Sound Transit wins fight over inflated values it uses to raise cash from car tabs

Sound Transit on Thursday won a lawsuit that took aim at the heart of the transit agency’s taxpayer funding.

In a 7-2 decision, the Washington State Supreme Court upheld the transit agency’s motor vehicle excise tax as constitutional. Chief Justice Debra Stephens and Sheryl McCloud dissented.

The legal dispute revolved around 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 car tabs.

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

They cited 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 argued.

A majority of the Supreme Court disagreed.

Justice Susan Owens wrote that the “statute is a complete act because it is readily ascertainable from its text alone when which depreciation schedule will apply...”

In her dissent, Justice McCloud wrote: “The effects of the MVET statute before us are scattered not only across the code but also across a complicated 24-year history. And the MVET statute renders another enactment of our legislature — the current depreciation schedule — inoperative without ever referencing it, much less setting it forth `at full length.’ “

The taxpayers who filed the lawsuit in 2018 sought a court order requiring the transit agency to 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, the plaintiffs argued.

Sound Transit said the 2015 bill was approved properly, fully complies with the Constitution and that the plaintiffs’ argument is “factually and legally wrong.”

The agency also said changing its funding mechanism would have caused years-long delays in some of its most important projects, including light-rail extensions.

Geoff Patrick, a Sound Transit spokesperson, said Thursday in an email: “We are pleased the court held that the depreciation schedule to be used was readily ascertainable from the reading the statute.”

Joel Ard, the attorney representing the plaintiffs, said the opinion could have consequences beyond the taxing power of Sound Transit.

“Allowing the Legislature to draft a statute in this way and green-lighting all the sort of convolutedness of this section of the code really opens up the door for extraordinary mischief in statutory drafting,” he said.

In 1996, state lawmakers approved a bill allowing Sound Transit to collect a car-tab tax. Voters that year approved a 0.3 percent 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 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 percent approved in 1996 — for a total of 1.1 percent 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 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 percent car-tab tax is set to end.

In 2016, voters approved the 0.8 percent 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 Senate is considering a bill that would require the transit agency to use a valuation schedule that would result in lower costs for taxpayers, but Sound Transit has said the measure would drain $1 billion in revenue from its coffers, triggering delays in light-rail projects and causing higher debt costs.

Gov. Jay Inslee on Thursday encouraged lawmakers to continue work on the valuation schedule.

“I’m not wedded to some valuation system. People have expressed concern about it. I think the Legislature ought to be open about doing something different with the valuation system to resolve people’s concerns about that. But when they do that, they will need to find some other way to plug the holes in the budget that would otherwise occur, and I’m happy to work with them to do that,” Inslee said.

State Sen. Steve O’Ban, R-University Place, said the Supreme Court’s decision was disappointing, but he stressed that voter approval last year of Initiative 976 lowered Sound Transit’s MVET rate and revised the “unfair schedule” to use the Kelley Blue Book. The initiative is on hold because of a legal challenge that is expected to reach the state Supreme Court.

“This decision also 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. The Legislature has the power to give taxpayers the relief they demanded by passing I-976. It can pass my bills that enact I-976, and allow Pierce County to exit from the ST3 project. That would go a long way to earning back that public trust,” he said.

James Drew covers the state Legislature and state government for McClatchy’s Washington papers: The News Tribune, The Olympian, The Bellingham Herald and The Tri-City Herald.