Smith v. Spokane County

Shields, C.J. In August 1989, the Spokane County Treasurer billed Stanley and Nancy Smith $48,186.78 for property taxes on improvements retroactively assessed as omitted property under RCW 84.40.080. The Smiths paid the taxes under protest and filed suit for their recovery [480] pursuant to RCW 84.68.020. The Smiths prevailed. The County appeals; we affirm. In 1984, the Smiths rezoned seven unimproved lots they owned near Liberty Lake for a planned unit development. They obtained a building permit from the county planning department and construction financing from Columbia Federal Savings & Loan Association in Wenatchee. Construction of seven 4-unit apartment buildings commenced in the spring of 1985. The Spokane County Building Codes Department issued a certificate of occupancy for the 28-unit apartment complex on September 19, 1985. In November 1985, the Smiths converted the Columbia Federal construction loan to a permanent loan. The loan was secured by individual deeds of trust on each of the seven apartment units, recorded with the Spokane County Auditor on November 19. The loan had no reserve account for taxes. For the years 1987, 1988, and 1989, the property remained assessed for its land value only; the improvements were not assessed. The Smiths' property manager paid the tax bills as they came due. Columbia Federal had no notice of either the assessments or the amount of taxes paid. In June or July 1989, the County Assessor first assessed the value of the improvements: $145,400 for each of the seven 4-unit apartment buildings. In August the County Treasurer billed the Smiths $48,186.78 for additional taxes levied upon the omitted improvements for the years 1987, 1988, and 1989 pursuant to RCW 84.40.080, which provides in pertinent part: Where improvements have not been valued and assessed as a part of the real estate upon which the same may be located, as evidenced by the assessment rolls, they may be separately valued and assessed as omitted property under this section: Provided, That no such assessment shall be made in any case where a bona fide purchaser, encumbrancer, or contract buyer has acquired any interest in said property prior to the time such improvements are assessed. The Smiths paid the taxes under protest, sued the County and obtained a judgment in their favor. [481] The facts are undisputed. The appeal presents a single issue: whether Columbia Federal is a "bona fide encumbrancer", as that term is used in RCW 84.40.080, thus precluding the County from assessing the omitted improvements retroactively. Although "bona fide encumbrancer" is not defined in the statute, the parties agree on its definition: one who gives valuable consideration, in good faith, without actual or constructive notice of another's right, claim or interest in the property. See Tomlinson v. Clarke, 118 Wn.2d 498, 500, 825 P.2d 706 (1992); Glaser v. Holdorf, 56 Wn.2d 204, 208-09, 352 P.2d 212 (1960). The County acknowledges Columbia Federal gave valuable consideration in good faith, but contends it had constructive notice of the County's right, claim, or interest in the property: its statutory right to tax improvements, including improvements omitted from assessment for 3 years preceding discovery of the omission. RCW 84.40.080, .085. The County's reasoning is flawed. The County's right to tax does not become a claim or interest in property until its value is assessed and the tax levied. The County's right to retroactively assess and tax omitted improvements for 3 years is conditional; the statute does not allow retroactive assessment and taxing when others have first acquired a bona fide interest. RCW 84.40.080. Columbia Federal had knowledge of both these rights, but that knowledge is immaterial to the issue. The knowledge which is material is of the omission of the assessment. If the encumbrancer knows of the omission, it is deprived of "bona fide" status. If the County's interpretation of RCW 84.40.080 were accepted, its proviso would have no effect and be superfluous.1 Courts are required to give effect to every part of a [482] statute, whenever possible, and should not deem a clause superfluous unless it is the result of an obvious drafting error. Dennis v. Department of Labor & Indus., 109 Wn.2d 467, 479, 745 P.2d 1295 (1987); Hanson v. Tacoma, 105 Wn.2d 864, 871, 719 P.2d 104 (1986); see also John H. Sellen Constr. Co. v. Department of Rev., 87 Wn.2d 878, 883, 558 P.2d 1342 (1976). There is no obvious drafting error in RCW 84.40.080. Columbia Federal cannot be charged with constructive knowledge the County would fail to assess the improvements for 3 years. The assessment had not been omitted when Columbia Federal acquired its interest. Although it could anticipate taxation, it could not anticipate the County would omit the assessment of the improvements. Unknown omitted retroactive assessments potentially jeopardize an encumbrancer's security. The regulation regarding assessment of omitted improvements is consistent with this interpretation; it prohibits assessment in this case. WAC 458-12-050 provides, in pertinent part: Whenever any real property is omitted from the assessment rolls, the assessor shah have the right and duty to go back and separately value and list such property as omitted property. When improvements or land are omitted, the assessor shall check back for a period of three years and base his assessment on the value of the improvements as of the year or years omitted regardless of the reason why the improvements or land were omitted from the rolls. If it is found that a bona-fide purchaser (third party) had purchased or acquired any interest in the property prior to the time such improvements are assessed and without knowledge that the property is omitted, then there shall be no assessment made. (RCW 84.40.080)1.] (Italics ours.) Furthermore, even if the Smiths, as owners, knew of the omission, they were under no obligation to alert the County to it.2 See E.K. Wood Lumber Co. v. Whatcom Cy., 5 [483] Wn.2d 63, 66-67, 104 P.2d 752 (1940). That the Smiths escape paying taxes on the improvements for the 3 years' omissions is unfortunate for the County, but immaterial to our analysis. In Tradewell Stores, Inc. v. Snohomish Cy., 69 Wn.2d 352, 356, 418 P.2d 466 (1966), the court stated: "If our decision in the case at bar poses a problem for the taxing authorities, the answer lies either with the legislature or with the assessors who are at liberty to make their assessment rolls reflect as much detail as they wish." Had the County acted in a timely manner and assessed the improvements in 1986 for the 1987 tax year,3 there would have been no loss of tax revenue. The judgment for refund of taxes is affirmed. Sweeney, J., concurs. Footnotes [1] As noted in the dissent, Kansas has a statute similar to Washington's in subject matter. However, the Kansas statute is not similar in content. The Kansas statute deals with omission in a significantly different manner, which protects only interim purchasers, and provides no guidance on the issue presented here. [2] It has been a requirement in this state since 1955 that issuers of building permits transmit a copy of the permit to the county assessor. See Laws of 1955, ch. 129, § 3; former RCW 36.21.060; RCW 19.27.140. If that was not done here, it was not the Smiths' fault. [3] Because the new construction was not completed before July 31, 1985, no assessment would have been made for the 1986 tax year. See RCW 36.21.080.