Bldg. Indus. Ass'n of Wash. v. State

543 P.3d 908

BUILDING INDUSTRY ASSOCIATION OF WASHINGTON, a Washington non-profit trade association, and Soundbuilt Homes, LLC., a Washington Limited Liability Company, Appellants,

v.The STATE of Washington and Thurston County Auditor, Mary Hall, in her official capacity, Respondents.

No. 57502-7-II

Court of Appeals of Washington, Division 2.

Filed February 27, 2024

Appeal from Thurston Superior Court, Docket No: 21-2-01850-9, Honorable Carol A. Murphy, Judge.

Ashli Raye Tagoai, Building Industry Association of Washington, 300 Deschutes Way Sw. Ste. 300, Tumwater, WA, 98501-7719, Jackson Wilder Maynard Jr., Maynard Law PLLC, 111 21st. Ave. Sw. Olympia, WA, 98501-2809, for Appellants.

Alicia O. Young, Peter B. Gonick, Washington Attorney General’s Office, P.O. Box 40100, Olympia, WA, 98504-0100, Elizabeth Petrich, Attorney at Law, 2000 Lakeridge Dr. Sw. Bldg. 2, Olympia, WA, 98502-6001, for Respondents.

PUBLISHED OPINION

Che, J.

¶1 Che, J. — Building Industry Association of Washington and Soundbuilt Homes, LLC (Soundbuilt) appeal the order granting summary judgment in favor of the State and the Thurston County Auditor (collectively, the State).

¶2 To record documents with the county auditor in the course of their business, BIAW, or its members, pay a document recording surcharge. Generally, the surcharge finances affordable housing and related funds. BIAW filed a declaratory judgment action against the State arguing, among other things, that the document recording surcharge violated article VII, sections 1 and 5 of the Washington Constitution. BIAW and the State moved for summary judgment. The trial court found that BIAW asserted only facial challenges to the surcharge. The trial court granted summary judgment for the State and denied summary judgment for BIAW.

¶3 We hold that the document recording surcharge does not violate article VII, section 1 or 5 of the Washington Constitution, and that the trial court properly ruled that BIAW asserted only a facial challenge. Consequently, we affirm the trial court’s grant of summary judgment in favor of the State.

FACTS

¶4 Building Industry Association of Washington is a non-profit trade association supporting Washington homebuilders. The majority of Building Industry Association of Washington members are contractors that construct single-family homes. Soundbuilt is a Washington-based limited liability company engaged in the home building industry. Building Industry Association of Washington and Soundbuilt (collectively BIAW) alleged that they or their members paid the document recording surcharge imposed under the following statutes in the regular course of their business: former RCW 36.22.178 (2021), repealed by Laws of 2023, ch. 277, § 13; former RCW 36.22.179 (2021), repealed by Laws of 2023, ch. 277, § 13; former RCW 36.22.1791 (2021), repealed by Laws of 2023, ch. 277, § 13; RCW 36.22.240; and Engrossed Second Substitute H.B. 1277, 67th Leg., Reg. Sess. (Wash. 2021) (hereafter HB 1277).

¶5 BIAW filed for declaratory judgment arguing, among other things, that the document recording surcharge is a tax that violates article VII, section 1 and 5 of the Washington Constitution. BIAW moved for summary judgment. The State filed a crossmotion for summary judgment arguing, among other things, that the document recording surcharge is not a property tax.

¶6 At the summary judgment hearing, BIAW asserted that it was bringing both facial and as-applied constitutional challenges. The trial court found that BIAW presented only facial challenges. The trial court granted summary judgment for the State and denied summary judgment for BIAW.

¶7 BIAW appeals.

ANALYSIS

I. Legal Background

¶8 Chapter 36.22 RCW pertains to the duties of county auditors. The county auditor is the "recorder of deeds and other instruments in writing which by law are to be filed and recorded in and for the county for which he or she is elected." RCW 36.22.010(1). To that end, chapter 36.22 RCW requires county auditors to assess various surcharges for such recording.

¶9 Generally, former RCW 36.22.178 required the county auditor to assess a $13 per recorded document surcharge to finance affordable housing related funds, but the county could have retained up to five percent for the collection, administration, and local distribution of the funds. Former RCW 36.22.179 required the county auditor to assess a $62 per recorded document surcharge to finance homeless housing and assistance funds, but the auditor was required to retain two percent for collection of the fee. And former RCW 36.22.1791 required the county auditor to assess an $8 per recorded document surcharge to support local homeless housing and assistance. Generally, RCW 36.22.240 requires the county auditor to assess a $2.50 per recorded document surcharge to finance the growth management planning and review fund.

¶10 In 2021, the legislature passed HB 1277, requiring the county auditor to assess $100 per recorded document to fund affordable housing, eviction prevention, and housing stability services. That surcharge was codified into former RCW 36.22.176 (2022), repealed by Laws of 2023, ch. 277, § 13. The combined total of the aforementioned surcharges amounted to $185.50 per document. The aforementioned statutes exempted various documents from their respective surcharges.

¶11 But in July 2023—after BIAW had filed this action—the legislature repealed all of the aforementioned statutes except RCW 36.22.240. Laws of 2023, ch. 277, § 13. And the legislature added a new section to Chapter 36.22 requiring the county auditor-to assess a $183 per recorded document surcharge, subject to various exemptions.¹ Laws of 2023, ch. 277, § 1. This surcharge was codified into RCW 36.22.250.

¶12 Under this statute, the county auditor retains one percent of the total funds collected for its fee collection activities. RCW 36.22.250(2)(a). After adding the RCW 36.22.250 surcharge with the $2.50 imposed by RCW 36.22.240, the total amount of the surcharge for recording a document remained unchanged. The new surcharge was enacted to reduce administrative complexity and increase the, transparency of revenue flows from the document recording surcharge. Final B. Rep. On Second Substitute S.B. 5386, 68th Leg., Reg. Sess. (Wash 2023).

¶13 We construe BIAW’s arguments as challenging RCW 36.22.250 and RCW 36.22.240.

II. Facial Challenge To the Document Recording Surcharge’s Constitutionality

[1] ¶14 We review summary judgment orders de novo. Royal Oaks Country Club v. Dep’t of Revenue, — Wash.3d —, 541 P.3d 336, 339 (2024). Summary judgment is appropriate when the pleadings, depositions, and affidavits "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c).

[2, 3] ¶15 The party facially challenging a statute’s constitutionality must show that "no set of circumstances exists in which the statute, as currently written, can be constitutionally applied." City of Redmond v. Moore, 151 Wash.2d 664, 669, 91 P.3d 875 (2004). If the party meets that burden, the statute is rendered inoperative. Id. Because statutes are presumed constitutional, the challenger bears the heavy burden of proving a statute’s unconstitutionality beyond a reasonable doubt. Sch. Dists.’ All. for Adequate Funding of Special Educ. v. State, 170 Wash.2d 599, 605, 244 P.3d 1 (2010).

A. Article VII, Section 1

¶16 BIAW argues that the document recording surcharge is a property tax that violates the uniformity requirement of the Washington Constitution. We disagree.

¶17 The uniformity requirement of article VII, section 1 of the Washington Constitution provides, "All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax."

i. The Document Recording Surcharges are Taxes

[4, 5] ¶18 For article VII, section 1 to apply to the document recording surcharge, the document recording surcharge must be a tax. City of Snoqualmie v. King County Exec. Dow Constantine, 187 Wash.2d 289, 298, 386 P.3d 279 (2016). "‘[T]ax’" is defined as "‘an enforced contribution of money, assessed or charged by authority of sovereign government for the benefit of the state or the legal, taxing authorities. It is not a debt or contract in the ordinary sense, but it is an exaction, in the strictest sense of the word.’" Id. (quoting State ex rel. City of Seattle v. Dep’t of Pub. Utils. of Wash., 33 Wash.2d 896, 902, 207 P.2d 712 (1949)).

[6, 7] ¶19 We use a broad version of the Covell² factors to determine whether the document recording surcharge is a tax or a fee. Id. at 300-01, 386 P.3d 279. To that end, we examine (1) the purpose of the charge, (2) where the money raised by the charge is allocated, and (3) whether there is a relationship between the charge and the service. Id. at 301-02, 386 P.3d 279. As to the first factor,

If the primary purpose is to raise revenue used for the desired public benefit, the charges are a tax. If the primary purpose is to regulate the fee payers—by providing them with a targeted service or alleviating a burden to which they contribute—that would suggest that the charge is an incidental tool of regulation.

Arborwood Idaho, L.L.C. v. City of Kennewick 151 Wash.2d 359, 371, 89 P.3d 217 (2004).

[8–10] ¶20 As to the second factor, the charge is more likely a tax if the money it raises is allocated into a general fund, rather than a fund for a specific purpose. Dow Constantine, 187 Wash.2d at 301, 386 P.3d 279. Additionally, the charge is more likely a fee if the revenue raised is segregated and apportioned solely to the authorized regulatory purpose. Samis Land Co. v. City of Soap Lake, 143 Wash.2d 798, 809-10, 23 P.3d 477 (2001). And the charge is more likely a fee if the charge regulates the entity or activity that is being charged. Id.

[11, 12] ¶21 For the third factor, we ask "‘whether people pay the cost because they use the service.’" Dow Constantine, 187 Wash.2d at...