More than 2 million drivers in urban Snohomish, King and Pierce counties will continue to pay car-tab taxes that sometimes reach hundreds of dollars per year, after the state Supreme Court sided with Sound Transit in a ruling Thursday.
A 7-2 majority of justices agreed with the argument by Sound Transit attorney Desmond Brown that the Legislature’s 2015 act allowing higher transit taxes was constitutional, because it properly cited laws from the 1990s that explain how car-tab taxes would be calculated.
Those laws established an inflated car-depreciation schedule, enacted in 1996 and trimmed in 1999, that overvalues newer cars by as much as 25% of their market worth.
“The statute properly adopts both schedules by reference,” the ruling says, in part.
Thursday’s ruling rejects a class-action lawsuit, filed by eight taxpayers in June 2018, that vehicle owners are owed refunds of $240 million, a sum that would have grown to $400 million.
The decision helps Sound Transit afford its voter-approved 25-year expansion, called Sound Transit 3 (ST3), that features 62 miles of light-rail extensions. Residents are paying the agency $355 million in car taxes this year.
The class-action case is separate from another car-tab fight involving Tim Eyman’s Initiative 976, which seeks to slash vehicle registration fees to $30 statewide. A King County judge on Wednesday ruled most of I-976 is constitutional, but kept the measure on hold while other claims in the lawsuit are considered.
In the Supreme Court case, Joel Ard, attorney for the vehicle owners, argued before the justices in September that the 2015 legislation to authorize ST3 taxes violated Article II, Section 37 of the state Constitution, which says, “No act shall ever be revised or amended by mere reference to title, but [unless] the act revised or the section amended shall be set forth at full length.”
In other words, he said, lawmakers should have republished the vehicle-value matrix that they intended to use to compute ST3 car-tab rates.
“You would open the code, and read it, and it would tell you what your tax liability is,” Ard said.
What the 2015 Legislature did instead was write that a ST3 car-tab tax “must comply with chapter 82.44 RCW as it existed on January 18, 1996.”
That old code inflated the value of used cars, because legislators back then wanted to collect more money for state and local roads.
Sound Transit adopted the same practice upon winning its first tax measure in 1996, which didn’t cause much anger, because the initial rate was only $30 yearly per $10,000 of the inflated vehicle value. The ST3 vote raised the rate to $110 per $10,000.
In November 2016, voters in the three counties approved the $54 billion ST3 program, the nation’s most expensive transit measure, with a 54% majority, though most within Pierce County voted no. That raised the median household’s car-tab, sales and property taxes about $325 yearly.
When car-registration bills started arriving in the mail, nearly tripling the car-tab tax, motorists and politicians focused on what they called an unfair valuation schedule. Pierce County Executive Bruce Dammeier, who is on the transit board, called for relief, while Sen. Steve O’Ban, R-University Place, wrote bills to cut ST3 taxes, or let areas secede from the transit district.
For instance, the matrix overvalues a year-old car at 95% of the sticker price when market rate is near 70%, and a 5-year-old car at 65% of sticker price when the market is near 39%.
About one-tenth of all vehicles are taxed on $27,000 value or higher, which computes to nearly $300 yearly to Sound Transit. But the median value is only $5,333 because most people drive older cars, based on a 2016 data review by the agency’s finance team.
Brown argued the purpose of the law was never to help drivers calculate their motor vehicle excise tax, but to delegate power to Sound Transit through the Department of Licensing to collect revenues.
“The case is of enormous consequence,” Brown told the court. “The loss of the MVET revenue will represent a loss of between $15 (billion) to $18 billion in revenue that is needed to finish the system. Without that revenue, it means we cannot complete — we either have to eliminate or even substantially delay a number of major projects.”
The majority that ruled in favor of Sound Transit included justices Susan Owens, Charles W. Johnson, Barbara Madsen, Steven González, Mary Yu and Mary Fairhurst. Dissenting were justices Sheryl Gordon McCloud and Debra Stephens.
In her dissent, McCloud reviewed the tortured 24-year history of how car-tab taxes were raised, lowered, canceled or upheld by lawmakers, judges and voters. That area of state law became so convoluted that merely citing the RCW number isn’t adequate, she reasoned.
“The MVET statute therefore violates the constitutional mandate designed to provide clarity to the legislative process,” she wrote.
While the other fight over statewide I-976 plays out, Sound Transit continues to collect ST3 car-tab tax. Brown has said I-976 doesn’t force any tax cut, because Sound Transit already pledged car-tab revenues to pay off construction bonds.
The agency prevailed in a 2006 Supreme Court case against Eyman’s I-776, which also sought a $30 statewide car-tab limit, when justices ruled the bond contracts trump the initiative until 2028.
However, under political pressure the Sound Transit board agreed in December that ST3 car-tab taxes should be lowered to reflect market value of vehicles, but only if the Legislature finds replacement money.
A bill sponsored by Sen. Marko Liias, D-Lynnwood, would impose a new car-taxing method that’s close to real market values.
Sound Transit is telling legislators that such a bill could leave a $3 billion gap to build ST3 lines, Sound Transit CEO Peter Rogoff said Thursday. Agency officials “seek to ensure legislation would be revenue neutral and constitutionally valid,” he said.
O’Ban called the Supreme Court decision “disappointing” and wrote on his Senate website: “This decision underscores the importance of the Legislature, in session right now, to pass my bill to enact $30 car tabs and not leave the matter to the courts.”