Although you may think you know what a fee is, the truth of the matter is that courts have oftentimes been asked to define the characteristics of a “fee,” and how they differ from other kinds of monetary exactions (like taxes). After all, just because staff and past Boards have called the Recreation (“RFF”) and Beach (“BFF”) Facility Fees “fees,” doesn’t necessarily make them so. And that’s because “the nature of (a)…charge that (the) law imposes is not determined by the label given…but (rather)…its operating incidence.”¹ For this reason “courts will determine and classify (monetary exactions) on the basis of realities”² rather than (their) label(s)…looking to their “’operative effect.’”³ Especially when as here the RFF/BFF were undoubtedly drafted with a statute’s [here NRS 318.197(1)‘s] “rates, tolls and charges” language “firmly in mind.”⁴ In other words, courts will not allow local governments to do what our District regularly does; that is, let “the ends justify the means.” Okay. With that said, let’s return to the question. What is a “fee?”

“Fees Imposed by a Governmental Entity Tend to Fall Into One of Two Principle Categories: User fees based on the rights of the entity as a proprietor of the instrumentalities used⁵. Or, regulatory fees (including licensing and inspection fees) founded (up)on the (municipal) police power⁶ to regulate particular businesses⁷ or activities.”⁸ Insofar as regulatory fees are concerned, there’s really not much to talk about insofar as general improvement districts (“GIDs”) are concerned because by definition they possess no municipal police powers⁹.

Therefore insofar as user fees are concerned, as the legal authorities instruct we examine their “operating incidences,”¹ “realities”² and “operative effect.”³

“Fees Share (The Following) Common Traits (Which) Distinguish Them From“ Other Kinds of Exactions: Fees are:

1. Charged “in exchange for a particular governmental service”¹⁰ which benefits the party paying the fee¹¹ in a manner “not shared by other members of society;”¹²

2. “Reasonable…in relation to the…cost (of the) goods or services for which they are imposed.”¹³ In other words, “(t)he crucial factor in determining whether a municipal charge for services constitutes a valid…fee is whether the charge is intended to cover the (reasonable) cost of…providing a service;”¹⁴

3. Paid by choice inasmuch as they are “incident to a voluntary act.”¹⁵ Meaning that the party paying the fee has the option¹⁶ of not utilizing the governmental service and thereby avoiding the charge¹⁷; and,

4. Collected not to raise revenues¹⁸ but rather, “as a means of compensating…government for the cost of offering and regulating the special service, benefit, or privilege” furnished¹⁹. Meaning that “any payment exacted by the state or its municipal subdivisions as a contribution toward the cost of maintaining governmental functions, where the special benefits derived from their performance (are) merged (with) the general benefit, is” not a fee²⁰.

Conclusion: The Hawaii Supreme Court in Medeiros adopted a modified version²¹ of the test articulated by the Massachusetts Supreme Judicial Court in Emerson College in distinguishing fees from taxes:

“One 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 (a) service, and (3) is reasonably proportionate to the benefit received.”²² Only “if those criteria fit the charge…is…it…a fee.”²³ Otherwise, it is a tax²⁴.

And 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) which recognizes the same type of biased language.
5. Such as the price of a daily lift ticket at Diamond Peak or a round of golf at the District’s Championship Course.
6. The municipal “police power” represents the power of a general government to provide general governmental services (see https://www.census.gov/newsroom/cspan/govts/20120301_cspan_govts_def_3.pdf). In other words, those advancing the health, safety and general welfare of its inhabitants.
7. Such as “a request that a public agency permit an applicant to practice law or medicine, or construct a house, or run a broadcast station” [see National Cable Television Assn. v. U.S., 415 U.S. 336, 340, 94 S.Ct. 1146 (1974)].
8. See Medeiros, supra, at 973 P.2d 736.
9. If the reader wants to learn the differences between the powers full fledged municipalities may exercise, compared to the limited powers GIDs may exercise, please refer to our What Powers May GIDs Exercise discussion.
10. In governmental finance, this is known as the distinction between “exchange” and “non-exchange” transactions. “In an exchange transaction, two parties give up and receive something [this can include the exchange of goods, services, or assets]…of similar value…Non-exchange transactions include fines, penalties, gifts, donations,” grants, and taxes or “other assessments on earnings or consumption” (see GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions).
11. See National Cable Television, supra, at 415 U.S. 341.
12. In other words “to the direct beneficiary of a particular service” (see Medeiros, supra, at 973 P.2d 742; Clean Water Coalition, supra, at 127 Nev. 315). Because if the benefits are as available to those who are not assessed, as those who are, there is no “special” benefit. And “the addition of ‘public policy or interest served, and other pertinent facts,’ if read literally, carr(y) an agency far from its customary orbit and puts it in search of revenue.”¹¹
13. See Resolution Trust Corp. v. Lanzaro, 140 N.J. 244, 658 A.2d 282, 288 (1995).
14. See Rizzo v. City of Philadelphia, 668 A.2d 236, 238 (Pa. Commw. Ct. 1995). And where “the ‘fee’ unreasonably exceeds the value of the specific services for which it is charged it will be held (to be) invalid” [see Executive Aircraft Consulting, supra, at 252 Kan. 426 [quoting National Cable Television Ass’n, Inc. v. F.C.C., 554 F.2d 1094, 1106 (D.C. Cir. 1976)].
15. See National Cable Television, supra, at 415 U.S. 340.
16. See Vanceburg v. Federal Energy Regulatory Comm’n, 571 F.2d 630, 644 n.48 (D.C. Cir. 1977), cert. denied, 439 U.S. 818, 99 S.Ct. 79 (1978).
17. Although the modified version [see Nuclear Metal v. Low Level Radioactive Waste Mgmt. Bd., 421 Mass. 196, 656 N.E.2d 563, 570 (1995); Clean Water Coalition, supra, at 255 P.3d 285] of the Emerson College test (see Medeiros, supra, at 973 P.2d 742) has “weakened…adherence to th(is)” voluntariness pillar [“subsequent to its opinion in Emerson College the Massachusetts Supreme Judicial Court…weakened its adherence to th(is)…identifying factor…holding that (in very specific and limited circumstances such as where special benefit services affecting public health and sanitation are physically connected, adjacent or capable of actual connection to those real properties which are involuntarily assessed) ‘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. 366-67), but for one possible type of charge [the availability to connect to municipal sewer services as discussed in Ripperger v. City of Grand Rapids, 338 Mich. 682, 62 N.W.2d 585 (1954)] in determining whether an exaction is a fee. But that case started out with the premise “no one can be compelled to take water (as well as sewage disposal services 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 exactly can it be argued there is no enforced contribution identifying factor when it comes to determining the legitimacy of a fee? For these reasons we believe the authorities relied upon by the Medeiros court do not support the proposition the voluntariness pillar no longer applies, especially when as here it comes to facilities or services having nothing to do with water or sewer disposal services. And since the District’s charges for the availability of public recreation facilities are not legitimate standby service charges (see our RFF/BFF Are Not Legitimate Standby Service Charges web page for a more complete discussion of this topic), and those properties which are assessed are neither physically connected, adjacent nor capable of actual connection to the District’s public recreation facilities, the required “voluntary receipt of the service” pillar requirement (see National Cable Television, supra, at 415 U.S. 340; Emerson College, supra, at 39 Mass. 426) remains.
18. “A fee…is not a revenue measure (see Executive Aircraft Consulting, supra, at 252 Kan. 427).
19. See Emerson College, supra, at 39 Mass. 424.
20. Rather, it is a tax [see Dickson, Sheriff v. Jeff. Co. Bd. of Education, 311 Ky. 781, 786, 225 S.W.2d 672 (1949)].
21. The “modification” omits the enforced contribution identifying factor¹⁹.
22. See Medeiros, supra, at 973 P.2d 742.
23. See Medeiros, supra, at 973 P.2d 742-45.
24. 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 v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); 71 Am. Jur. 2d  §13, State and Local Taxation (2001).