Court battle over car-tab tax could get you a refund, but cost Sound Transit billions

OLYMPIA — The Washington state Supreme Court will hear arguments Sept. 10 on a lawsuit that takes aim at the heart of Sound Transit’s taxpayer funding.

The bitter legal dispute is rooted in how the transit agency uses a formula that inflates the value of vehicles when it levies a motor vehicle excise tax, pumping more money into its coffers. Vehicle owners in urban parts of Pierce, King and Snohomish counties pay the tax through their annual vehicle registration, known as a car tab.

Taxpayers who are plaintiffs in the lawsuit charge that the way the formula was invoked in a bill that the Legislature approved in 2015 — enabling Sound Transit to seek voter approval to increase the car-tab tax rate — violated the state constitution.

They cite a provision that refers to how the Legislature must pass bills. That provision says no law shall be revised or amended by mere reference to its title. The revised or amended law must be laid out “at full length.”

The Legislature didn’t do that with the 2015 bill it adopted at Sound Transit’s urging, so it’s unconstitutional, the plaintiffs say.

They add that the transit agency must return hundreds of millions of dollars collected from taxpayers since Puget Sound area voters approved the car-tab tax rate increase in 2016. Sound Transit also must be prohibited from collecting that tax in the future, unless the Legislature votes again on the matter.

In briefs filed with the high court, Sound Transit argues the bill was approved properly, fully complies with the constitution and that the plaintiffs’ argument is “factually and legally wrong.”

The agency also says changing its funding mechanism would lead to yearslong delays in some of its most important projects, including light-rail extensions.

It’s a complex legal scrap, with so many twists and turns through the Revised Code of Washington that Kathryn Nelson, the Pierce County Superior Court judge who last year ruled in favor of Sound Transit, acknowledged “there are many aspects about this case that I think are way above my pay grade” and predicted a higher court would get to “double-check my work.”

That will happen when the Supreme Court rules on the case sometime after the Sept. 10 oral arguments.

Valuation variation

In 1990, the Legislature approved a new valuation schedule for the statewide car-tab tax that had been levied for decades. It overvalued the worth of a vehicle to raise more revenue for transportation projects.

Six years later, lawmakers approved a bill allowing Sound Transit to collect a car-tab tax. Voters that year approved a 0.3 per cent car-tab tax to help pay for light-rail projects. Sound Transit used the state’s valuation schedule adopted in 1990.

The result: more revenue for transit projects through higher car-tab taxes that vehicle owners pay. The reason: The valuation schedule that Sound Transit has used since it began to collect the tax in 1997 inflates the value of a new vehicle over its first 10 years compared to the Kelley Blue Book.

In 2002, voters statewide approved the Tim Eyman-led Initiative 776, which repealed the state law authorizing locally imposed car-tab taxes, Sound Transit’s car-tab tax and the valuation schedule it used.

Four years later, the Supreme Court ruled that the repeal was unconstitutional as it related to Sound Transit’s car-tab tax because it would damage the transit agency’s contracts to borrow money through bond sales. As a result, Sound Transit continued to collect a car-tab tax and used the same valuation schedule.

Then in 2006, the Legislature approved a bill authorizing local governments to create regional transportation districts to build roads, in part through car-tab taxes. Lawmakers adopted a new valuation schedule that set lower values for nearly all ages of vehicles than the one Sound Transit used. The Legislature said the new schedule applied to any locally imposed car-tab tax.

In 2015, lawmakers approved a bill giving Sound Transit authority for a voter-approved car-tab tax not to exceed 0.8 percentage points — on top of the 0.3 per cent approved in 1996 — for a total of 1.1 per cent of the vehicle’s value.

That bill did not use the schedule with the lower values for vehicles that lawmakers approved in 2006, which would have meant less revenue for Sound Transit.

Instead, the bill said the higher valuation schedule that Sound Transit had used since it began to collect car-tab taxes in 1997 temporarily would be in effect until its 30-year bond debt incurred in 1999 for light-rail projects is paid off. The transit agency has said that will happen in 2028, when its 0.3 per cent car-tab tax is set to end.

The valuation schedule that the Legislature adopted in 2006 with the lower values for vehicles then would apply to the 0.8 per cent tax that Puget Sound area voters approved in 2016.

Voters approved the 0.8 per cent tax for Sound Transit 3 — the third in a series of transit packages — that consisted of a $54 billion transit expansion. It calls for 62 miles of new light rail, along with new commuter rail and bus lines by 2041. In addition to boosting the car-tab tax, the package included property and sales-tax increases.

The arguments

What the Legislature did in 2015 violated the state constitution, attorneys for the plaintiffs say.

The Legislature amended a state law but failed to include the text of the statute it changed and also did not explain how it changed the law, the attorneys argue.

They note the section of the constitution that was violated is intended to ensure that “legislators conduct business in the light of day, with full disclosure, rather than permitting them to pass laws whose implications only they will understand.”

To calculate how much they owe in car-tab taxes, taxpayers can’t get an answer from the 2015 bill, attorneys for the plaintiffs argue.

They must not only scour volumes of legislative session laws to find out what the law said in 1996 and which valuation schedule was in effect but also consult “a source found nowhere in the Revised Code of Washington, namely [Sound Transit’s] record of bond payments.”

Attorneys for the plaintiffs added that Sound Transit calculates vehicle value by using a law that was repealed in 2002 by the state’s voters.

Attorneys for Sound Transit argue that the Supreme Court’s 2006 ruling means the part of the law that pertained to the valuation schedule that the transit agency has used for 22 years was not repealed. They also added that the Legislature in 2010 placed the Supreme Court’s ruling in the state’s revised code.

“Sound Transit has used the 1996 depreciation schedule since it began collecting the [motor vehicle excise tax] in 1997, continues to use it today, and is legally required to use the 1996 schedule until the bonds to which the [motor vehicle excise tax] pledges are paid off in 2028,” attorneys for Sound Transit wrote.

The transit agency’s attorneys argue the 2015 bill that the Legislature approved complies with the constitution, in part, because it’s permissible to “refer to an existing statute, a repealed statute, or another external source, such as the International Building Code.”

If the car-tab tax that Puget Sound area voters approved in 2016 is struck down as unconstitutional, transit projects would be delayed and costs would increase, according to Sound Transit. The Sound Transit 3 plan is “substantially dependent” on the roughly $7 billion generated by the 0.8 per cent car-tab tax, attorneys for the transit agency say in briefs to the Supreme Court.

Most light-rail projects scheduled to open by 2035 would be delayed six years, and all projects opening after 2035 would open in 2041, Sound Transit said.

Initiative 976

The Supreme Court will hear oral arguments in the case less than two months before the Nov. 5 general election, when voters statewide will decide the fate of Initiative 976.

The Eyman-led initiative would cap car-tab taxes at $30 and also would reduce several other transportation taxes.

In a video posted on, Eyman said: “976 repeals the dishonest vehicle valuation schedule that politicians are currently using to inflate your taxes; no more price gouging.”

A coalition of community leaders working to defeat I-976 said it will “reduce state funding for road safety, transit and rail service, ferries and traffic improvement projects by nearly $4 billion over the next 10 years; take away more than $60 million per year in local funding for street maintenance, bus service and road projects; and eliminate $20 billion in expanded light rail, transit and other essential Puget Sound projects from voter-approved Sound Transit funding.”

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