Opinion ID: 4542451
Heading Depth: 2
Heading Rank: 3

Heading: the governmental immunity doctrine

Text: The Districts argue the governmental immunity doctrine shields them from the excise tax levied by the City because they perform a governmental function. “The governmental immunity doctrine provides that one municipality may not impose a tax on another without express statutory authorization.” Algona, 101 Wn.2d at 793. The “express” term in this context does not harken back to Dillon’s Rule. Instead, the legislature must grant municipal corporations authority to tax governmental functions in express terms, as governmental functions enjoy implied tax immunity absent contrary legislative intent. Chelan County Pub. Util. Dist., 181 Wn. App. at 343. “‘There are probably few tenets of American jurisprudence which have been so unanimously berated as the governmental immunity doctrine.’” Kelso v. City of Tacoma, 63 Wn.2d 913, 915, 390 P.2d 2 (1964) (quoting Holytz v. City of Milwaukee, 17 Wis. 2d 26, 33, 115 N.W.2d 618 (1962)). “The doctrine of governmental immunity springs from the archaic concept that ‘The King Can Do No Wrong.’” Id. at 914. This principle of English law posited that the king’s own courts were without jurisdiction to consider lawsuits against the sovereign and represents the origin of the doctrine of sovereign immunity. Hugh D. Spitzer, Realigning the decisis.’” Piel v. City of Federal Way, 177 Wn.2d 604, 619, 306 P.3d 879 (2013) (quoting ETCO, Inc. v. Dep’t of Labor & Indus., 66 Wn. App. 302, 307, 831 P.2d 1133 (1992)). -24- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 Governmental/Proprietary Distinction in Municipal Law, 40 Seattle U. L. Rev. 173, 190 (2016). Jurists accepted this doctrine “in the early American Republic without question and for many years.” 11 Id. In applying the governmental immunity doctrine, we have, over the years, accepted that “[a] municipal incorporation possesses a two-fold character.” City of Seattle v. Stirrat, 55 Wash. 560, 564, 104 P. 834 (1909). It has both a “‘governmental or public character’” and a “‘proprietary or private character.’” Id. at 564-565 (emphasis omitted) (quoting 1 JOHN. F. DILLON COMMENTARIES ON THE LAW OF MUNICIPAL CORPORATIONS § 66, at 107-08 (4th ed. 1890)); see also Okeson, 150 Wn.2d at 549 (noting a municipal corporation acts either in a governmental or proprietary capacity). “‘In its governmental or public character it represents the state, while in the other it is a mere private corporation.’” Stirrat, 55 Wash. at 565 (quoting Cincinnati v. Cameron, 33 Ohio St. 336, 367 (1878)). “The basic concept underlying the governmental/ proprietary distinction is that municipalities act in 11 Since statehood, this court has addressed the governmental immunity doctrine in various contexts. E.g., Russell v. City of Tacoma, 8 Wash. 156, 35 P. 605 (1894) (tort liability); City of Seattle v. Stirrat, 55 Wash. 560, 104 P. 834 (1909) (governmental contracts); Kelso, 63 Wn.2d 913 (tort liability); Algona, 101 Wn.2d 789 (taxation); Okeson, 150 Wn.2d 540 (taxation); Burns v. City of Seattle, 161 Wn.2d 129, 164 P.3d 475 (2007) (governmental contracts); Wash. State Major League Baseball Stadium Pub. Facilities Dist. v. Huber, Hunt & Nichols-Kiewit Const. Co., 165 Wn.2d 679, 202 P.3d 924 (2009) (statute of limitations exemptions); Pub. Util. Dist. No. 1 of Okanogan County v. State, 182 Wn.2d 519, 342 P.3d 308 (2015) (eminent domain). -25- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 different modes, i.e., sometimes as ‘governments’ and sometimes ‘like businesses,’ and that their powers and their legal obligations should be treated differently depending on which of the two modes they are operating in.” Spitzer, Realigning, supra, at 175. In Chelan County Pub. Util. Dist., noted above, a concurring member of the Court of Appeals panel lamented that there appear to be no fewer than six tests Washington courts employ when evaluating whether a function is governmental or proprietary. 181 Wn. App. at 352-53 (Fearing, J., concurring). Scholars have ascribed this fact to the various legal contexts in which the distinction arises. Spitzer, Realigning, supra, at 177 (“A substantial reason for the confusion and for the shifting application of the governmental/proprietary categories is that besides the competing equities and policies, the governmental/proprietary distinction developed in several fields of law, each with its own set of rationales for treating a municipal activity as ‘governmental’ or ‘proprietary.’”). But the applicable rules in any given case will depend on the relevant area of the law under consideration. We thus focus on cases that specifically address the distinction in the context at issue. In the context of taxation, “[t]he principal test in distinguishing governmental functions from proprietary functions is whether the act performed is for the common good of all, or whether it is for the special benefit or profit of the corporate entity.” -26- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 Okeson, 150 Wn.2d at 550. We have long held that providing water-sewer services to ratepayers involves a proprietary function of the government. See id. (quoting Twitchell v. City of Spokane, 55 Wash. 86, 89, 104 P. 150 (1909) (concluding providing water is a proprietary function because the “consumer pays for a commodity which is furnished for his comfort and use”)). “Water rates paid by consumers are . . . nothing more than the price paid for water as a commodity. The obligation to pay for the use of water rests either on express or implied contract on the part of the consumer to make compensation for water which he has applied for and received.” Twitchell, 55 Wash. at 89 (quoting 30 AM. & ENG. ENCYCLOPEDIA OF LAW 422 (2d ed. 1905)); see also Pub. Util. Dist. No. 1 of Pend Oreille County v. Town of Newport, 38 Wn.2d 221, 227-28, 228 P.2d 766 (1951) (“‘In the erection and operation of gas works, electric light plants, waterworks and the like, . . . a municipal corporation acts as a business concern.’” (emphasis added) (quoting 1 OSCAR L. POND, A TREATISE ON THE LAW OF PUBLIC UTILITIES § 5, at 14-15 (4th ed. 1932))). Water and sewer utilities “operate[] for the benefit of its customers, not the general public.” Okeson, 150 Wn.2d at 550 (discussing the same as applied to electric utilities). More generally, “When the municipality undertakes to supply, to those inhabitants who will pay therefor, utilities and facilities of urban life, it is engaging in business upon municipal capital and for municipal purposes but not in methods hitherto considered municipal. It is a public corporation transacting private -27- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 business for hire. It is performing a function, not governmental, but often committed to private corporations or persons, with whom it may come into competition. The function may be municipal but the method is not. It leads to profit, which is the object of the private corporation.” Stirrat, 55 Wash. at 565-66 (quoting 28 CYC. Municipal Corporations 125 (1908)). To be sure, the Districts are municipal corporations, but they are engaged in the business of providing water-sewer services to ratepayers. Consistent with long-standing precedent, we hold providing water-sewer services to ratepayers is a proprietary function. The Districts insist that the governmental immunity doctrine is not confined to governmental services and urge us not to apply the governmental/proprietary distinction here. This argument lacks merit. The governmental/proprietary distinction is integral to the governmental immunity doctrine and is firmly established in this court’s jurisprudence. To the extent that the Districts and amici argue that we should abandon the distinction altogether and develop a form of common law municipal entity immunity, we decline that invitation. The Districts and amici next contend that the provision of water-sewer services is public or governmental in nature because such services are essential in modern society. They argue that water-sewer services constitute a public necessity, which the government provides for the common good of all. They detail the public health and safety benefits of access to clean, potable water, as well as sewer services. -28- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 They further analogize to Algona, arguing there is no difference between solid waste disposal (a governmental function) and the disposal of sewage sludge. They claim that while private corporations may have provided water-sewer services in the past, mostly local governments now provide these services. To the extent that they highlight the value and importance of water-sewer services, the Districts’ arguments resonate. Still, they miss the mark in terms of governmental immunity analysis. Simply put, it is the ratepayer structure that makes the Districts’ business activities, like any other utility billed directly to paying customers, proprietary. See Okeson, 150 Wn.2d at 550. The Districts bill ratepayers for their consumption and use just as with other commodities—filling a pool, watering a garden, flushing a toilet, taking a shower, all cost money and will be reflected in the price the consumer pays for the commodity which is furnished for his [or her] comfort and use. See Twitchell, 55 Wash. at 89. That water quality and sanitary regulations protect consumer health and safety does not transform the Districts’ proprietary services into governmental functions. And the broader theme in the Districts’ and amici’s argument, suggesting that the ratepayer model is no longer viable for water-sewer services, is simply a policy question not before us. Finally, the Districts assert the City may not tax ratepayer revenue devoted to pay for other governmental functions—for instance, hydrant maintenance revenue. -29- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4 But providing utility services “cannot be a proprietary function for some purposes, but a governmental function for others.” Okeson, 150 Wn.2d at 551. Cities levy business and occupation excise taxes on the privilege of engaging in business and measure those taxes by gross income or receipts. Watson, 189 Wn.2d at 168. The City may therefore impose a tax on the gross income received from water-sewer ratepayers or other proprietary functions in which the Districts engage within the City’s limits. To the extent that the Districts receive governmental funds for governmental functions—e.g., fire protection services and hydrants—those allocations are not taxable.12 In sum, water-sewer service providers—operating under a ratepayer structure—perform a proprietary function. For that reason, we hold the governmental immunity doctrine does not bar the City from taxing the gross revenue generated from the Districts’ proprietary business activities transacted within the City’s limits. 12 Whether the Districts may generally use ratepayer revenue to pay for other governmental services is also not properly before us. While this inquiry similarly involves a governmental/proprietary analysis, we decline to address that question again here. See generally Okeson, 150 Wn.2d at 549-50; Lane v. City of Seattle, 164 Wn.2d 875, 884, 194 P.3d 977 (2008) (“Hydrants, like streetlights, are a government expense for which a government must pay.”). -30- Lakehaven Water & Sewer Dist. et al. v. City of Federal Way, 96585-4