Courts have oftentimes been asked to define the characteristics of a “fee,” and how they differ from other kinds of monetary exactions such as “taxes.” And as elsewhere explained, just because staff and past Boards have called Recreation (“RFF”) and Beach (“BFF”) Facility Fees, “fees,” doesn’t necessarily make them so. That’s because “the nature of (a)…charge…(the) law imposes is not determined by the label given…but (rather,)…its operating incidence.”¹ Thus “courts will determine and classify (monetary exactions) on the basis of realities”² rather than labels, looking to their “operative effect.”³ Especially when as here, the RFF/BFF were “undoubtedly drafted with [NRS 318.197(1)’s “rates, tolls and charges” labeling] firmly in mind.”⁴ In other words, courts will not allow the ends to justify the means. So what are the “operating incidences” of a tax?

Its Primary Purpose is to Raise Revenue⁵: “spent for the benefit of the entire community.”⁶ Rather than covering the cost of providing a particular governmental service which benefits the party paying who pays⁷. Therefore, “it entitles the taxpayer to receive nothing except the governmental rights enjoyed by all citizens.”⁵

It is Expressly Imposed For The Benefit of Those Who Are Not Justly Bound to Contribute⁸: That’s right! Taxes are spent on vital services which benefit the entire community and not just those who pay. It’s what being a community is all about.

It is The Product of “Enforced Contribution:”⁵ In other words, the payor is given no choice insofar as payment is concerned⁹. He/she/it “has (no) option of not utilizing the governmental service and thereby avoiding the charge.”¹⁰

It Can Exceed The Cost Government Incurs to Furnish The Service(s) Represented by Payment: “(T)he crucial factor in determining whether a municipal charge for services constitutes a valid…fee(, or something else,) is whether the charge is intended to cover the cost of administering a regulatory scheme or providing a service.”¹¹ Taxes typically “exceed…the value of the specific services for which (they are) charged.”¹². “Revenue obtained from a particular charge (need) not (be) used exclusively to meet expenses incurred in providing the service but (can be) destined instead for a broader range of services or for the general fund”¹³ as a revenue generating mechanism. In other words, “if…the revenues collected exceed the costs of the program…the(y)…would have to be classified…(as) a tax.”¹⁴

Which Means The Entire Charge Must be Declared to be a Tax: because “a court cannot apportion the charge (n)or ascertain and allow (only) such portion as it may find reasonable.”¹⁵ That would be a legislative function, wouldn’t it?

A “Fee“ Can be Transformed Into a “Tax“ Because of The Way in Which The Proceeds Are Expended: According to Clean Water Coalition, supra, at 127 Nev. 316-18, a fee can be transformed into an impermissible tax because of a change in the manner within which the fee is expended¹⁶.

Conclusion: “To distinguish between a ‘fee’ and a “tax,” the Hawaii Supreme Court in Medeiros, supra, at 973 P.2d 741-742 adopted a modified version¹⁷ of the test articulated by the Massachusetts Supreme Judicial Court in Emerson College which analyzes whether the charge ‘(1) applies to the direct beneficiary of a particular service, (2) is allocated directly to defraying the costs of providing the service, and, (3) is reasonably proportionate to the benefit received.’ (Only) if those criteria fit the charge…is…it…a fee.”¹⁸ Thus where an exaction doesn’t fit the charge because the amount is more than that “allocated directly to defraying the costs of providing (a) service,” or “it appears…revenue is its main objective and the amount of the (exaction) supports that theory,”¹⁹ it is a tax²⁰.

So now you know!

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1. See Clean Water Coalition v. The M Resort, LLC, 127 Nev. 301, 255 P. 3d 247, 256 (2011) citing State v. Medeiros, 89 Haw. 361, 973 P.2d 736, 741 (1999).
2. See Hukle v. City of Huntington, 134 W.Va. 249, 58 S.E.2d 780, 783 (1950).
3. See Emerson College v. City of Boston, 39 Mass. 415, 462 N.E.2d 1098, 1105 (1984).
4. See Rider v. County of San Diego, 1 Cal.4th 1, 15, 820 P.2d 10 (1991).
5. See Clean Water Coalition, supra, at 127 Nev. 315; Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 929 P.2d 253, 256 (1996); State ex. rel. City of Reno v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); 71 Am. Jur. 2d  §13, State and Local Taxation (2001).
6. See Hawaii Insurers Council v. Lingle, 120 Haw. 51, 60, 201 P.3d 564 (Haw. 2008).
7. See Medeiros, supra, at 973 P.2d 741.
8. See Clean Water Coalition, supra, at 127 Nev. 322 quoting State v. Boyd, supra, at 21 Nev. 255,
9. See National Cable Television Ass’n v. United States, 415 U.S. 336, 341, 94 S.Ct. 1146, 1149 (1974); United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278 (1931); City of Gary, Ind. v. Indiana Bell Tel., 732 N.E.2d 149, 156 (Ind. 2000).
10. See Executive Aircraft Consulting, Inc. v. City of Newton, 252 Kan. 421, 426-27, 845 P.2d 57 (1993). “Subsequent to its opinion in Emerson College, the Massachusetts Supreme Judicial Court…weakened its adherence to th(is)…identifying factor…(the) voluntary receipt of the ‘service’ – holding that (in very specific and limited circumstances, unlike here,) ‘the element of choice is not a compelling consideration which can be used to invalidate an otherwise legitimate charge” (see Medeiros, supra, at 89 Haw. 361, 366-67). Notwithstanding, but for one possible type of charge, the cases relied upon by the Medeiros court do not support the proposition advanced. Rather than making the argument, we simply make this observation and expressly discuss the one possible type of charge which may weaken this identifying factor.

    The Medeiros court pointed to Ripperger v. City of Grand Rapids, 338 Mich. 682, 62 N.W.2d 585 (1954) as evidence that enforced contribution for the availability to connect to municipal sewer services should not be an identifying factor. But that case started out with the premise “no one can be compelled to take water (as well as sewage disposal given sewer rates were based upon water usage) unless he(/she) chooses…Citizens may take it or not as the price does or does not suit them” [Id., at 338 Mich. 686 quoting Jones v. Water Commission of Detroit, 34 Mich 273, 275 (1876)]. If the citizen has the choice to use or not use municipal water and sewer services, how can it be argued there is no enforced contribution identifying factor?

    Nevertheless. legitimate standby service charges for the availability to connect to and use public health and sanitation (water and sewer) services can be compelled absent the user’s choice under specific, limited circumstances. For a discussion of this subject, the reader is referred to our What Are Standby Service Charges discussion. However in this particular circumstance [general improvement districts (“GIDs”) when exercising their power, assuming it has been granted, to furnish facilities for public recreation], none of these exceptions apply. Which means that in refusing to adopt Emerson’s enforced contribution identifying factor, it seems the Medeiros court may have painted with far too broad a brush. Thus it is our position that but for legitimate standby service charges for the availability to access and use public health and sanitation (water, sewer and possibly solid waste disposal) services, enforced contribution continues as an identifying factor when determining whether a local government’s monetary exaction is a fee or a tax.

11. See Rizzo, supra, at 668 A.2d 238.
12. See Executive Aircraft Consulting, supra, at 845 P.2d 62 quoting National Cable Television Ass’n Inc. v. F.C.C., 554 F.2d 1094, 1106 (D.C. Cir. 1976).
13. See Emerson College, supra, at 391 Mass. 427.
14. See Margola Assocs. v. City of Seattle, 121 Wn.2d 625, 640-41, 854 P.2d 23 (1993). Also see Health Services Medical Corp. v. Chassin, 175 Misc. 2d 621, 668 N.Y.S.2d 1006, 1009-10 (Sup. Ct. 1998) where a fee was declared “to be an unconstitutional tax because it directed a portion of payments made (i.e., the excess) by health maintenance organizations to hospitals for inpatient care to be deposited in the state’s general fund,” and City of Madera v. Black, 181 Cal. 306, 313-15, 184 P. 397 (1919) where “charges (a)re excessive…in order to…accumulat(e)…revenue…on profit therefrom…for the general benefit of the city…(the charge is an impermissible) tax.”
15. See City of Madera, supra, at 181 Cal. 315.
16. Therein the court found that “user fees collected for capital improvement projects and sewer services…from business(es) and residents…(we)re transformed into a tax (bec0ause they were)…transfer(red) into the State’s general fund…for unrestricted general use…(and thus) no longer b(ore) any relationship to the purpose(s) for which they were (initially) assessed.”
17. The “modification” omits the enforced contribution identifying factor discussed above¹⁰.
18. See Clean Water Coalition, supra, at 127 Nev. 315; Medeiros, supra, at 973 P.2d 742-745.
19. See Douglas Co. Contractors, supra, at 112 Nev. 1457 quoting Eastern Diversified v. Montgomery County, 319 Md. 45, 570 A.2d 850, 854 (Md. 1990).
20. .”If in fact the revenues collected exceed the costs of the program…the revenues collected…would have to be classified…(as) a tax rather than a fee” [see Margola Assocs., supra, at 121 Wn.2d 640-41; Health Services Medical Corp., supra, at 668 N.Y.S.2d 1009-10; City of Madera, supra, at 181 Cal. 313-15; Medeiros, supra, at 89 Haw. 367 [where “the charge c(an) be used for general revenue raising purposes, the classic realm of taxation…(it) must be considered a tax”].