by Victoria Heldt
Drees Company et al., v. Hamilton Township et al.
(Supreme Court of Ohio, May 31, 2012)
In the last twenty years, Hamilton Township in Ohio has experienced significant growth in its population and development. In response to the growth, the Township adopted a resolution that required potential developers to pay impact fees in order to apply for and acquire a zoning certificate to develop in an unincorporated area. The stated purpose of the impact fee was “to benefit the property by providing the Township with adequate funds to provide the same level of service to that property that the Township currently affords previously developed properties.”
The fee included four categories: a road-impact fee, a fire-protection impact fee, a police-protection-impact fee, and a park-impact fee. The amount assessed to each property was determined by its use. Properties to be used for single-family dwellings were assessed a total of $6,153 while those being developed for retail/commercial purposes were assessed a $7,962. The money received was placed into separate accounts (one for each category) not put into the general fund. The funds in each account may be used only for the purpose of each account.
Drees Company, among others, alleged that the impact fees are contrary to Ohio law and are unconstitutional. Hamilton Township is a limited-home-rule township that may “exercise all powers of local self-government within the unincorporated area of the township…and shall enact no other taxes other than those authorized by general law.” Drees Company argued that the impact fee is really a tax and, therefore, the Township was not authorized to enact the resolution. The trial court ruled in favor of the Township. It stated that Hamilton Township “may make and fund improvements to benefit new development by use of its system of impact fees, because the resolution is not in conflict with any other Ohio statute, and because it is sufficiently narrowly tailored to provide services to the class of fee payers in exchange for the fees.” The Court of Appeals affirmed, noting that the impact fee did not constitute a prohibited form of taxation. Drees further appealed the case.
In this case, the Supreme Court of Ohio had to distinguish a fee from a tax. It looked to precedent in its analysis to note how the two have been historically contrasted. In State ex rel. Petroleum Underground Storage Tank Release comp. Bd. V. Withrow, the Court looked to “the substance of the assessments and not merely their form.” It had to determine whether assessments imposed on owners and operators of underground storage tanks (“USTs”) were taxes. The stated purpose of the fees was “to reimburse owners and operators of USTs for the costs of corrective actions in the event of a release of petroleum into the environment and to compensate third parties for bodily injury and/or property damage resulting from such occurrences.”
In Withrow, the Court determined the assessments to be fees for four reasons: (1) the fees were imposed to further regulatory measures to address environmental problems caused by leaking USTs; (2) the funds were never placed in general funds and were to be used strictly for problems related to USTs; (3) the fee was in exchange for protection from UST leaks; and (4) if the fund exceeded a certain amount, no assessment would be charged that year. The Court noted that, when applying the factors from Withrow to this case, the impact fees seem to constitute taxes. The fees lack any sort of regulatory function, can be spent on typical township expenses, are not in exchange for any particular service, and are not responsive to need.
The Court next looked to Am. Landfill, Inc. v. Stark/Tuscarawas/Wayne Joint Solid Waste Mgt. Dist., where the Sixth Circuit Court of Appeals was faced with a similar situation. It had to determine wither assessments imposed by Ohio solid-waste-management districts on people disposing of waste were fees or taxes. The fees were to be used for various things pertaining to the county’s waste management plan. The court employed a three-factor analysis that considered (1) the entity that imposes the assessment; (2) the parties upon whom the assessment is imposed; and (3) whether the assessment is expended for general public purposes, or sued for the regulation or benefit of the parties upon whom the assessment is imposed.
The Court noted that an assessment imposed by a legislature is more likely to be a tax than one imposed by an administrative agency. Furthermore, an assessment imposed upon a broad class of parties is more likely to be a tax than one imposed on a narrow class. The third factor, the use of the assessment, is the predominant factor. Applying the Am. Landfill test to this case points to the fact that the impact assessments constitute taxes. They were imposed by a legislative body, not an administrative one. They were also imposed on a fairly large group of people. Furthermore, the funds were to be used for public benefit, not solely for the benefit of those property owners.
The Court noted that an essential question was whether the assessments were for public or private benefit. It noted that the goal of the assessment was “for the township to have the necessary funds to allow all properties in the township to maintain their same level of service despite recent, rapid growth.” The resolution itself stated it was for “the protection of the health, safety, and general welfare of the citizens and property owners of the Township.” Consequently, the Court concluded that the assessments constituted a tax and were therefore not authorized. It reversed the decision and remanded it to trial court.