This page provides a basic overview of the utility taxes that can (and cannot) be imposed by cities and towns in Washington State, including legal authority, maximum tax rates, and examples of local resolutions and ordinances.
For a more comprehensive discussion of utility taxes, Business & Occupation (B&O) taxes, and other city revenue options, see MRSC’s City Revenue Guide.
Any city or town in Washington may impose a utility business and occupation (B&O) tax – also known as a utility tax – upon the income of public and private utilities providing services within the boundaries of that city. The city/town may also levy taxes on revenues generated by the city’s own utility services provided both inside and outside the city boundaries.
Practice Tip: Utility taxes, like other business & occupation taxes, are imposed upon the utility business itself, and not upon the individual utility customers. City-owned/operated utilities will often break out the amount of the utility tax on a customer’s bill, which frequently creates confusion about who is being taxed and can cause miscalculation of the utility tax. Cities must be mindful of this subtle but important difference.
For more details, see our blog post Are You Calculating Your City Utility Tax Correctly?
The authority of cities and towns to impose a utility tax derives from their general authority to impose excise taxes on businesses operating within their boundaries, with some statutes and court decisions providing additional authority and clarification.
- RCW 35A.82.020 – Code cities
- RCW 35.22.195 and RCW 35.22.280(32) – First class cities
- RCW 35.23.440(8) – Second class cities
- RCW 35.27.370(9) – Towns
- RCW 35.21.870 – Establishes 6% maximum utility tax rate for electricity, natural gas, steam, and telephone utilities, unless higher rate is approved by voters
- RCW 54.28.070 – Cities and towns may tax public utility districts (PUDs) that operate works, plants, or facilities within the city/town for the sale of electricity
- RCW 82.14.230 – Brokered natural gas use tax
- Burba v. Vancouver, 113 Wn.2d 800 (1989) – Court upheld utility tax imposed by city on its water and sewer utility where the measure of the tax was gross revenues derived by the utility from providing service to both resident and nonresident customers.
- Burns v. City of Seattle, 161 Wn.2d 129 (2007) – States that “the Cities could have generated revenue for their general funds through the imposition of a utility tax on their own municipal utilities”
- Lakehaven Water & Sewer District et al. v. City of Federal Way (2020) – Affirms lower court case City of Wenatchee v. Chelan Pub. Util. Dist., 181 Wn. App. 326 (2014) that code cities may impose taxes on other municipalities providing utility services within their boundaries, on revenues derived from their proprietary activities. This reasoning should apply equally to other classes of cities and towns.
RCW 35.21.870 imposes a maximum tax utility tax rate for certain utilities of 6% of the utility's income (as defined by local ordinance) but allows cities to exceed that rate with voter approval (simple majority). To see recent attempts at voted utility tax increases above 6%, see the “Examples” section at the end of this page or refer to our Local Ballot Measure Database.
In addition, federal law prohibits local governments from taxing Internet or broadcast satellite TV services and places limitations on local cable television taxes. Other utilities have no limits set by state or federal law.
Below is a summary of the maximum allowable tax rates.
|Type of Utility||Maximum Utility Tax Rate|
|6% unless voters approve higher rate (RCW 35.21.870)|
|Telephone (including cell phone/pager)||6% unless voters approve higher rate (RCW 35.21.870), but when taxing cell phone services cities may not tax Internet services (see below)|
|Broadcast satellite TV||May not be taxed (see 47 U.S.C. §152 under “Notes” tab)|
|Cable TV||Tax rate may not be “unduly discriminatory” (see 47 U.S.C. §542(g)(2)(A)); we suggest it should not exceed your other utility tax rates|
|Internet||May not be taxed (Internet Tax Freedom Act moratorium made permanent in 2016 – see 47 U.S.C. §151 under “Notes” tab)|
|No limit prescribed by state or federal law|
Utility tax revenues are unrestricted and may be used for any lawful governmental purpose.
However, if the city is submitting a utility tax increase to voters on one of the specific utilities in RCW 35.21.870, specifying a purpose might make voters more likely to approve it. If the city does specify a purpose in the ballot measure, the extra revenues resulting from the utility tax increase would be considered restricted and must be spent in accordance with the purpose stated in the ballot measure.
Any city or town that imposes a utility tax on the gross revenues of its own municipal water, sewer/wastewater, or stormwater utility must disclose the tax rate to its utility customers (RCW 35.92.460).
The disclosure must include a statement, as applicable, that “The amount billed includes a fee or tax up to [dollar amount or percentage] calculated on the gross revenue of the [water/
The city or town must provide the disclosure through one or more of the following methods:
- On customers’ regular billing statements;
- On the city/town website, if the city/town provides written notice to customers or taxpayers that such information is available on the website; or
- Through a billing insert, mailer, or other written or electronic communication provided to customers or taxpayers on either an annual basis or within 30 days of the effective date of any subsequent tax rate change.
This requirement does not apply to other city/town utilities (such as solid waste or electricity), nor does it apply to other public or private utilities operating within the city (such as water-sewer districts or cable TV providers).
A city that imposes a utility tax for the first time or that increases a tax rate may be required to include a referendum clause in the ordinance. RCW 35.21.706 requires a referendum clause for a gross receipts business and occupation tax, but from its placement in the text it is unclear whether this statute also applies to utility taxes. A court decision or legislative amendment would be needed to clarify this matter, but MRSC recommends a cautious approach of including referendum language in any increase.
Any tax changes for electric, telephone, and gas utilities cannot take effect until the end of 60 days after the enactment of the ordinance (RCW 35.21.865). If the utilities are private utilities, they need this time to apply to the Washington Utilities and Transportation Commission for a rate adjustment to reflect the tax change.
RCW 82.14.230 allows the cities that tax natural gas to (optionally) impose an equivalent “use tax” on brokered natural gas sales that are not otherwise subject to the utility tax. This use tax is imposed by the legislative body, may be used for any lawful governmental purpose, and does not require voter approval.
The use tax rate must be equal to the city’s utility tax rate on natural gas, and the use tax must be paid by the consumer. However, the use tax does not apply to the use of natural gas, compressed natural gas, or liquefied natural gas if the consumer uses the gas for transportation fuel as defined in RCW 82.16.310.
General Ordinances and Code Provisions
- Bellevue Municipal Code Ch. 4.10 – Applies to "gross proceeds of sales" of electricity, cable TV (with credit for cable franchise fees paid), natural gas (including brokered natural gas use tax), sewer, solid waste, telephone and cell phone (including allocation of cell phone income), and water (including city water utility)
- Stanwood Municipal Code Ch. 5.01 – Applies to "gross revenue" of cable TV, drainage, electric, garbage, natural gas, sewer, telephone, and water utilities
- Battle Ground Municipal Code:
- Ilwaco Municipal Code Ch. 3.19 – Utilities tax
Voted Utility Taxes Above 6%
- Cheney Resolution No. E-040 (2012) – Proposition to renew existing 4% utility tax for 14 years to fund street and sidewalk improvements. Tax applies to electricity and natural gas, maintaining total 14.75% rate. (Voters previously approved an additional 4.75% utility tax for parks and recreation.)
- Des Moines:
- Resolution No. 1169 (2011) – Proposition to increase utility tax by 3%, with 1% for historic building capital projects (expiring after 20 years or when bonds are repaid), 0.5% for historic building maintenance and operations (no expiration), and 1.5% for pavement improvements (no expiration). Measure failed.
- Resolution No. 1215 (2013) – Scaled-back proposition to increase utility tax by 2% for 20 years for pavement improvements. Measure performed significantly better but narrowly failed.
- Orting Resolution No. 2015-10 (2015) – Proposition to increase utility tax by 3.4% to enhance and maintain police services. Tax applies to electricity, natural gas, phones, and cable TV services; measure narrowly failed.
- Tacoma Resolution No. 39236 (2015) – Proposition to fund transportation projects with a 10-year, 1.5% utility tax increase and a temporary, 10-year levy lid lift of $0.20. Utility tax applies to natural gas, electricity, and phones; measure barely passed following an earlier failure in 2013.