WENATCHEE — The city of Wenatchee must stop collecting a 16 percent domestic water tax it imposes on Chelan County PUD water customers who live within the city limits.

Chelan County Superior Court Judge T.W. “Chip” Small ruled Sept. 21 that the tax is illegal because state law doesn’t specifically allow one municipality to collect a water tax from another.

The city has 30 days to appeal.

The PUD’s 2,600 water customers who live within city limits will continue to pay the 16-percent tax at least until the appeal period passes, Carol Wardell, chief counsel for the utility, said today.

State law allows the utility to recover up to three years of past collections, she said.

The PUD collects the tax and pays it to the city. Last year that payment was about $160,000, PUD records show.

“I’m still looking at the whole refund issue,” Wardell said. “Obviously, we’ll be in discussion with the city about it.”

Wardell said the PUD and city have been jostling over this tax for years, but that the utility has always paid it.

The dispute reignited when the city recently increased the tax from 15 percent to the current 16 percent.

Both sides in May mutually agreed to let the court decide.

The city also collects a tax on electric service that the PUD provides to city residents. But that tax is OK because its backed by a specific law, the judge ruled.

Christine Pratt: 665-1173