Court: Court of Appeals of Washington; September 22, 1992; Washington; State Appellate Court
In August 1989, Spokane County Treasurer billed Stanley and Nancy Smith $48,186.78 for retroactively assessed property taxes on improvements deemed omitted under RCW 84.40.080. The Smiths paid the taxes under protest and subsequently filed a lawsuit for recovery, winning the case. The County's appeal was affirmed. In 1984, the Smiths rezoned seven unimproved lots for a planned development, obtaining a building permit and financing for constructing seven 4-unit apartment buildings, completed in September 1985. The property was assessed only for land value during 1987-1989, with taxes paid by the Smiths’ property manager. The County Assessor assessed the improvements in mid-1989, leading to the tax bill for prior years.
The key legal question centered on whether Columbia Federal Savings Loan Association qualified as a "bona fide encumbrancer" under RCW 84.40.080, which would prevent the County from retroactively assessing the omitted improvements. The statute defines a bona fide encumbrancer as one who gives valuable consideration in good faith without actual or constructive notice of other claims. While the County conceded that Columbia Federal acted in good faith, it argued that the lender had constructive notice of the County's tax rights, which were contingent upon assessed value. The court rejected this reasoning, clarifying that the County’s right to tax does not establish a claim until an assessment is made. The court emphasized that knowledge of an omission in assessment, rather than knowledge of tax rights, is crucial for determining bona fide status. Accepting the County's interpretation would render the statutory proviso meaningless.
Courts must interpret statutes to give effect to all provisions, avoiding deeming any clause superfluous unless there is clear evidence of a drafting error. In the case of RCW 84.40.080, there is no indication of such an error. Columbia Federal cannot be held to have constructive knowledge that the County would not assess improvements for three years, as the assessment was not omitted at the time they acquired their interest. Although taxation could be anticipated, Columbia Federal could not foresee the County's failure to assess the improvements. The regulation allows the assessor to backtrack up to three years to assess omitted property, but if a bona fide purchaser was unaware of the omission, no assessment can be made.
Even if the Smiths, the owners, were aware of the omission, they had no obligation to inform the County. The court ruling, which allows the Smiths to avoid paying taxes on the omitted improvements, is unfortunate for the County but does not affect the legal analysis. Previous case law indicates that if a decision creates issues for taxing authorities, the resolution lies with the legislature or assessors. Had the County assessed the improvements in a timely manner, there would have been no tax revenue loss.
Notably, Kansas has a statute addressing omissions, but it differs significantly from Washington's, offering less protection for purchasers. Since 1955, there has been a requirement for building permit issuers to send a copy of the permit to the county assessor, and if this was not done, the Smiths are not to blame. The new construction, not completed before July 31, 1985, would not be assessed for the 1986 tax year. The judgment for tax refund is affirmed.
