REDUCING RATE OF MUNICIPAL UTILITY TAX

CITIES AND TOWNS ‑- TAXATION ‑- UTILITIES ‑- REDUCING RATE OF MUNICIPAL UTILITY TAX 

(1) The November 1 deadline in § 4, chapter 49, Laws of 1982, 1st Ex. Sess., relating to the reduction of certain municipal utility taxes, is mandatory in the sense that a city or town may be compelled, through the issuance of a writ of mandamus, to take action, each year, before that date; however, a city or town does not lose the power, or capacity, to take the requisite action as a consequence of its failure to act prior to the arrival of that specified date.

(2) Insofar as they prohibit a rate change from taking effect before the expiration of sixty days following the enactment of the ordinance establishing the rate change, the provisions of § 3, chapter 49, Laws of 1982, 1st Ex. Sess. are applicable to reductions as well as increases. 

(3) A city or town may not enact an ordinance on October 31 of a given year, reducing its tax rate pursuant to § 4, chapter 49, Laws of 1982, 1st Ex. Sess., to become operative more than sixty days thereafter. 

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                                                               November 16, 1982

Honorable Avery Garrett, Chairman
Municipal Research Council
4719 Brooklyn Avenue N.E.
Seattle, Washington 98105

Cite as:  AGO 1982 No. 15                                                                                                                

Dear Sir:

             By letter previously acknowledged you requested our opinion on several questions relating to utility tax rate reductions under chapter 49, Laws of 1982, 1st Ex. Sess.  Specifically, you asked:

             "(1) Is the November 1 deadline in Sec. 4, Ch. 49, Laws of 1982, 1st Ex. Sess., which requires a city or town to 'decrease the rate to a rate of six percent or less by reducing the rate each year before November 1st' by a certain factor, mandatory?

             "(2) If your answer to the first question is in the affirmative, does Sec. 3 of that chapter, in so far as it  [[Orig. Op. Page 2]] prevents a rate change from taking effect before the expiration of 60 days following the enactment of the ordinance establishing the change apply to such reductions as well as to tax rate increases?

             "(3) Is the requirement of Sec. 4 that the tax rate shall be decreased by:  '. . .reducing the rate each year before November 1st. . .' satisfied by the passage of an ordinance before November 1st when the ordinance has an effective date of sometime after November 1st?

             "(4) May a city or town enact an ordinance October 31st reducing its tax rate pursuant to Sec. 4, Ch. 49, Laws of 1982, 1st Ex. Sess., to become operativemore than 60 days thereafter?"

             We answer your first and third questions in the affirmative as qualified in our analysis, your second question in the unqualified affirmative and your fourth question in the negative for the reasons set forth therein.

                                                                      ANALYSIS                                                   

             By its enactment of chapter 49, Laws of 1982, 1st Ex. Sess., the legislature made a number of changes in the taxing powers of local governmental bodies.  Your questions involve, particularly, the provisions of §§ 2-4 of this act which relates to the imposition of excise taxes, by a city or town, upon light, power, telephone or gas distribution businesses‑-commonly referred to as municipal utility taxes.  In order to place those questions in proper focus, we believe it necessary to quote substantial portions of each of these three sections, all of which are new sections.  First, § 2, chapter 49,supra, provides that:

             "(1) No city or town may impose a franchise fee or any other fee or charge of whatever nature or description upon the light and power, telephone, or gas distribution businesses, as defined in RCW 82.16.010, except that (a) a tax authorized by section 3 of this act may be imposed and (b) a fee may be charged to such businesses that recovers actual administrative expenses incurred by a city or town that are directly related to receiving and approving a permit, license, and franchise, to inspecting plans and construction, or to the preparation of a detailed statement pursuant to chapter 43.21 RCW.

              [[Orig. Op. Page 3]]

            "(2) Subsection (1) of this section does not prohibit franchise fees imposed on an electrical energy, natural gas, or telephone business, by contract existing on the effective date of this section with a city or town, for the duration of the contract, but the franchise fees shall be considered taxes for the purposes of the limitations established in sections 3 and 4 of this act to the extent the fees exceed the costs allowable under subsection (1) of this section."

             Next, § 3 provides that:

             "No city or town may increase the rate of tax it imposes on the privilege of conducting an electrical energy, natural gas, or telephone business which increase applies to business activities occurring before the effective date of the increase, and no rate change may take effect before the expiration of sixty days following the enactment of the ordinance establishing the change."

             And finally, § 4, which is conditioned upon passage of an amendment to RCW 82.02.020 by § 5 of the same act‑-a condition which occurred‑-provides, first, that,

             ". . . no city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, or telephone business at a rate which exceeds six percent unless the rate is approved by a majority of the voters of the city or town voting on the proposition."

             Then, in turn, subsection (2) of § 4 provides that,

             ". . . if a city or town is imposing a rate of tax under subsection (1) of this section in excess of six percent on the effective date of this section, the city or townshall decrease the rate to a rate of six percent or less by reducing the rate each year before November 1st by an amount equal to the lesser of (a) the weighted average increase in utility rates for the period beginning October 1st of the previous year and ending September 30th of the current year less the increase in the Seattle All Urban Consumer Price Index for the same period, multiplied by the then current tax rate or (b) one‑fifth the difference between the tax rate on the effective date of this section and six percent. . . ."  (Emphasis supplied)

             Question (1):

             "Your first question, repeated for ease of reference, asks:

             "Is the November 1 deadline in Sec. 4, Ch. 49, Laws of 1982, 1st Ex. Sess., which requires a city or town to 'decrease the rate to a rate of six percent or less by reducing the rate each year before November 1st' by a certain factor, mandatory?"

             We assume, by your use of the work "mandatory," that you mean to draw a distinction between action which is legally required versus that which is merely permissive, or discretionary.  Conversely, you arenot purporting to distinguish between mandatory and directory legislation as those two terms were used, and explained, inState v. Miller, 32 Wn.2d 149, 201 P.2d 136 (1948).  For there is, indeed, a considerable difference between a directory and a discretionary statute.  Let us, before proceeding further, briefly explain what we mean, with a reference, as well, to the word "mandatory."

             First, a mandatory statute, as distinguished from a discretionary statute, is one which requires certain action to be taken, leaving nothing to the discretion, or judgment, of the officer or agency involved.  A mandatory statute is generally identifiable by its use of the word "shall"‑-as in the instant case‑-rather than "may."  Moreover, it is no coincidence that there is a similarity between the word "mandatory" and the Latin wordmandamus‑- as in writ of mandamus‑-which, of course, is the extraordinary writ generally used by courts to compel the performance of a ministerial, nondiscretionary, statutory function. Conversely, it is well established that mandamus will not lie to compel the performance of adiscretionary function or act.  Accord, Benedict v. Board of Police Pension Fund Commissioners, 35 Wn.2d 465, 214 P.2d 171 (1950).

             Where, however, the word mandatory is used in contrast with the word "directory," as inState v. Miller, supra, an entirely different concept is involved.  Adirectory statute is also mandatory‑-in the sense that its performance is legally required, and is enforceable through the issuance of a writ of mandamus.  The point, however, is that under a directory statute, the officer or agency involved does not lose the legal ability to perform by his, or its, failure to act within such period of time as may be specified in the particular law.  On the other hand, under a mandatory‑-mandatory statute (i.e., one which is not directory)‑-a  [[Orig. Op. Page 5]] failure of the subject officer or agency to act within the time limit specified in the law results in a loss of capacity, or authority, to do the required thing at some point later in time.

             In turn, the approach that is to be applied in determining whether a mandatory statutory (i.e., one expressed in terms of "shall" rather than "may") which contains a reference to the time of performance is, nevertheless, also directory is stated in 3 Sutherland, Statutory Construction (3rd ed. Horack), 102, § 5816 as follows:

             "'A statute specifying a time within which a public officer is to perform an official act regarding the rights and duties of others is directory unless the nature of the act to be performed, or the phraseology of the statute, is such that the designation of time must be considered a limitation of the power of the officer.'"

             Conclusion:

             We have gone to this length to explain our terminology in order that there may be no misunderstanding as to what we mean by our direct answer to your first question,supra.  As we read it, § 4(2) of chapter 49,supra, uses the word "shall" in its ordinary sense and thus it is a mandatory, rather that a discretionary, statute.  But the reference therein to November 1st of each year does not purport to represent a limitation on the power of the public body involved‑-in this case, a city or town.  In our opinion, therefore, § 4(2) is a mandatory‑-directory statute.  A city or town may be compelled, through the issuance of a writ of mandamus, to take action before November 1st of each year to reduce its utility tax rates.  But it does no lose the power, or capacity, to take that action as a consequence of its failure to act prior to the arrival of that specified date.

             Question (2):

             Your second question, also repeated for ease of reference, asks:

             "If your answer to the first question is in the affirmative, does Sec. 3 of that chapter, in so far as it prevents a rate change from taking effect before the expiration of 60 days following the enactment of the ordinance establishing the change apply to such reductions as well as to tax rate increases?"

             This is a question which we have previously answered, informally, in a letter opinion which we wrote to State Senator John D. Jones on October 13, 1982.  In that opinion we first identified the issue as involving the interrelationship between the provisions of § 4(2)supra, and the following language of § 3, supra:

             "No city or town may increase the rate of tax it imposes on the privilege of conducting an electrical energy, natural gas, or telephone business which increase applies to business activities occurring before the effective date of the increase,and no rate change may take effect before the expiration of sixty days following the enactment of the ordinance establishing the change."  (Emphasis supplied)

             Our analysis and conclusion was then stated as follows:

             "Arguably, the above‑underscored portion of § 3, read in context, applies only in the case of arate increase.  But even if, in addition, it also applies to a rate decrease it only denotes the effective date of the decrease and not the time for taking the action resulting in the rate change.  Thataction, under § 4(2),supra, is required to be taken before November 1 of each year and the only question is whether the action, decreasing the rate of the tax in accordance with § 4, will then take effect immediately or, instead, will go into effect only after the expiration of sixty days following the enactment of the ordinance establishing the change.  Since the pertinent language of § 3 speaks, expressly, of any rate change (even though the preceding clause of the section deals only with rate increases), it seems more probable than not to us that a court would hold that second clause of the statute to be applicable to a decrease as well as an increase."

             We believe it proper, at this time, simply to reaffirm‑-and formalize‑-that same reasoning and conclusion.  Accordingly, based thereon, we answer your second question in the affirmative.  Insofar as it prevents a rate change from taking effect before the expiration of sixty days following the enactment of the ordinance establishing the change, § 3,supra, is applicable to reductions as well as increases.

             [[Orig. Op. Page 7]]

            Question (3):

             This question asks:

             "Is the requirement of Sec. 4 that the tax rate shall be decreased by:  ". . . reducing the rate each year before November 1st . . ."  satisfied by the passage of an ordinance before November 1st when the ordinance has an effective date of sometime after November 1st?"

             And our answer, consistent with what we have already said, is in the affirmative with, however, the following qualification:  Assuming that the ordinance reducing municipal utility tax rates is passed before November 1st of a given year its effective date, pursuant to § 3, supra, may not be less than sixty days later.  Therefore, in those instances where the ordinance, itself, is passed within sixty days of November 1st of the particular year, its effective date not only may, but must, be ". . . sometime after November 1st . . ."  In line with our further answer, below, to your fourth question it will be seen, however, that in those instances (if they should ever occur) where the ordinance reducing the tax rate is passed more then sixty days prior to November 1st, the effective date of the ordinance maynot be ". . . sometime after November 1st . . ."

             Question (4):

             Finally, you have asked:

             "May a city or town enact an ordinance October 31st reducing its tax rate pursuant to Sec. 4, Ch. 49, Laws of 1982, 1st Ex. Sess., to become operativemore than 60 days thereafter?"

             In our opinion, this question must be answered in the negative.  Except for the provisions of § 3, supra, and our reading of the second part of that section as being applicable to rate decreases as well as increases, we would be unable to discern a legal justification forany delayed effective date beyond November 1st.  And indeed, it is certainly possible that a court might disagree with our answer to question (2), supra, and hold that even the the limited postponement of the effectiveness of a utility tax rate decrease which we have thereby countenanced is not permissible.  It is therefore our opinion that your fourth question must be answered in the negative.  A city or town which enacts an ordinance reducing its utility tax rates on October 31st of a given year, in  [[Orig. Op. Page 8]] accordance with § 4, chapter 49,supra, may not in any in any event delay the effective, or operative, date of that ordinance for more than sixty days thereafter.

             This completes our consideration of your questions.  We trust that the foregoing will be of assistance to you.

 Very truly yours,
KENNETH O. EIKENBERRY
Attorney General 

PHILIP H. AUSTIN
Deputy Attorney General