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What Exactly is a Fee?

IVGID 101 Posted on by

Courts have oftentimes been asked to define the characteristics of a “tax,” and how they differ from other kinds of monetary exactions such as “fees.” The distinction is one that is not always observed with nicety in judicial decisions1. Notwithstanding, and as elsewhere explained, just because staff and past Boards have labeled many of the District’s monetary exactions2 “fees,” especially those which are involuntarily assessed, 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.”3

Therefore whenever the question is raised,

“Courts will determine and classify (monetary exactions) on the basis of realities”4 rather than labels, looking to their ‘operative effect.’”5 Especially when as here, the labels given]efn_note]The District’s RFF/BFF for instance.[/efn_note] were “undoubtedly drafted with [NRS 318.197(1)’s] permissive “standby service charges…for the availability of service” language firmly (and disingenuously) in mind.”6

In other words, courts will not allow local governments to do what our District regularly does. That is, let “the ends justify the means” by calling their monetary exactions something they are not!

So with this introduction in mind, we ask what are the “operating incidences”3 of the District’s various monetary exactions? What is their “operative effect?”5 What are their realities4?

As elsewhere discussed, Emerson College v. City of Boston5 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 fees6) founded on the (municipal) police power7.”

Given GIDs are limited purpose special districts8, unlike true municipalities such as counties9, cities10 and unincorporated towns11, they have expressly12 not been granted the power to provide for the “public health, safety…welfare” and morality13 of their inhabitants. Nor to regulate, tax and license businesses14.

Because GIDs possess no municipal police powers15, they have no power to charge “regulatory fees (including licensing and inspection fees).” Therefore, 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.”

State of Hawaii v. Medeiros16 instructs that in order “to distinguish between a ‘fee’ and” some other form of monetary exaction,

“We analyze whether the charge:

(1) Applies to the direct beneficiary of a particular service17;

(2) Is allocated directly to defraying the costs of providing the service18; and,

(3) Is reasonably proportionate to the benefit received.”19

There is a fourth (4th) pillar to the above “modified Emerson College test.”20

“Subsequent to its opinion in Emerson College, the Massachusetts Supreme Judicial Court…weakened its adherence to the second identifying factor described in Emerson College—voluntary receipt of the ‘service’—holding that ‘the element of choice is not a compelling consideration which can be used to invalidate an otherwise legitimate charge.’”21 However, 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 have demonstrated this pillar continues as an identifying factor except when it comes to fees for municipal public health and sanitation services22.

Since here IVGID charges no fees for such services23, 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.”24 Meaning this fourth (4th) pillar is applicable to all of the District’s fees.

Notwithstanding all of the above, a legitimate fee can be transformed into an impermissible special tax25 given “the Legislature’s law-making authority is…not unlimited (and)…courts are obligated to enforce the limitations that the Constitution imposes upon legislative acts.”26 For instance:

The Manner Within Which The Fee is Expended: where it is unrestricted and used for purposes other than those represented27.

The Manner Within Which The Fee is Adopted: where funds are collected in violation of the Constitution28.

The Deprivation of Due Process: Given 1 of the Fourteenth Amendment to the United States Constitution and Art. I, ¶8(2) of the Nevada Constitution guarantee that neither the State nor any local government in Nevada shall deprive any “person…of life, liberty, or property29 without due process of law,” where fees are involuntarily collected without providing due process30, this is another example27 they have been transformed into impermissible special taxes31.

So there you have it. Only if the above criteria fit the charge, is it a fee32. Otherwise, it “is a tax and not a fee,”33 “and therefore, invalid.”34

  1. See Dickson, Sheriff v. Jeff. Co. Bd. of Education, 311 Ky. 781, 786, 225 S.W.2d 672 (1949).
  2. Such as its Recreation (“RFF”) and Beach (“BFF”) Facility Fees, defensible space fees, solid waste “franchise fees,” etc.
  3. 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).
  4. 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.
  5. See 391 Mass. 415, 424-425, 462 N.E.2d 1098, 1105 (1984).
  6. “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)].
  7. 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.”
  8. See our What Are GIDs discussion.
  9. See NRS 244.143(2)(a).
  10. See NRS 268.003(2)(a).
  11. See NRS 269.128, and 269.185, et seq.
  12. A requirement under NRS 244.137(2) and 268.001(2).
  13. See NRS 244.150, et seq., 268.409, et sq and 269.190, et seq.
  14. 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)].
  15. 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.”
  16. See 89 Haw. 361, 973 P.2d 736, 741-42 (1999).
  17. See Medeiros, supra, at 973 P.2d 743.
  18. See Rizzo v. City of Philadelphia, 668 A.2d 236, 238 (Pa. Commw. Ct. 1995).
  19. See Clean Water Coalition, supra, at 255 P.3d 256; City of Madera v. Black, 181 Cal. 306, 313, 184 P. 397 (1919). Where the ordinance or resolution adopting the fee does not require that the funds generated from the fee be used for the service represented by payment, “leaving open the possibility that the charge could be used for general revenue raising purposes,” it must be held to be invalid [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)].
  20. See Medeiros, supra, at 973 P.2d 742.
  21. See Nuclear Metals, Inc. v. Radioactive Waste Management Bd., 421 Mass. 196, 656 N.E.2d 563, 570 (1995).
  22. 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)] services.
  23. Yes it charges water and sewer fees for services affecting public health and sanitation. However, those fees are not for the availability of those services but rather, for actual services furnished. Only after the customer has rendered his/her/its “consent” to become the District’s public utility customer.
  24. 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).
  25. See Clean Water Coalition, supra, at 127 Nev. 316-18.
  26. See Clean Water Coalition, supra, at 127 Nev. 309.
  27. See Clean Water Coalition, supra, at 127 Nev. 318 [“while the fees were collected as user fees, when the(y were)…transferred to the State’s general fund for unrestricted general use, they were transformed into a local and special tax”]. For a more comprehensive discussion of this subject, the reader is referred to our Are The District’s RFF/BFF Really Fees discussion which asks whether the monetary exaction bears direct relationship to the purposes for which it was assessed.
  28. See Clean Water Coalition, supra, at 127 Nev. 320 [fees the product of “circumstances…of statewide concern…cannot be addressed through legislation that does not comport with Art. IV, §21 (of the Constitution)’s local and special law proscription”]. For a more comprehensive discussion of this subject, the reader is referred to our Are The District’s RFF/BFF Taxes Because They’re The Product of a Local or Special Law discussion.
  29. In Sniadach v. Family Finance Corp., 395 U.S. 337, 339-42, 89 S.Ct. 1820 (1969) the U.S. Supreme Court ruled that money (i.e., wages) is property for purposes of the Fourteenth Amendment. There the Court ruled that “Wisconsin(‘s) garnishment procedure violated that due process…in that notice and an opportunity to be heard (we)re not given before the in rem seizure of…wages.”
  30. “Following fair legal procedures…includ(ing the) giving (of) notice, a chance to respond, and a neutral decision-maker (usually a judge)” (go to https://act.represent.us/sign/due-process-explained/?source=go-ad-gen-20241212&utm_source=go&utm_medium=ad&utm_campaign=gen&utm_content=20241212&utm_term=&gad_source=1&gad_campaignid=22025691781&gbraid=0AAAAADhg-cCp6SxpQL4gtfdMZfHF69MoC&gclid=CjwKCAjwhqfPBhBWEiwAZo196pGIKrbcUT0mAEqRHWsZGTApnSDraTomttY7rfKbK0Vz8hsFmNjHghoCMeoQAvD_BwE).
  31. For a more comprehensive discussion of this subject, the reader is referred to our Are The District’s RFF/BFF Valid Because Those Whose Properties Are Assessed Are Deprived of Due Process discussion.
  32. See Clean Water Coalition, supra, at 127 Nev. 315.
  33. Medeiros, supra, at 973 P.2d 745.
  34. Medeiros, supra, at 973 P.2d 742.

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