Sound Transit to issue tax refunds

It's not quite an economic stimulus payment, but thousands of suburban residents will be getting a check in the mail — to refund car-tab taxes improperly collected by Sound Transit.

The agency had issued 95,000 mistaken bills totaling $3.2 million from mid-2005 to mid-2008, said Brian McCartan, the agency's finance director, in a legal deposition.

The error is blamed on state Department of Licensing computer records. Some car owners were wrongly classified as living inside Sound Transit territory, when in fact they live just outside. The transit boundary zigs and zags to surround urban parts of Snohomish, King and Pierce counties.

Refunds should begin in one or two months, transit spokesman Geoff Patrick said.

"The agencies regret these issues occurred, and are working to fix them as rapidly as possible, and to get refunds out as quickly as we can," he said.

The problem was exposed through a class-action lawsuit by Rachel Ogle, a taxpayer who lives in ZIP code 98296 — a fast-growing area between Mill Creek and Snohomish. Transit officials say they first heard of it this summer through a complaint to the state auditor, Patrick said.

The number of mistakes is likely far higher than 95,000, because car-tab taxes have been collected since 1997. Sound Transit is researching whether it can refund money that was paid more than three years ago, Patrick said.

Locating those taxpayers could be difficult, because people move.

Sound Transit and the state haven't confirmed who is in the district and who is out, according to plaintiff's attorney Michael Myers.

"In an age of Google maps and GPS," Myers said, "it's staggering to the lay person that on a house-to-house basis, or address-to-address basis, this problem can't be solved."

A state DOL spokesman, Brad Benfield, says about two-thirds of the flawed address records have been fixed.

In addition, notices will be sent to people just outside the transit-tax line, alerting them they might have overpaid, Patrick said.

This mistake resembles one that contributed to the downfall of the Seattle Monorail Project, which in 2005 abandoned its plan for a 14-mile elevated train line.

Years earlier, vehicle owners in places such as White Center and Skyway, bordering Seattle, were wrongly shown as Seattle drivers in Sound Transit data. These areas were in ZIP codes that crossed city boundaries. The monorail's finance director used a mistaken, inflated Sound Transit figure to predict the monorail's car-tax income within Seattle — and wound up far short, triggering a financial crisis. Meanwhile, some drivers contested their monorail tax bills, or received refunds.

"What we're dealing with here is essentially the same thing," as far as ZIP code confusion, Benfield said.

But even after the monorail flap, Sound Transit assumed that out on the lightly populated suburban fringes, there were so few errors the agency could rely on residents to dispute the occasional billing mistake. But the error rate was far higher than expected; about 1 ½ percent of car-tax income was incorrectly received, Patrick said.

"Sound Transit is putting the onus on the taxpayer to find out whether they are inside or outside the boundary," Myers said.

In recent years, housing developments increased the number of people who were taxed incorrectly, Benfield said.

Sound Transit and DOL also said today they will change their philosophy — if an address is in doubt, people won't be taxed. "We're not going to put the onus on the taxpayer anymore," Patrick said.

Myers predicted that there will be settlement talks between plaintiffs and Sound Transit with a mediator, to deal with refund questions and billing flaws.

The snafu shouldn't disrupt transit projects. Even at $3.2 million, a refund equates to less than 1 percent of the agency's yearly income, projected at $513 million in 2008. And voters approved a sales-tax boost this fall to fund light-rail extensions and other projects.

Mike Lindblom: 206-515-5631 or mlindblom@seattletimes.com