Summary
The Washington Supreme Court considered whether Spokane's large interceptor sewer pipes constituted sewerage collection subject to the higher public utility tax or sewerage transfer subject to the lower business and occupation tax. The court adopted a substantial-use test, holding that lateral sewers are collection sewers while interceptor sewers are primarily involved in transferring sewage, even when occasional customers connect directly to them. The court reversed the Court of Appeals and reinstated the superior court's decision in favor of Spokane.
Topics
Practice areas
Questions Presented
- Whether the term "sewerage collection" in RCW 82.16.020 and WAC 458-20-251 should be interpreted using a substantial-use test or a sole-use/last-customer-hookup test.
- Whether interceptor sewer lines are collection sewerage subject to the public utility tax or transfer facilities subject to the lower business and occupation tax.
Holdings
- The court adopted a substantial-use test: collection ends where the sewerage's substantial function changes from collecting sewage to transferring it for treatment or disposal.
- Laterals are collection sewerage, while interceptor sewers are involved in the transfer of sewage and are not transformed into collection sewerage merely because an occasional customer connects to them.
Key quotations
“We adopt the substantial use test for determining where collection ends and transfer begins, holding that a lateral is a collection sewer, whereas an interceptor is involved in transfer of sewage.” (455)
“A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.” (455)
Factual background
Spokane operates a sewer system consisting of small lateral pipes that collect sewage from customers and larger interceptor or trunk pipes that transport sewage to treatment facilities. The Department of Revenue treated sewerage as collection subject to the higher public utility tax rate until the point where no additional customer sewage entered the system, resulting in an assessment covering approximately 99.39 percent of Spokane's pipes. Spokane contended that collection ended at the laterals and that interceptors and force mains performed transfer functions taxable at the lower business and occupation tax rate.
Procedural history
The Department of Revenue audited Spokane and assessed additional public utility taxes based on its view that nearly all of Spokane's sewer pipes constituted collection sewerage. The Board of Tax Appeals upheld the assessment. The superior court reversed, but the Court of Appeals reversed the superior court and ruled for the Department of Revenue. The Washington Supreme Court granted review, reversed the Court of Appeals, and reinstated the superior court's decision.
Remand instructions
The court reinstated the superior court's decision adopting the substantial-use test. No additional remand instructions were stated.