Opinion ID: 779826
Heading Depth: 2
Heading Rank: 2

Heading: grays harbor county's compensating tax

Text: 20 Washington has created a special system of taxation for property qualifying for treatment as forest land under its provisions. Weyerhaeuser Co. v. Cowlitz County, 109 Wash.2d 363, 745 P.2d 488, 491 (1987). The valuation of land classified for forest use generally results in a lower rate of taxation for the property than the fair market value.... Id. Property that has been assessed and valued as forest land loses that advantageous tax classification upon the occurrence of one of several events, including the [s]ale or transfer to an ownership making such land exempt from ad valorem taxation. Wash. Rev.Code § 84.33.120(5)(b). 21 With the loss of this favorable tax status comes the imposition of the compensating tax. Id. § 84.33.120(7). Washington courts have described the tax as equal to any tax savings which had resulted from the lower rates imposed as a result of the land's favorable tax status during the previous ten years. Weyerhaeuser, 745 P.2d at 491 (citing Wash. Rev.Code § 84.33.120(7)); see also Klassen v. Skamania County, 66 Wash.App. 127, 831 P.2d 763, 765 (1992). In fact, the tax is not necessarily identical to the land owner's tax savings because the tax is not calculated by merely summing up the tax savings from the previous years. Rather, the tax is equal to: 22 the difference, if any, between the amount of tax last levied on such land as forest land and an amount equal to the new assessed valuation of such land multiplied by the dollar rate of the last levy extended against such land, multiplied by a number, in no event greater than ten, equal to the number of years ... for which such land was assessed and valued as forest land. 23 Wash. Rev.Code § 84.33.120(7). In short, Grays Harbor determines the tax by (1) calculating the tax benefit obtained during the last year that the land was classified for forest use, and (2) multiplying this benefit by the number of years that the land retained the forest use classification, up to a maximum of ten years. The owner-transferor incurs the compensating tax in its entirety, notwithstanding ownership of the land for a portion or all of the years (up to ten) during which the land enjoyed a reduced valuation. 24 III. THE COMPENSATING TAX IS NOT A PERMISSIBLE TAXATION OF ... LAND UNDER COUNTY OF YAKIMA 25 The question, then, is whether the tax qualifies as a taxation of ... land within the County of Yakima framework. Although the question is simple, the answer is not so straight-forward. Indeed, the very ambiguity of this tax scheme leads us to conclude that it does not fall within an unmistakably clear congressional authorization. 26 At first blush it may appear that Grays Harbor calculates its compensating tax using traditional ad valorem property tax factors: the value of the land as the basis for the tax. According to the Supreme Court, however, this basis of valuation tells us nothing about the true nature of the tax. In fact, if anything, it favors the Nation: The short of the matter is that the General Allotment Act explicitly authorizes only `taxation of ... land,' not ... `taxation based on the value of land.' County of Yakima, 502 U.S. at 269, 112 S.Ct. 683. Hence, the Court in County of Yakima struck down a tax based upon the land's sale price. See id. at 268-70, 112 S.Ct. 683. 27 We see no meaningful distinction between the tax there and the one imposed here. The sale price of land is typically nothing more than a manifestation of its market value. See Black's Law Dictionary 971 (6th ed.1990) (defining market value as [t]he price property would command in the open market). There must be something more definitive about the character of a state taxation scheme before we can find that it unambiguously falls within the narrow sense of permissible taxation provided by the General Allotment Act. County of Yakima, 502 U.S. at 269, 112 S.Ct. 683. 28 The essence of this tax is that it is triggered by a specific event—a property transfer. Thus, it resembles the excise tax rejected by the Supreme Court in County of Yakima as much as, if not more than, the ad valorem tax that the Court condoned. In particular, we can discern quite a bit about this tax by acknowledging that it only arises as a result of a sale or transfer of land, and, in particular, a transfer to a specific type of owner, i.e., a tax-exempt entity. 29 Only by exercising its privilege to transfer this land to an owner of its choice does the Quinault Nation incur any tax. The fact that the tax is triggered by the property owner's decision represents the quintessential example of an excise tax: a tax imposed on the performance of an act ... or the enjoyment of a privilege. Black's Law Dictionary 563 (6th ed.1990); see Black v. State, 67 Wash.2d 97, 406 P.2d 761, 762 (1965) (the obligation to pay an excise tax is based upon the voluntary action of the person taxed in performing the act) (citation omitted). 30 The fact that this tax is contingent upon a transfer of property is even more indicative of a classic excise case. On this point Washington law is instructive: a tax is characterized as an excise tax when [t]he event causing[the] tax to be levied is the transfer of ownership.... See High Tide Seafoods v. State, 106 Wash.2d 695, 725 P.2d 411, 414 (1986) (emphasis in original). And perhaps even more emblematic of its true character is the fact that this tax only targets transfers to specific tax-exempt entities, thus making it even more calibrated to the owner's actions than the excise tax struck down in County of Yakima, a tax that applied generally to all transfers. 31 In sum, we can hardly dismiss the reason this tax arises as the tail that wags the dog. Just as a state might impose an excise tax on the purchase of cigarettes to discourage the use of tobacco, the State here has imposed such a tax on the transfer of forest land to an owner from whom it can no longer obtain future tax revenues. The particular nature of the event that triggers this tax only serves to highlight how intertwined the owner's activity is with the character of the tax itself. The State is obviously concerned enough about the loss of future revenue to declassify land designated for forest use, thus triggering this tax, even when the land continues to be used for forest purposes. It is not difficult to conclude that such a tax has nothing to do with the land and everything to do with the type of owner to whom the land is transferred, thus bringing it well within the realm of excise taxes that the Supreme Court has already held to be impermissible. 32 We next address the argument that the method of calculation and collection somehow transforms the tax into a permissible one. An excise tax remains a tax upon the Indian's activity of selling the land, and thus is void, whatever means may be devised for its collection. County of Yakima, 502 U.S. at 269, 112 S.Ct. 683 (emphasis added). Nonetheless, Grays Harbor would have us overlook the impetus for this tax and instead focus on the means of calculation in order to characterize it as a permissible ad valorem tax. But even looking at the tax from that perspective, we cannot conclude, however plausible the County's characterization may be, that this tax unambiguously falls within the scope of a permissible taxation ... of land. See id. at 268, 112 S.Ct. 683 (constructions of permissible tax schemes must not only be plausible but unambiguous). 33 Liability for a permissible ad valorem tax flows exclusively from ownership of realty on the annual date of assessment. Id. at 266, 112 S.Ct. 683 (emphasis added). See also City of Walla Walla v. State, 197 Wash. 357, 85 P.2d 676, 678 (1938) (The general ad valorem tax upon real property ... is imposed directly upon the property and exacted from all owners thereof. It is levied annually, at a regular time, and operates uniformly according to fixed general rules.). At least two problems arise when we attempt to squeeze this tax into that definition. The first and most obvious is discussed above: liability flows as much from the owner's decision to transfer the land as it does from the fact that the owner possesses the land. 34 Equally problematic, though, is the way in which this tax is calculated. The County's position ultimately relies upon the notion that this scheme essentially collects real property taxes after the fact. Under this rationale, it presumably does not matter what triggers the tax because it simply represents recoupment of a permissible tax on the land. The difficulty with this characterization is that it is simply a fiction. As noted above, the compensating tax is not necessarily identical to the land owner's tax savings because the tax is not calculated by merely summing up the tax savings from the previous years. Nor is the tax calculation necessarily related solely to the ownership of the current property holder, as it goes back ten years and can span a number of different owners. 35 The actual tax that is levied under this scheme utilizes the property's new assessed valu[e] as the yardstick for assessing the amount due rather than the land's actual value in the preceding years that it was classified for forest use. Wash. Rev. Code § 84.33.120(7). In many, if not most cases in which land loses its forest use classification, utilization of this formula will result in something more than simple recoupment of any ad valorem tax that could have been assessed in earlier years. For instance, the State argues that the tax kicks in if the Nation were to put a resort on the property, see id. § 84.33.120(5)(c), or if the County's assessor were to determine that the property had a higher and better use, see id. § 84.33.120(5)(d). See Answering Brief at 14. We can thus surmise that the new assessed value would exceed the prior value of the land, resulting in a larger tax than could have been assessed under traditional ad valorem principles. 36 Perhaps we could explain any resulting disparities by positing that the compensation formula simply derives from the need for administrative ease in approximating the lost revenue. However, the County's utilization of this formula and the obvious potential for disparities only reinforce our view that its method of calculating the tax may be more a matter of convenience for meeting the State's policy objectives of maintaining forest use and a steady stream of future revenues—objectives that are inextricably tied to the tax's triggering events—than an attempt to recover taxes it could have, but did not, impose in the past. The reality is that the calculation itself is not related exclusively to the Quinault Nation's ownership on the date of assessment but to a number of other factors and considerations. 37 Stepping back, this taxation scheme can be seen as something of a hybrid that defies any easy or definitive characterization, but in the end we cannot ignore the classic excise tax attributes upon which it is so dependent. Indeed, this tax may be a taxation of [a] transaction[] involving land or it may be a taxation with respect to land, but the tax cannot be perceived as a clear and unambiguous taxation of... land. County of Yakima, 502 U.S. at 269, 112 S.Ct. 683. Accordingly, we conclude that the compensating tax does not fall within the limited scope of permissible taxation allowed under the General Allotment Act and County of Yakima. 38 REVERSED.