Supreme Court rejects city’s tax exemptions for 2014 street tax

OLYMPIA – Several thousand of the poorest residents of the city of Spokane, including seniors, the disabled and veterans, will continue paying higher property taxes because of the way the city chose to increase those taxes in 2014, the Washington Supreme Court said.

In a 7-2 decision, the court sided with Spokane County and the state Department of Revenue in their argument that the city doesn’t have the constitutional authority to exempt those property owners from the street levy measure.

Only the Legislature can grant exemptions from property tax levies, the court majority said Thursday. “The city does not possess the power to grant tax exemptions.”

City Council President Ben Stuckart said Thursday afternoon he was aware of the decision but hadn’t yet studied it.

“I’m disappointed,” Stuckart said, adding the council will likely discuss options with lawyers during an executive session next week.

The controversy stems from the way the city opted to extend a street levy bond approved in 2004, when the city had 10 years of projects that it wanted to finance with 20 years of bonds. Voters said yes. In 2014, it completed those projects but had more it wanted to do, so it asked voters to approve a property tax levy to pay off the bonds and extend the street program for another 11 years.

The levy rate would be the same 57 cents for every $1,000 of assessed value as the bond issue. But instead of selling bonds the city would restructure its debt, moving the charge from the city’s excess bond levy to its regular property tax. The city asked voters to approve an increase to its levy lid, which limits how much a city can raise its overall property levy from year to year. As part of the campaign, city officials said taxes wouldn’t go up, and seniors, veterans and people with disabilities who received exemptions under the original levy would get the same break under the new levy.

The 2014 tax measure passed by more than 3 to 1. But county and state officials later told the city the exemptions for the bond issues don’t apply to the regular property tax. When that dispute couldn’t be resolved, the City Council approved an ordinance so that any city property owner who qualified for the original exemption could get it for the new levy.

The county asked the state Department of Revenue if that was legal; the department said no. The county refused to lower taxes for some 4,700 people who had the exemption under the old levy, and the city sued.

The city won in Superior Court, but the county and state department won a 2-1 decision at the Court of Appeals. Thursday, the Supreme Court ruled the Appeals Court majority was right, that the ordinance created an unconstitutional “nonuniform tax.”

The Legislature has given cities some taxing powers, but they’re limited, the high court majority said. They include the power to lift the levy lid under certain circumstances, but not the power to grant exemptions.