Transportation user fee assessed to landowners found to be a prohibited excise tax

by Andrea Vaage

Heartland Apartment Association v. City of Mission, Kansas
Kansas Court of Appeals, July 2, 2015

In 2010, the City of Mission, Kansas enacted a transportation user fee on all improved real estate. The fee was to be used for street maintenance and repair. The fee was imposed on owners of developed property and calculated based on an estimate of vehicle trips generated by the size and use of a building. Only real property exempt from property or ad valorem taxes, such as churches, were exempt from paying the fee. If the fee was not paid, additional fees and interest would be assessed and a lien could be placed on the property.

Heartland Apartment Association, Inc. and others filed a lawsuit challenging the legality of the fee. The district court ruled in favor of the City on all counts, declaring the fee was a tax that was legally adopted by ordinance under the City’s power of home rule. Heartland appealed, contending the fee was an illegal excise tax.  The issue at hand was whether Mission’s fee is really a tax, and, if it is a tax, if it is one that can be legally levied by a municipality under Kansas law.

The Kansas Court of Appeals first noted that the distinction between a fee and a tax is not determined by the label given it, but rather the nature and function of the charge.

[A] tax is a forced contribution to raise revenue for the maintenance of governmental services offered to the general public. In contrast, a fee is paid in exchange for a special service, benefit, or privilege not automatically conferred upon the general public. A fee is not a revenue measure, but a means of compensating the government for the cost of offering and regulating the special service, benefit, or privilege. Payment of a fee is voluntary—an individual can avoid the charge by choosing not to take advantage of the service, benefit, or privilege offered.

Using this principle, the Court determined the City’s “fee” to be, in reality, a tax.  Every landowner must pay the fee when they pay property taxes; no landowner can opt out of the fee unless they are exempt entities from property taxes. Failure to pay the fee may result in a lien, potentially leading to a sheriff’s sale of the property. Thus this fee is a “forced contribution.”

Furthermore, the landowners required to pay the fee do not receive special benefits or services. Transportation infrastructure is a common good provided to all members of the general public, such as police and fire protection, and is enjoyed by landowner and non-landowner alike.

Having determined that the fee was a tax, the Court then examined whether it was a tax that the City had the authority to levy.  The Home Rule Amendment of the Kansas Constitution grants cities the power to determine their local affairs and government.  Under the Home Rule Amendment cities are allowed to exempt themselves from a state statute by adopting either an ordinary or charter ordinance; however, there are limits to this opting-out process.   Cities are prohibited from opting out of (1) enactments of statewide concern which are uniformly applicable to all cities; (2) other legislative enactments uniformly applicable to all cities; (3) enactments uniformly applicable to all cities of the same class that limit or prohibit “the levying of any tax, excise, fee, charge or other exaction”; and (4) legislative enactments prescribing limits of indebtedness.

Under Kansas law, K.S.A. 12-194, cities cannot levy or impose an excise tax or a tax in the nature of an excise tax. This law applies uniformly to all cities, but no definition is given for “excise tax” or “in the nature of an excise tax.” After reviewing the legislative intent of K.S.A. 12-194 the Court concluded that “the legislature has enlarged what taxes are prohibited to such an extent that this tax can be no other tax than an excise tax and is thus prohibited by law.”  The Court based their decision on a change of the statute in 2006 that removed language limiting the prohibited taxes to those imposed on transactions.  The result was that the term “excise tax” has come to mean “practically any tax which is not an ad valorem tax.”  The Court found the transportation user “fee” enacted by the City of Mission was an excise tax, and as such was prohibited by law.

The case was reversed and remanded.

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