Lakewood must pay more than $800,000 in tax dispute

Staff writerOctober 10, 2013 

After struggling in court for four years to avoid it, the City of Lakewood is going to have to refund more than $600,000 in taxes it collected from a Mercer Island company but that were not legally owed.

In a decision filed Thursday, the Washington State Supreme Court ended the long legal battle, ruling that Cost Management Services, a natural gas agent, never owed the Lakewood taxes and that the company’s decision to go to court to force a refund was justified.

With accrued interest, the city will have to pay CMS more than $800,000, according to the company’s attorney, Franklin Dinces.

Rather than refunding the $600,000 three years ago when a trial court made a similar decision, the city appealed. As a result, the amount owed has been collecting interest at an annual rate of 12 percent.

The payment is not an insignificant amount for the city. It amounts to slightly more than 1 percent of Lakewood’s $68.2 million budget for the 2013-2014 fiscal year.

Lakewood did win a small victory in Thursday’s decision. It will not have to refund taxes paid by CMS before June 2006 because of a three-year statute of limitations on such claims in state court. CMS had argued it should be able to use Lakewood’s administrative process to get refunds for those earlier years. The Supreme Court said no, reversing the lower courts’ decisions on that point.

According to CMS, it paid Lakewood $96,790.84 in 2004; $132,484.43 in 2005; $154,078.06 in 2006; $176,954.11 in 2007; and $138,786.88 in 2008.

CMS is a company that arranges for the purchase of natural gas by its customers from various suppliers. In Lakewood, it has just two large clients: Pierce Transit and St. Clare Hospital. CMS uses software to remotely coordinate the delivery of natural gas. It does not own the gas and, according to company officials, spends little or no time in the city.

CMS paid taxes in Lakewood from 2004 to 2008, believing it owed the city’s use tax. CMS then concluded it did not owe the tax; it stopped paying and asked for a refund for previous years.

The city didn’t respond to CMS’ request but six months later sent the company a demand for payment of “delinquent” taxes.

In June 2009, CMS filed a complaint against the city in Pierce County Superior Court, rather than dealing with the city administratively, as city attorneys argued in court that it should have done.

Lakewood City Manager John Caulfield was not available for comment Thursday.

CMS attorney Dinces said his client was happy with the Supreme Court decision, but added, “They could be happier,” having forfeited tax payments for 2 1/2 years.

Rob Carson: 253-597-8693

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