What is a Fee?

Because “rates (and) charges” aka “fees”1 represent such large percentages of the revenues collected by the Incline Village General Improvement District (“IVGID”), we believe it important to understand what these monetary exactions actually represent. As well as the authority for their assessment. And against what/whom they are levied. Especially because as we’ve explained elsewhere, general improvement districts (“GIDs”) are limited purpose forms of local government with limited means of generating revenues.

Courts have oftentimes been asked to define the characteristics of “fees,” and how they differ from other kinds of monetary exactions. Such as “taxes” and “assessments.” And what we see is that the distinction is not one that is always observed with nicety2. Notwithstanding, and as elsewhere explained, just because staff and past Boards have labeled many of the District’s monetary exactions “fees,”3 especially those which are involuntarily assessed4, 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.”5

Therefore, whenever the validity of a monetary exaction is questioned,

“Courts will determine and classify (the exaction) on the basis of realities”6 rather than labels, looking to their ‘operative effect.’”6 Especially when as here, the label given7 was “undoubtedly drafted with [NRS 318.197(1)’s] permissive language (such as “standby service charges…for the availability of service”) “firmly in mind.”8

In other words, courts will not allow government to do what the Incline Village General Improvement District (“IVGID”) Board regularly does. That is, let “the ends justify the means” by calling their involuntarily assessed monetary exactions something they are not!

So with this introduction in mind, we ask what are the “operating incidences”5 of the District’s various monetary exactions9? What is their “operative effect?”6 And what are their realities6?

As elsewhere discussed, Emerson College v. City of Boston10 instructs that the “fees imposed by a governmental entity tend to fall into one of two principal categories:

1. “User fees, based on the rights of the entity as proprietor of the instrumentalities used…or

2. Regulatory fees (including licensing and inspection fees11) founded on the (municipal) police power.”12

Given GIDs are limited purpose special districts13, unlike true municipalities such as counties14, cities15 and unincorporated towns16, they have expressly17 not been granted the power to provide for the “public health, safety…welfare” and morality18 of their inhabitants. Nor to regulate, tax and license businesses19. Nor to charge “regulatory (including licensing and inspection) fees.” In other words, GIDs do not possess municipal police powers20. Thus for these reasons, when we speak of a GID’s power to charge “fees,” we’re talking exclusively about “user fees based on the rights of the entity as proprietor of the instrumentalities used.”10

So how does one “distinguish between a ‘fee’ and” some other form of monetary exaction?” Medeiros21 gives us the answer. “We analyze whether the charge:

(1) Applies to the direct beneficiary of a particular service22;

(2) Is allocated directly to defraying the costs of providing the service for which the charge is assessed23; and,

(3) Is reasonably proportionate to the benefit received.”24

(4) And where the ordinance or resolution adopting the charge does not require that the funds generated therefrom be used for the service represented by payment, “leaving open the possibility…the charge could be used for general revenue raising purposes,” it must be held to be invalid25.

Except in very specialized and limited circumstances26, there is one more pillar to add to the above test. It’s called the element of choice27 pillar. Although

“Subsequent to its opinion in Emerson College (above26), the Massachusetts Supreme Judicial Court…weakened its adherence to the…voluntary receipt of…’service’…factor…holding that ‘the element of choice is not a compelling consideration which can be used to invalidate an otherwise legitimate charge.’”28 

But since IVGID doesn’t charge a fee for the mere availability of public health and sanitation services29, all of the District’s fees are predicated upon “choice in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge.”30 Meaning that the “element of choice” pillar is fully applicable to all of the District’s fees.

Summarizing then, in order for any of the monetary exactions the District actually assesses to be a “fee:”

(1) The Label Staff/The Board Have Assigned is of No Consequence5;

(2) The Person/Property Assessed Must be The Primary Beneficiary of Some “Benefit” over and above that furnished to society as a whole31;

(3) It Cannot Exceed The Reasonable Costs The District Incurs to Furnish That “Benefit;”32

(4) In Other Words, The Exaction Must Be “Just And Reasonable;”33

(5) And, It Must Be Incurred By Choice “in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge.”30

Only if the above criteria fit the charge, will it be a fee34.

And now you know!

  1. The term “rates, tolls and charges” [see NRS 318.197(1)] represents different names for “specific services” for which “fixed price(s are) charged (see https://www.investopedia.com/terms/f/fee.asp). According to an AI search, a “rate is a fixed fee or cost per unit of service (often used for utilities like water or electricity). A toll is a fee paid for the use of a specific road, bridge, or tunnel, typically collected at designated points. A charge is a fee imposed for a service or product, which can vary based on usage or specific conditions.” The common denominator here being all are fees!
  2. See Dickson, Sheriff v. Jeff. Co. Bd. of Education, 311 Ky. 781, 786, 225 S.W.2d 672 (1949).
  3. Such as its Recreation (“RFF”) and Beach (“BFF”) Facility Fees, defensible space fees, and solid waste “franchise fees.”
  4. Such as the District’s 10% solid waste franchise fee (see ¶12 of the Franchise Agreement which provides for Solid Waste and Recyclables Collection Services) is involuntarily and mandatorily passed through as an “allowable expense” to “all owners, occupants, or persons in possession, charge, or control of all places and premises in the District where garbage and other rubbish is created, accumulated, or produced” (see ¶3.1 of the District’s Solid Waste Ordinance No. 1). Or the District’s defensible space fee which is included in all monthly water service billings (see the current schedule of charges) given ¶14.01 of the District’s Water Ordinance No. 4 instructs that “no person shall construct, extend, or connect to any Public Water System without first obtaining a written permit from District and paying all fees and connection charges” associated therewith. And pursuant to ¶9.06, “all charges, fees and amounts due and payable shall be billed to the owner of the premises, whether or not the owner is also the occupant.” Or the RFF/BFF given that pursuant to Policy No. 16.1.1, the District involuntarily “charge(s) the prescribed Recreation Fee and the Beach Fee to all qualifying real properties within the boundaries of the District.”
  5. 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).
  6. See Hukle v. City of Huntington, 134 W.Va. 249, 58 S.E.2d 780, 783 (1950); Clean Water Coalition,supra, at 127 Nev. 315.
  7. The District’s RFF/BFF for instance.
  8. See Rider v. County of San Diego, 1 Cal.4th 1, 15, 820 P.2d 10 (1991).
  9. In other words, NRS 318.197(1) “rates, tolls or charges?”
  10. See 391 Mass. 415, 424-425, 462 N.E.2d 1098, 1105 (1984).
  11. “Proprietary fees do not implicate the taxation power (as long as they are)…commensurate with governmental expenditures occasioned by the regulated party” [see Emerson College, supra, at 391 Mass. 425 (fn. 16)].
  12. Those incredibly broad regulatory powers related generally to “[p]ublic safety…health, morality, peace and quiet, (and) law and order” [see Berman v. Parker, 348 U.S. 26, 32, 75 S.Ct. 98 (1954)]. These powers flow from the Tenth Amendment  to the U.S. Constitution which states that “powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
  13. See our What Are GIDs discussion.
  14. See NRS 244.143(2)(a).
  15. See NRS 268.003(2)(a).
  16. See NRS 269.128, and 269.185, et seq.
  17. A requirement under NRS 244.137(2) and 268.001(2).
  18. See NRS 244.150, et seq., 268.409, et sq and 269.190, et seq.
  19. See NRS 244.335, et seq., 268.0035(1) and 269.170, et seq. as long as those businesses are not “subject to substantial regulation by a federal or state agency” [see NRS 268.0035(4)(b)].
  20. Art. VIII, §8 of the Nevada Constitution instructs that “the Legislature shall provide for the organization of cities and towns by general laws, and shall restrict their power of taxation, assessment, borrowing money, contracting debts and loaning their credit, except for procuring supplies of water.”
  21. Supra, at 973 P.2d 741-42.
  22. See Medeiros, supra, at 973 P.2d 743.
  23. See Rizzo v. City of Philadelphia, 668 A.2d 236, 238 (Pa. Commw. Ct. 1995).
  24. See Clean Water Coalition, supra, at 255 P.3d 256; City of Madera v. Black, 181 Cal. 306, 313, 184 P. 397 (1919).
  25. See Executive Aircraft Consulting, Inc. v. City of Newton, 252 Kan. 421, 426, 845 P.2d 57 (1993) citing National Cable Television Ass’n, Inc. v. F.C.C., 554 F.2d 1094, 1106 (D.C. Cir. 1976)].
  26. In our Special And Limited Circumstances Under Which The “Paid by Choice” Factor Applicable to All Fees Based on “The Right of a Governmental Entity as Proprietor of The Instrumentalities Used” Can Be Disregarded discussion we demonstrate that this pillar actually continues as a fee identifying factor except when it comes to limited circumstances, such as fees for municipal public health and sanitation services [examples include standby service charges for the availability of municipal water {see Jones v. Water Commission of Detroit, 34 Mich 273, 275 (1876)} and sewer {see Ripperger v. Grand Rapids, 338 Mich. 682, 62 N.W.2d 585 (1954)} service(s). Because of these limited circumstances, the first three pillars identified above are referred to as “the modified Emerson College test” (see Medeiros, supra, at 973 P.2d 742)].
  27. See U.S. v. City of Huntington, W.Va., 999 F.2d 71, 74 (4th Cir. 1993).
  28. See Nuclear Metals, Inc. v. Radioactive Waste Management Bd., 421 Mass. 196, 656 N.E.2d 563, 570 (1995).
  29. Yes it charges water and sewer fees for services affecting public health and sanitation. However, these fees are not for the availability of those services but rather, for services actually furnished. And only after the customer has rendered his/her/its “consent” to become a District public utility customer.
  30. See Medeiros, supra, at 973 P.2d 741 citing Vanceburg v. Federal Energy Regulatory Comm’n, 571 F.2d 630, 644 n. 48 (D.C. Cir. 1977), cert. denied, at 439 U.S. 818, 99 S.Ct. 79 (1978).
  31. Called a “unique benefit.” Because where the person/property assessed realizes no benefit because its principal purpose is to benefit society, or alternatively, he/she/it “if anything, (is) only (an) incidental beneficiar(y of the benefit furnished)…the ordinance fails the first prong of the modified Emerson College test [see Medeiros, supra, at 973 P.2d 745].
  32. This requirement represents the “reasonably proportionate to the benefit received” pillar of the modified Emerson College test (because as stated in Medeiros, supra, at 973 P.2d 742, the fee must be “reasonably proportionate to the benefit received”). In other words, “(t)he crucial factor in determining whether a municipal charge for services constitutes a…fee is whether the charge is intended to cover the cost of…providing a service.”23 Where “the ‘fee’ unreasonably exceeds the value of the specific services for which it is charged(,) it will be held (to be) invalid”22 as a tax2.
  33. Given the District is a public utility [see NRS 704.020(2)(a); Springfield Gas & Electric Co. v. City of Springfield, 292 Ill. 236, 126 N.E. 739, 744, (1920), affirmed at 257 U.S. 66 and cited with approval at A.G.O. 53-231 (February 9, 1953)], both common law [see Austin View Civic Association v. City of Palos Heights, 85 Ill.App.3d 89, 94-95, 405 N.E.2d 1256, 1262 (1980); 64 Am.Jur.2d §297, p.496] as well as public policy [see NRS 704.040(2)] dictate its rates must be “just and reasonable.” That is, “simply high enough to produce revenue sufficient to bear all costs of maintenance…operation…interest charges on bonds and…accumulation of a surplus…sufficient to (service) all outstanding bonds” (see Springfield Gas, Id.). Since the Public Utility Commission (“NPUC”) need not grant deference to a private utility’s unjust and unreasonable rates [see NRS 704.040(1)], why should we? And for this same reasoning, the rates a GID charges must be held to this same “just and reasonable” standard.
  34. See Clean Water Coalition, supra, at 127 Nev. 315.