stuckart sent a letter to the county assessor, treasurer and prosecuting attorney warning them to obey city law or face legal action while the city takes matters into its own hands.

But a letter delivered to the county from Kathy Beith, assistant director of the revenue department’s Property Tax Division, said the ordinance “exceeds the City’s authority.”

“Because the City’s ordinance creates an exemption that is not authorized under state law, it should not be implemented,” Beith wrote.

Spokane County Assessor Vicki Horton said Wednesday that property tax notices already have been prepared and will be mailed by Spokane County Treasurer Rob Chase’s office as early as Friday.

Feist said the letter from Condon and Stuckart asked that amended tax notices be sent to affected residents about the tax exemption. The city offered to share in the cost of that notification.

“We need confirmation today of your intent to deliver these notices and execute our ordinance, which is presumed legal and constitutional unless proven otherwise in a court of law,” the letter said. “Without your assurances, we will proceed with direct communication with our citizens.”

But Feist said the city doesn’t know the names and addresses of the people who had been previously approved for the tax exemption.

“We don’t bill,” she said. “The direct relationship with the customer is through the assessor’s office.”

The county is waiting for direction from the Department of Revenue on whether to provide the city with the names and addresses of affected taxpayers, county spokeswoman Martha Lou Wheatley-Billeter said.

Mielke said it would be too costly for the county to print extra notices now for taxpayers affected by the city’s ordinance, despite the city’s offer to help pay costs. He also said a request to delay tax statements from being sent to some or all county taxpayers while the issue is sorted would negatively affect other taxing districts, like schools and fire departments.

Feist said the city would evaluate all options if the county didn’t respect the city’s new tax exemption ordinance, including potential legal action against the county.

“This affects about 4,000 of our most disadvantaged citizens,” she said. “We had planned for not collecting this money. … It was completely within our budgeted plans. Twenty-five dollars to someone with this income level, it’s a bigger deal than we think. It’s a big deal to them.”

Mielke said he sympathizes with the city’s position, but the county had a duty to carry out state law in collecting property tax.

“We’re not trying to be the bad guy, we are just the local branch of the state when it comes to the property tax system,” he said.

Mielke dismissed arguments from the city that the county had a choice whether to honor the city’s exemption ordinance, saying the letter from the revenue department makes it clear the county has no wiggle room on whether to honor the law.

Feist said a larger issue is the promise made to voters not to change tax rates, which would be broken if the tax exemption is done away with.

“We take that really seriously,” she said. “This affects nobody else. This is city of Spokane revenue. It affects no other jurisdiction. It affects no other jurisdiction’s revenue.”