Lakehaven Water and Sewer District offices in Federal Way. File photo

Lakehaven Water and Sewer District offices in Federal Way. File photo

Court rules in Federal Way’s favor in Lakehaven tax dispute

Judge rules city has authority to tax water, sewer utilities

The city of Federal Way has cleared a legal hurdle to charge water and sewer customers a 7.75-percent utility tax, following a King County Superior Court judge’s ruling on Tuesday.

Judge John McHale determined the city has the authority to tax water and sewer utilities, and that the tax is constitutional.

The Federal Way City Council approved the tax on water and sewer utilities not already paying excise taxes to the city in March. The city already levies a 7.75 percent tax on gas, electric, cable, phone and other utilities. Federal Way anticipates collecting $980,000 from this utility tax, which was one of several measures proposed to offset a $854,000 budget shortfall that the city has since remedied.

Challenging the legality of the tax, Lakehaven Water and Sewer District, along with Highline Water and Midway Sewer districts filed a lawsuit against the city in April.

“The ordinance passed by our City Council is merely a matter of equity in that it now treats water and sewer utilities like other utilities,” Federal Way Mayor Jim Ferrell said in a press release. “As I informed the public and our City Council earlier this year, our actions were lawful, Constitutional, and equitable. We did not initiate any legal action, and now that our King County Superior Court has affirmed what I have been saying all along, I am hopeful that we can move forward without further litigation.”

According to the city, the court relied on the decision of Division III of the Washington State Court of Appeals in City of Wenatchee v. Chelan County Public Utility District in addressing whether RCW 35A.82.020 authorizes the city to impose excise tax on other municipal corporations.

“I’m somewhat disappointed,” said Lakehaven board president Tim McClain of the court ruling. “I think going into this we knew it could go either way. Either side I believe expected that whatever the decision was it would be appealed to a higher court.”

McClain said the board of commissioners will vote on whether to appeal the decision at their meeting next week.

Lakehaven customers have already been paying the 7.75 percent excise tax since June. The Lakehaven board approved a resolution on June 14 to apply the excise tax to designated district fees and charges during the pending litigation.

City spokesman Tyler Hemstreet said Lakehaven has been paying the tax to the city since the ordinance took effect. However, the proceeds are being paid into a court register until the case is resolved, he noted.

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