Opinion
No. 56889-2-I.
November 6, 2006.
Appeal from a judgment of the Superior Court for King County, No. 04-2-34401-8, Douglas D. McBroom, J., entered August 26, 2005.
Counsel for Appellant(s), David Andrew Petteys, Perkins Coie LLP, 1201 3rd Ave Ste 4800, Seattle, WA 98101-3099.
Rebecca Kathryn Wiess, Attorney at Law, 1524 Alaskan Way Ste 100, Seattle, WA 98101-3531.
Counsel for Respondent(s), Lawrence J. Warren, Warren Barber Fontes PS, Po Box 626, Renton, WA 98057-0626.
Mark Edward Barber, Warren Barber Fontes PS, Po Box 626, Renton, WA 98057-0626.
Amy Jo Pearsall, City of Federal Way, Po Box 9718, Federal Way, WA 98063-9718.
Reversed and remanded by unpublished opinion per Appelwick, C.J., concurred in by Cox and Schindler, JJ.
Barnett Lim Associates (Barnett Lim) leased a parcel of real property located in the City of Federal Way (the City). The tenant, Imbibery II, Inc., did not pay gambling taxes to the City for gambling activities on that property. Though Barnett Lim did not participate in the gambling activities, the City recorded three gambling tax liens on the property. In order to sell the property, Barnett Lim agreed to pay into the court registry proceeds from the sale equal to the amount claimed by the City under its liens. Barnett Lim then instituted this action, asserting that RCW 9.46.110(4) does not allow the City to attach a lien to their property in order to collect the unpaid gambling taxes of Imbibery II, or, that if it does allow the City to impose such a lien, the statute is unconstitutional. The trial court granted summary judgment in favor of the City.
We hold that on these facts, RCW 9.46.110(4) does not expressly or by implication allow the City to impose a lien on the property of the landlord for the unpaid gambling taxes of the tenant. We reverse the summary judgment and remand for judgment in favor of Barnett Lim and for disbursement of the funds on deposit with the King County Superior Court clerk to Barnett Lim.
FACTS
Barnett Lim is a Washington general partnership that formerly owned a parcel of real property in the City of Federal Way. The property consisted of land, a commercial building, and other improvements. In 1995, Barnett Lim leased the premises to Covalt Enterprises, Inc. (Covalt) for a period of ten years, in exchange for $6,000 per month. Through a series of assignments to which Barnett Lim consented, Imbibery II became sole tenant liable on the lease. Imbibery II conducted business as Players Casino, using Barnett Lim's property for gambling activities. According to financial records from the City, Imbibery II did not pay gambling taxes owed to Federal Way for gambling activities on that property for the months of October, November, and December 2003. It is undisputed that Barnett Lim were not licensed to engage in gambling activities, did not engage in gambling activities, and were not liable as licensees for any gambling taxes.
Relevant portions of the lease are as follows:
Article 7 provided that the tenant would pay to Barnett Lim as additional rent the amount of real property taxes and "applicable installments of general and special assessments," Under Article 7, the tenant was required to pay the tax authority the amount of such taxes on or before the date provided by law. Section 7.2 of Article 7 required, inter alia, that "[t]he . . . party or parties responsible under this Section 7.2 and Article 8 for paying taxes assessed on the Premises shall provide the other party with proof of payment within thirty days of the payment."
Article 8 of the lease required the tenant to "pay before delinquency all municipal, county or state taxes assessed during the term of this Lease against its leasehold interest . . . and shall provide Landlord with proof of payment." It also included provisions for indemnification by the tenant in Section 14.1.1 from "any and all . . . liabilities of whatsoever kind or nature . . . arising out of, or in connection with, or incident to, . . . Tenant's . . . occupancy, use or activity in or about the Premises."
At some point before January 1, 2004, Imbibery II removed all of its personal property, abandoned the premises, and without notice terminated its lease. The City received notification in February 2004 that Imbibery II had filed for bankruptcy. That same month, the City determined that the total amount of gambling taxes, plus late fees, due from Imbibery II, was $124,150.44. The City prepared and recorded three gambling tax liens. Imbibery II is listed as the "Grantor" on all three liens, as well as the "Person Indebted To Lien Claimant" and "Name of Owner or Reputed Owner." Barnett Lim is also listed on all three documents, but only as "Person Indebted To Lien Claimant."
In April of 2004, Barnett Lim was in the process of closing on a sale of the property, when their title company identified these liens on the property. In order to conduct the sale in October of 2004, Barnett Lim and the City entered into an agreement under which proceeds from the sale equal to the amount claimed by the City ($124,150.44) were paid into the registry of the King County Superior Court Clerk. This amount is to be released upon order of the court or by mutual written agreement of the parties. The City released its liens against the property.
Barnett Lim instituted this action to determine the enforceability of the liens under RCW 9.46.110(4) against the property. In counterclaims in its amended answer, the City asked the trial court to declare the gambling tax provisions of Federal Way City Code (FWCC) and RCW 9.46.110 constitutional and to enter a judgment ordering that the Clerk of the King County Superior Court disburse the gambling tax liens to the City. The parties filed cross-motions for summary judgment. The court denied Barnett Lim's motion for summary judgment and granted the City's cross-motion for summary judgment, holding in relevant part that "(1) RCW 9.46.110 is constitutional; [and] (2) the Clerk of the King County Superior Court is directed to disburse to the City of Federal Way the sum of $124,150.44." Barnett Lim appeals.
ANALYSIS
The correctness of the trial court decision turns on a question of law. The question is whether or not the City is authorized pursuant to RCW 9.46.110(4) to place a lien for unpaid gambling taxes of a tenant on the real property of the landlord. Barnett Lim argues that RCW 9.46.110(4) does not authorize the City to impose a lien against property owned by landlords and other third parties who have no involvement or beneficial interest in the gambling activity and who are not liable for payment of the gambling taxes. In contrast, the City argues that the language is clear that a lien for gambling taxes attaches to real property used in a gambling activity in the same manner as for property taxes.
RCW 9.46.110(1) provides:
The legislative authority of any . . . city . . . by local law and ordinance, and in accordance with the provisions of this chapter and rules adopted under this chapter, may provide for the taxing of any gambling activity authorized by this chapter within its jurisdiction, the tax receipts to go to the . . . city . . . so taxing the activity.
RCW 9.46.110(1) (emphasis added). In accordance with this statute, the City enacted an ordinance that provides that there "is levied upon all persons a tax on every gambling activity permitted by this division." FWCC § 14-144(a)(1). RCW 9.46.110(4) provides:
Taxes imposed under this chapter become a lien upon personal and real property used in the gambling activity in the same manner as provided for under RCW 84.60.010. The lien shall attach on the date the tax becomes due and shall relate back and have priority against real and personal property to the same extent as ad valorem taxes.
RCW 9.46.110(4) (emphasis added). RCW 9.46.270 provides:
This chapter shall constitute the exclusive legislative authority for the taxing by any city, town, city-county or county of any gambling activity and its application shall be strictly construed to those activities herein permitted and to those persons, associations or organizations herein permitted to engage therein.
RCW 9.46.270 (emphasis added).
STATUTORY CONSTRUCTION
"The construction of a statute is a question of law that we review de novo." Edmonds Shopping Center v. Edmonds, 117 Wn. App. at 356, 71 P.3d 233 (2003) (citing Rettkowski v. Dep't of Ecology, 128 Wn.2d 508, 515, 910 P.2d 462 (1996)). "Legislative inclusion of certain items in a category implies that other items in that category are intended to be excluded." Bour v. Johnson, 122 Wn.2d 829, 836, 864 P.2d 380 (1993). "Where a statute specifically designates the things or classes of things upon which it operates, an inference arises in law that all things or classes of things omitted from it were intentionally omitted by the legislature under the maxim expressio unius est exclusio alterius — specific inclusions exclude implication." Landmark Dev., Inc. v. City of Roy, 138 Wn.2d 561, 571, 980 P.2d 1234 (1999) (citing Washington Natural Gas Co. v. Public Util. Dist. No. 1, 77 Wn.2d 94, 98, 459 P.2d 633 (1969)). "The maxim `expressio unius est exclusio alterius' is the law in Washington, barring a clearly contrary legislative intent." Algona v. Sharp, 30 Wn. App. 837, 842-843, 638 P.2d 627 (1982) (finding that because `assessment liens' were not among the several types of liens listed in the homestead statute, an inference must be made that the legislature intended their omission from the homestead statute) Algona, 30 Wn. App. at 842 (citing Knowles v. Holly, 82 Wn.2d 694, 513 P.2d 18 (1973)). Courts must "construe statutes as a whole to give effect to all the language and to harmonize all provisions." Edmonds, 117 Wn. App. at 356, (citing City of Seattle v. Fontanilla, 128 Wn.2d 492, 498, 909 P.2d 1294 (1996).
Finally, the Washington Supreme Court adheres "to a rule of strict construction in cases involving taxation statutes." Ski Acres Inc. v. Kittitas County, 118 Wn.2d 852, 857, 827 P.2d 1000 (1992) (citing In re Estate of Ehler, 53 Wn.2d 679, 681, 335 P.2d 823 (1959). "If any doubt exists as to the meaning of a taxation statute, the statute must be construed most strongly against the taxing power and in favor of the taxpayer." Ski Acres Inc., 118 Wn.2d at 857, (citing Puyallup v. Pacific Northwest Bell Tel. Co., 98 Wn.2d 443, 448, 656 P.2d 1035 (1982); Vita Food Prods., Inc. v. State, 91 Wn.2d 132, 134, 587 P.2d 535 (1978)).
RCW 9.46.270 mandates strict application of RCW 9.46.110(4) "to those activities herein permitted and to those persons, associations or organizations herein permitted to engage therein." RCW 9.46.270 (emphasis added). Only licensed persons may engage in gambling activity. Only persons licensed to conduct gambling activities are taxed. Neither the rule of "expresso unius est exclusion alterius" nor the rule of strict construction allows a reading of the statute that permits third parties, not permitted to engage in the gambling activities, to be taxed for such activities. A lien on property owned by a third party, non-licensee but used by a licensee to conduct the taxed activity is not expressly provided for nor excluded. It could only arise by implication. Strict construction against the taxing power disallows imposition of tax liens by implication either upon persons or upon their property.
The lien under RCW 9.46.110(4) may be imposed in the same manner as provided for under RCW 84.60.010. However, nothing in this statute expands on whom a tax may be levied. It merely provides that lawful taxes become a lien on property on which they may be lawfully imposed. But, Barnett Lim were not persons subject to the gambling tax authorized under chapter 9.46 RCW. The statute does not authorize a lien except for gambling taxes. Since Barnett Lim did not owe gambling taxes, RCW 9.46.110(4) does not authorize a lawful lien on their property. RCW 84.60.010 never becomes operative in this case.
RCW 9.46.110(4) does impose liens "upon personal and real property used in the gambling activity in the same manner as provided for under RCW 84.60.010." While this does indicate that liens can attach to real property, legislative history shows that it was meant to attach to the real property of the taxpayer in the same manner as other taxes. See H.R. Bill Analysis (Revised), 2SSB 5372, 53rd Leg. At 2 (Feb. 15, 1994) (providing that "[d]elinquent gambling taxes are a lien on real and personal property of the taxpayer in the same manner as other taxes") (emphasis added).
In light of these rules of statutory construction, Chapter 9.46 does not allow the City to attach a lien to Barnett Lim's property.
THE LAWTON CASE
The legislature is presumed to be aware of the existing state of the case law in the areas in which it is legislating. Seattle Police Officers Guild v. City of Seattle, 151 Wn.2d 823, 845, 92 P.3d 243 (2004) (dissenting opinion) (citing Woodson v. State, 95 Wn.2d 257, 262, 623 P.2d 683 (1980); Price v. Kitsap Transit, 125 Wn.2d 456, 463, 886 P.2d 556 (1994) (noting that "[t]he Legislature is presumed to know the existing state of the case law in those areas in which it is legislating")). If RCW 9.46.110(4) was construed as authorizing a lien against the property of third parties, it would be similar to a taxation scheme that was held unconstitutional by the Washington Supreme Court in State v. Lawton, 25 Wn.2d 750, 172 P.2d 465 (1946).
In Lawton, a lessor of equipment, Pincus, leased machinery and equipment to Lawton for a period of two years with rent to be paid monthly. There, the parties stipulated that the rent due to Pincus was:
in no wise dependent or conditioned upon Lawton's operations or his use of Pincus machinery and equipment. That defendant Pincus had no interest whatever in the operations or the results of Lawton's business, and that defendant Lawton had no right, title or interest in Pincus' machinery or equipment whatsoever, save and except for the aforementioned lease.
Lawton, 25 Wn.2d at 752.
During the time that Lawton leased the equipment, he failed to make contributions to the unemployment compensation fund, as required by a state statute. The statute provided:
[i]f after due notice, any employer defaults in any payment of contributions or interest thereon, the amount due may be collected by civil action in the name of the State of Washington, and the employer adjudged in default shall pay the cost of such action.
Lawton, 25 Wn.2d at 755 (emphasis added). The particular section at issue provided:
The claim of the Unemployment Compensation Division for any contributions, including interest thereon, not paid when due, shall be a lien prior to all other liens, except taxes, not only against the interest of any employer, but against the interest of all others, in the plant, works, equipment, and buildings, improved, operated or constructed by such employer, and also upon any products or articles manufactured by such employer.
Lawton, 25 Wn.2d at 755 (emphasis added)).
Accordingly, a lien was attached to the property of Pincus, on which the State attempted to foreclose. The Supreme Court in Lawton interpreted the statutes as authorizing a lien on Pincus' property, but struck it down as an unconstitutional deprivation of Pincus' property without due process of law. The court held:
We can think of no interest which could have been intended other than the interest of an owner or part owner; and so construing the particular part of the section now under consideration, we are of the opinion it is unconstitutional, for the reason that it arbitrarily imposes a lien on property of one not liable for a tax, from which to satisfy the tax of a liable employer. It in effect requires a third party to pay the tax of a liable employer, without any provision for reimbursement. It seems to us that clearly the effect of this statute is to deprive the third party owner or part owner of his property without a hearing or due process of law, and is in contravention of the fourteenth amendment to the Federal constitution, and § 3, Art. I, of our state constitution.
Lawton, 25 Wn.2d at 764.
The facts before us are essentially indistinguishable from those in Lawton. As in Lawton, the rent due to Barnett Lim was not conditioned on Imbibery II's business operations. As in Lawton, Barnett Lim did not have any beneficial interest or involvement in the gambling operations. See Lawton at 752. Strict application of the statute excluded Barnett Lim from the underlying gambling taxes because they were not the party permitted to conduct the activity. See RCW 4.96.270, supra (applying the gambling tax only to the activities listed, and to those persons permitted to engage in those activities); see also Lawton at 752. As in Lawton, holding Barnett Lim liable for the tax liability of a tenant would deprive them of their property without hearing or due process of law.
As noted by Barnett Lim, they are prohibited from receiving rent based on a percentage of the gambling profits: "No bona fide charitable or nonprofit organization or any other person, association or organization shall conduct any gambling activity authorized under this chapter in any leased premises if rental for such premises is unreasonable or to be paid, wholly or partly, on the basis of a percentage of the receipts or profits derived from such gambling activity. RCW 9.46.120(2).
Further, "[a]n act of the legislature is presumed to be constitutional and valid and ought not be declared invalid unless it appears to be so beyond a reasonable doubt." State v. Primeau, 70 Wn.2d 109, 111-112, 422 P.2d 302 (1966) (citing Union High School Dist. No. 1 v. Taxpayers of Union High School Dist. No. 1, 26 Wn.2d 1, 172 P.2d 591 (1946)). "[A]n act should be given a construction that will render it constitutional, if reasonably possible." Swanson v. White, 83 Wn.2d 175, 177, 517 P.2d 959 (1973) (preserving a statute as constitutional by noting that an express exception did not allow liens against personal property owned by a third party lessor that was used or kept on the rented premises by the defaulting tenant). Considering the similarity of facts between the case at hand and Lawton, and the presumption that the legislature is aware of the existing state of the case law in those areas in which it is legislating, to conclude that the legislature again tried to impose a lien on a third party for the tax liability of another would be to presume the legislature knowingly enacted an unconstitutional statute. The logical and constitutional conclusion would be that RCW 9.46.110(4), properly construed, does not apply to Barnett Lim. The City cannot impose a lien on the real property of a third party landlord that has no beneficial interest or involvement in the underlying taxable activity.
We vacate the order of summary judgment in favor of the City. On remand, the trial court is directed to enter judgment for Barnett Lim and release the registry funds to them. Reversed and remanded.
COX and SCHINDLER, JJ., concur.