Use Of Timber Excise Tax Revenues

TAXATION—TIMBER—COUNTY TREASURER—BONDS—Use Of Timber Excise Tax

1. A local taxing district other than a school district may use timber tax revenues distributed under RCW 84.33.081(2) only to pay debt services related to capital bonds authorized under RCW 84.52.056.
2. RCW 84.33.081(2) does not specify the manner in which a taxing district applies timber tax revenues to the debt service.
3. In the year in which a taxing district fully pays off its capital bonds issued pursuant to RCW 84.52.056, its use of timber tax revenue distributed pursuant to RCW 84.33.081(2) is not restricted to any particular purpose.

November 14, 2013

Dear Prosecutor Kelly:

By letter previously acknowledged, you have requested our opinion on the following question:

1. Timber tax revenues are generated to junior taxing districts having “debt service payments . . . because of . . . bonds issued under a vote of the people pursuant to RCW 84.52.056” (excess levies for capital purposes only) or based upon “excess levies for a capital project fund authorized pursuant to RCW 84.52.053” (school district levies).  The funds received may only be used for “debt service and capital project payments . . . .”  May these timber tax revenues be used to pay “debt service” of the junior taxing district other than that for the bonds which generated the timber tax revenue? 
    
2. If so limited, how should the timber tax revenues be used?  Particularly, should such revenues be used to reduce the annual levy to pay the debt service on the bond, held as a reserve against those debt service payments, or in some other fashion?
   
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3. Finally, how may the timber tax revenues be used if there remain any of these funds after the bonds have been fully satisfied?  May they be placed into a general fund, or do they remain limited in use in some fashion?

BRIEF ANSWERS

1. A taxing district, other than a school district, that receives timber tax revenues under RCW 84.33.081(2) can use those revenues to pay only debt service related to capital bonds authorized pursuant to RCW 84.52.056.  The statutory language does not allow the taxing district to apply such funds to any other purpose.
    
2. The exact manner in which a taxing district applies timber tax revenues to the debt service is not specified, leaving the taxing district some flexibility in that regard.
    
3. Once a taxing district’s capital bonds under RCW 84.52.056 are fully paid off, that taxing district would no longer qualify to receive further timber tax revenues under RCW 84.33.081(2), and its further receipt of timber tax revenues would have to occur under RCW 84.33.081(4).  Taxing districts receiving timber tax revenues under RCW 84.33.081(4) are not required by those subsections to apply the funds to a particular purpose.

 BACKGROUND

    Since 1971, Washington State has taxed the value of timber by applying a yield tax, or excise tax, to the stumpage value of timber cut each year.  See RCW 84.33.  Under current law, the timber tax is five percent of “the stumpage value of timber harvested for sale or for commercial or industrial use.”  RCW 84.33.041, .046.  The Department of Revenue collects payments from the responsible party.  RCW 84.33.086.  Counties have the option of imposing a local timber excise tax at the rate of four percent, which tax counts as a credit towards the state tax.  RCW 84.33.041(2), .051.  After collection, the state treasurer remits the county share to county treasurers for further distribution on a quarterly basis.  RCW 84.33.081(1).

    When the timber excise tax was first implemented in 1971, it provided that the funds remitted to the county treasurer were to go proportionately to the accounts of each of the local taxing districts.  Laws of 1971, 1st Ex. Sess., ch. 294, § 8(2) (codified at former RCW 84.33.080(2) (1983)).  In 1984, the legislature significantly revised the timber tax system.  Laws of 1984, ch. 204.  The 1984 law created a new arrangement for distribution of timber taxes to local taxing districts, which arrangement now exists in RCW 84.33.081:

(2) From moneys available, there first shall be a distribution to each taxing district having debt service payments due during the calendar year, based upon bonds issued under authority of a vote of the people conducted pursuant to RCW 84.52.056 and based upon excess levies for a capital project fund authorized pursuant to RCW 84.52.053, of an amount equal to the timber assessed value of

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the district multiplied by the tax rate levied for payment of the debt service and capital projects: PROVIDED, That in respect to levies for a debt service or capital project fund authorized before July 1, 1984, the amount allocated shall not be less than an amount equal to the same percentage of such debt service or capital project fund represented by timber tax allocations to such payments in calendar year 1984.  Distribution under this subsection (2) shall be used only for debt service and capital projects payments. . .

(3) From the moneys remaining after the distributions under subsection (2) of this section, the county treasurer shall distribute to each school district an amount equal to one-half of the timber assessed value of the district or eighty percent of the timber roll of such district in calendar year 1983 as determined under this chapter, whichever is greater, multiplied by the tax rate, if any, levied by the district under RCW 84.52.052 or 84.52.053 for purposes other than debt service payments and capital projects supported under subsection (2) of this section. . . .

(4) After the distributions directed under subsections (2) and (3) of this section, if any, each taxing district shall receive an amount equal to the timber assessed value of the district multiplied by the tax rate, if any, levied as a regular levy of the district or as a special levy not included in subsection (2) or (3) of this section.

RCW 84.33.081(2)-(4).

    These quoted subsections divide local taxing districts into what could be referred to as three prioritized “tiers” of revenue recipients.  Excess timber taxes that remain after satisfaction of the three tiers are distributed pursuant to RCW 84.33.081(6), the details of which are not relevant for purposes of your questions.  Your questions focus primarily upon the meaning and application of just the top-tier subsection, RCW 84.33.081(2).[1]

    Your letter specifically references the Quillayute Valley Park and Recreation District, which you indicate receives timber tax revenues as a “tier one” taxing district under this statute, and you ask about allowable uses for those funds.  This opinion will not address the specific circumstances of the named district, but will rather answer the broader legal question regarding the general meaning and application of RCW 84.33.081(2) as applied to a local taxing district that is not a school district.[2]

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 ANALYSIS

1. Timber tax revenues are generated to junior taxing districts having “debt service payments . . . because of . . . bonds issued under a vote of the people pursuant to RCW 84.52.056” (excess levies for capital purposes only) or based upon “excess levies for a capital project fund authorized pursuant to RCW 84.52.053” (school district levies).  The funds received may only be used for “debt service and capital project payments . . . .”  May these timber tax revenues be used to pay “debt service” of the junior taxing district other than that for the bonds which generated the timber tax revenue?

    We conclude that RCW 84.33.081(2) requires a tier one taxing district to use timber tax revenues only to pay those specific bonds or levies which qualify the taxing district as a tier one taxing district.[3]  This answer hinges on the legislative intent behind the words “debt service or capital project,” which words appear multiple times in the subsection.  A taxing district qualifies to receive timber tax revenues under tier one only when it has “debt service payments due during the calendar year, based upon bonds issued under authority of a vote of the people conducted pursuant to RCW 84.52.056 and based upon excess levies for a capital project fund authorized pursuant to RCW 84.52.053[.]”  RCW 84.33.081(2) (emphasis added).  The amount of timber tax revenues distributed to the tier one taxing district are based upon the “timber assessed value of the district multiplied by the tax rate levied for payment of the debt service and capital projects[.]”  RCW 84.33.081(2) (emphasis added).  The subsection contains a proviso, not directly relevant for purposes of this analysis, but which again references a “debt service or capital project fund.”  RCW 84.33.081(2) (emphasis added).  Finally, the statute specifies that the timber tax revenue received by the tier one taxing district “shall be used only for debt service and capital projects payments.”  RCW 84.33.081(2) (emphasis added).  The question is whether this last phrase, “debt service and capital projects payments,” is restricted only to payments for debts or capital projects authorized under RCW 84.52.053 or .056, which statutes are cross-referenced earlier in the subsection, or whether other debts not arising under those statutes could also be paid with timber tax dollars received by tier one taxing districts.

    When construing the words in a statute, they must be read in the context of the entire statute instead of being read in isolation, and the meaning of words may be controlled by the associated language.  State v. Lilyblad, 163 Wn.2d 1, 9, 177 P.3d 686 (2008).  Subsection two of RCW 84.33.081 first introduces the concept of debt service and capital projects by referencing capital bonds authorized under RCW 84.52.053 and excess levies for capital projects authorized under RCW 84.52.056.  The subsection’s next three references to “debt service and capital projects”[4] do not expressly cross-reference those same statutes, opening the question of whether

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those subsequent uses of the phrase could be interpreted more broadly to reach debts or capital projects payments not arising under the authority of RCW 84.52.053 or .056.  The context of the statute, however, requires that the statutory limit stated at the beginning of the subsection—the limit that debt service and capital projects are those only authorized under RCW 84.52.053 or .056—carries throughout the subsection’s subsequent uses of the same phrase, “debt service and capital projects.”

    The legislative intent regarding the meaning of the phrase “debt service and capital projects” is best evidenced by the use of the language in the first, very long, sentence of the subsection.  The first sentence introduces the concept of “debt service payments” attributable only to bonds issued under RCW 84.52.056, or to excess levies for capital projects under RCW 84.52.053.  Later in the same sentence, the legislature then sets the amount of timber tax distributed to the taxing district by referencing a formula that includes the tax rate “levied for payment of the debt service and capital projects[.]”  RCW 84.33.081(2) (emphasis added).  This italicized phrase at the end of the first sentence does not expressly limit itself to debts authorized only under RCW 84.52.053 or .056, but it is only logical to interpret the last italicized phrase as limiting itself to debts related to those two statutes.  Both statutes involve voter-approved levies to fund the bonds and capital projects, and the disbursement formula relies upon the tax rate established by those voter-approved levies to determine how much timber excise tax the county treasurer distributes to the tier one taxing districts.  If a local taxing district carried a debt not directly associated with a voter-approved levy, then that debt would not have an associated tax rate to plug into the disbursement formula.  Within the context of the first sentence in RCW 84.33.081(2), the most logical interpretation is that the facially unrestricted phrase “the debt service and capital projects” links back to only those debts or capital projects payments authorized under the two cross-referenced statutes.

    The statutory subsection’s third use of “debt service or capital projects” occurs in a proviso:  “PROVIDED, That in respect to levies for a debt service or capital project fund authorized before July 1, 1984, the amount allocated shall not be less than an amount equal to the same percentage of such debt service or capital project fund represented by timber tax allocations to such payments in calendar year 1984.”  RCW 84.33.081(2).  The reference to “a debt service or capital project fund authorized before July 1, 1984” ties back to the first sentence, which specifically discusses “debt service payments due during the calendar year, based upon bonds issued under authority of a vote of the people conducted pursuant to RCW 84.52.056 and based upon excess levies for a capital project fund authorized pursuant to RCW 84.52.053[.]”  RCW 84.33.081(2) (emphasis added).  Washington courts construe provisos as statutory passages that “remove something from the enacting clause that would otherwise not be contained therein.”  Smith v. Whatcom Cnty. Dist. Ct., 147 Wn.2d 98, 107, 52 P.3d 485 (2002) (citing Tyler Pipe Indus., Inc. v. Dep’t of Revenue, 96 Wn.2d 785, 788, 638 P.2d 1213 (1982)).  So while the proviso’s use of the phrase “debt service or capital projects” is facially unrestricted, the context again ties the phrase back to those debts arising under the authority of RCW 84.52.053 or .056.

    Finally, the subsection’s fourth use of the phrase “debt service and capital projects” appears in the sentence limiting the tier one taxing district’s use of the timber tax revenues

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received under RCW 84.33.081(2).  Given that the subsection’s prior uses of the words “debt service and capital projects” tie back to debts arising under the authority of RCW 84.52.053 or .056, it makes the most sense that this last use of the phrase, though facially unrestricted, also implicitly links back to that narrow category of debts or capital projects payments.  This restrictive understanding of the phrase also makes the most sense:  A tier one taxing district qualifies as tier one only if it has certain kinds of debt or capital projects payments, and the amount of timber tax revenue it receives is calculated by a formula that incorporates the tax rate levied for payment of those certain kinds of debt or capital projects payments.  Given these restrictions, it would not make sense that the legislature would have allowed tier one taxing districts to use tier one revenues to pay other debts unrelated to the debts that qualify the taxing district as tier one.

2. If so limited, how should the timber tax revenues be used?  Particularly, should such revenues be used to reduce the annual levy to pay the debt service on the bond, held as a reserve against those debt service payments, or in some other fashion?

    The relevant language of RCW 84.33.081(2) states:  “Distribution under this subsection (2) shall be used only for debt service and capital projects payments.”  This language does not explain how exactly a tier one taxing district must apply timber tax revenues towards the debt service or capital projects payments.  A tier one taxing district with debt arising under RCW 84.52.056 would have annual financial obligations towards the principal and interest of capital bonds.  The amount of property and timber tax revenues paid to the taxing district are statutorily calculated to fund the taxing district’s obligations on such bonds.  See RCW 84.52.080(2) (directing the county assessor to add the assessed property value to the taxing district’s timber assessed value when computing the tax rate necessary to raise the funds for an excess levy).  Tier one taxing districts would therefore presumptively apply timber tax revenues towards their annual fiscal obligations on such bonds.  If a tier one taxing district happens to receive more tax revenue than its annual bond obligations, and such tax revenues are statutorily dedicated towards such bond payments as are the timber tax revenues, then the taxing district’s limited options would be to either hold such funds in reserve to cover the next year’s obligations, or to apply such funds to pay down the amount of outstanding debt.[5]

3. Finally, how may the timber tax revenues be used if there remain any of these funds after the bonds have been fully satisfied?  May they be placed into a general fund, or do they remain limited in use in some fashion?

    Taxing districts re-qualify as tier one taxing districts on an annual basis, in that they must have debt service payments owing during the calendar year in order to receive tier one timber tax revenue distributions.  RCW 84.33.081(2).  Once a taxing district has fully satisfied bonds issued under the authority of RCW 84.52.056, it would not qualify as a tier one taxing district in subsequent calendar years, and thus would cease receiving timber tax revenues under

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RCW 84.33.081(2).  That non-school taxing district would only receive further timber tax revenues as a tier three taxing district under RCW 84.33.081(4), presuming that the county treasurer received sufficient timber tax funds from the State to make distributions to the third tier.  Thus, the only situation in which your third question could arise is during the final calendar year in which a tier one taxing district pays off the bonds issued under authority of RCW 84.52.056.

    Presuming that a tier one taxing district receives timber tax revenues during the final year of its bond obligation, and the revenues are more than sufficient to pay off the bond, no language in RCW 84.33.081(2) addresses what happens to the remaining surplus.[6]  Once the qualifying bonds have been satisfied, it would be impossible for the taxing district to further apply timber tax revenues to such bonds.  Courts will not interpret and apply statutes to cause absurd results.  See Estate of Bunch v. McGraw Residential Ctr., 174 Wn.2d 425, 433, 275 P.3d 1119 (2012).  As a result, the statutory limit on the use of such funds would no longer have effect, and the taxing district would likely be free to apply such funds to other legal expenditures.[7]
 

    We trust the foregoing will be useful to you.

ROBERT W. FERGUSON
    Attorney General     

JOSEPH V. PANESKO
    Assistant Attorney General
    (360) 586-0643

wros
 

[1] Three years ago we issued an opinion involving other aspects of RCW 84.33.081, but that opinion did not directly address the questions raised here.  See AGO 2010 No. 5.

[2] Some of the provisions in RCW 84.33.081, as well as in the statutes cross-referenced within RCW 84.33.081, are specific to school districts only.  Because the questions presented here involve a local taxing district that is not a school district, we will not focus on the provisions that are unique to school districts.

[3] Your question includes the phrase “the bonds which generated the timber tax revenue.”  The capital bonds or excess capital levies referenced in the statute do not technically generate timber tax revenue, they merely qualify the taxing district to receive the first tier distribution of timber tax revenues.

[4] One reference replaces the conjunctive “and” with the disjunctive “or,” which difference does not affect this analysis.

[5] RCW 84.52.056(2) authorizes a taxing district “by vote of its governing body to refund any general obligation bonds of said district issued for capital purposes only[.]”

[6]  The statutory formula for calculating annual disbursements is based on the district’s timber assessed value multiplied by the tax rate levied for the payment of the debt service.  RCW 84.33.081(2).  This formula does not take into account the actual balance of debt owed on the bonds, so the annual payment could feasibly exceed the amount of debt remaining in the final year of the bond obligations.  Although the county treasurer makes quarterly disbursements, the amounts to be paid to the districts are based on the annual calculations, and no language in the statute authorizes the treasurer to withhold or divert a tier one taxing district’s payments on account of the bonds being paid off in an earlier quarter within the year.

[7] In AGO 2010 No. 5, we determined that no language in RCW 84.33.081 required tier three taxing districts to return income received in earlier quarters when timber excise tax revenues in subsequent quarters within the same year were too low to satisfy tier one or tier two entitlements.  The observation we made in 2010 applies to this situation as well:  no language in the statute expressly compels a tier one taxing district to return to the county treasurer surplus timber excise tax revenues remaining in the year that the bonds are fully satisfied.