MUNICIPAL EXCISE TAXES ON GROSS RECEIPTS OF FUEL OIL SALES

CITIES AND TOWNS ‑- TAXATION ‑- BUSINESS LICENSES ‑- MUNICIPAL EXCISE TAXES ON GROSS RECEIPTS OF FUEL OIL SALES

Because of the legislature's enactment of §§ 6 and 7, chapter 134, Laws of 1972, Ex. Sess., a city or town may only impose a license fee or excise tax upon the business of making retail sales of fuel oil measured by the gross receipts from such sales to the extent that such city imposes the same gross receipts tax at the same rate upon all other retail sales of tangible personal property occurring within the city.

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                                                                  January 9, 1973

Honorable James E. Keefe
State Senator, Third District
Legislative Building
Olympia, Washington 98504

                                                                                                                   Cite as:  AGO 1973 No. 2

Dear Sir:

            This is written in response to your recent request for our opinion on a question which we divide and paraphrase as follows:

            (1) In view of §§ 6 and 7, chapter 134, Laws of 1972, Ex. Sess., may a city which imposes a license fee or excise tax upon the business of making retail sales of fuel oil measured by the gross receipts from such sales impose this tax at a rate different from those rates which apply to all other retailing activities (i.e., of tangible personal property) within the city which are similarly taxed?

            (2) Under this 1972 enactment, may a city impose any license fee or excise tax upon the business of making retail sales of fuel oil which is measured by the gross receipts from such sales where such city does not impose the same gross receipts license fee or tax upon all other such retailing activities within the city?

            We answer both of these questions in the negative for  [[Orig. Op. Page 2]] the reasons set forth in our analysis.

                                                                     ANALYSIS

            It is well established in this state that cities and towns possess the authority to license businesses for the purpose of revenue and to measure the amount of such a license tax on the basis of the gross revenues of the licensed businesses.  See,Pacific Tel. and Tel. Co. v. Seattle, 172 Wash. 649, 21 P.2d 721 (1933), affirmed 291 U.S. 300, 78 L.Ed. 310, 54 S.Ct. 833; andWells & Wade Hdwe. v. Wenatchee, 64 Wn.2d 103, 390 P.2d 701 (1964).  As stated in the first of these two cases:

            "This court has held in numerous cases that cities and towns, under the powers granted, have the right to impose license taxes either for the purpose of regulation or revenue.  Fleetwood v. Read, 21 Wash. 547, 58 Pac. 665, 47 L.R.A. 205; Walla Walla v. Ferdon, 21 Wash. 308, 57 Pac. 796;Stull v. DeMattos, 23 Wash. 71, 62 Pac. 451, 51 L.R.A. 892;In re Garfinkle, 37 Wash. 650, 80 Pac. 188; Sumner v. Ward, 126 Wash. 75, 217 Pac. 502; Bucoda v. Swaney, 163 Wash. 43, 299 Pac. 652."

            Moreover, as recently indicated in an opinion dated August 14, 1972 [[an Informal Opinion No. 72562]], to the Municipal Research Council (copy enclosed),

            ". . . it has been held to be constitutionally permissible to establish several classes of business activities on the basis of gross income (each class including all businesses whose gross receipts range between designated minimum and maximum amounts) and to impose such a municipal license tax at a different flat rate on each such class.  SeeClark v. Titusville, 184 U.S. 329, 46 L.Ed. 569, 22 S.Ct. 382 (1902), in which this type of classification was held to be reasonable and, therefore, not to violate the equal protection clause of Amendment 14 to the United States Constitution. . . ."

            By its enactment of §§ 6 and 7, chapter 134, Laws of 1972, Ex. Sess., the legislature has, however, restricted the  [[Orig. Op. Page 3]] exercise of this taxing authority.  These two sections apply, respectively, to cities and towns which have not come under the optional municipal code and those which have; otherwise, they are identical and may be exemplified by quoting the text of § 6 only, as follows:

            "Any city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property which are measured by gross receipts or gross income from such sales, shall impose such taxat a single uniform rate upon all such business activities.  This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW."  (Emphasis supplied.)

            Before proceeding to consider your questions in the light of this statute, we think it would be well, lest there be any misunderstanding, to note and emphasize the rather limited scope of its provisions.  In order for whatever restrictions are imposed by the statute to apply, there are two distinct situations which must exist:  First, the city in question must be taxing or licensing the business activity of making "retail sales of tangible personal property" ‑ as distinguished, for example, from sales of services or intangible commodities such as electrical power, telephone communication, or the like.1/   And  [[Orig. Op. Page 4]] secondly, the fee or tax must be measured by the gross receipts derived from such sales, rather than some other measure such as the number of outlets, or of employees, etc.

            With these two points in mind, we turn now to the questions here to be answered.

            Question (1):

            We believe the language of the subject statute is clear in requiring that any gross receipts tax imposed by a city on the business activity of making retail sales of tangible personal property must be imposed at a single uniform rate upon all such activities which are similarly taxed.  In our opinion to the Municipal Research Council, supra, we advised that because of this enactment a city or town may no longer impose a multiple rate tax on the gross receipts of business activities which consist of making retail sales of tangible personal property.  In so concluding, we characterized the effect of the statute as requiring that the tax imposed be at a uniform tax rate without regard to the respective amounts of the gross receipts or gross income.  Similarly, we would also conclude that the tax must be imposed at a uniform rate without regard to the subject matter of the particular sale of tangible personalty; e.g., whether it is fuel oil or furniture, drug products or clothing, etc.  Thus, the first question above stated is readily answerable in the negative.

            Question (2):

            But does this clear prohibition against applying different rates to different categories of retailers who are made subject to such a municipal business license fee or tax as is regulated by §§ 6 and 7, chapter 134,supra, mean, also, that in order to impose such a business tax upon any  [[Orig. Op. Page 5]] given category of retailers of tangible personal property, a city or town is required to impose this same flat rate gross receipts tax upon every other category of retailer also engaged in such activities therein?

            We think that in order to effectuate the apparent purpose of the legislature in enacting this 1972 legislation an affirmative answer to this question must be reached.  Otherwise, under the guise of classifying retailers according to their principal goods or commodities a city or town might still remain free to (in effect) impose one rate of tax against certain retailers and another rate against others ‑ keyed in fact to gross receipts or income to the extent that the gross receipts of some categories of retailers are, because of the things they sell, generally higher or lower than those of others dealing in different commodities.

            If we were to hold it possible for a city to impose (for example) a five percent license tax on all retail dealers in fuel oil or furniture while imposing no license tax at all on pharmacies or grocery stores, what would be left in the law to prevent, instead, a one percent or a two percent tax upon the latter?  Obviously a decision by a city to exclude a particular type of retailer from the payment of any business license tax at all is just as much a classification as is a decision to impose one tax rate against a certain category of retailers and another rate against others.