I have a newspaper front page from 2008 hanging on my wall: “Court throws out $300M taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plan.” That case involved Virginia setting up an autonomous unelected body and delegating the power to impose seven new taxes to it. The Virginia Supreme Court struck down that scheme, holding that while local entities can collect fees, only the Legislature can choose to impose taxes.
The next case was decided this week, elaborating further on when fees become taxes. The case involves the use of toll revenue from the Dulles Toll Road (connecting D.C.’s Capital Beltway with Dulles International Airport) to build a Metrorail extension in the Road’s median. As I explained in my book on distinguishing taxes from fees, a tax is imposed for the primary purpose of raising general revenue while a fee is imposed for the primary purpose of paying for a service provided particularly to payor.
Are the use of tolls in a corridor for a transit project in that same corridor a tax or a fee? The federal Fourth Circuit Court of Appeals ruled that it’s a fee, for three reasons:
- It is a fee because toll payors will receive a particularized benefit from the Metrorail construction in the toll road corridor, both from added transportation options and mitigated traffic congestion. The law requires a reasonable correlation, not direct and exclusive correspondence, between the payors and the use of the money. The court is right: maybe I think the government wastes some of the money I have to pay to get a license or a permit, but it’s still a fee so long as they use it to provide me with the license or permit.
- Payment of the toll is voluntary. As I explained in my book, this is a bad basis for a decision as all choices are to some extent voluntary. Choosing whether to earn income is a voluntary decision at some level, but the income tax is still a tax. While driving on the Dulles Toll Road is voluntary, those who drive on it must pay the toll. The court shouldn’t have used this argument.
- The surplus toll revenue is used in the corridor and not diverted to non-corridor or non-transportation uses. Virginia and the toll road operator argue that they think in terms of corridor transportation, not a road and rail system, so treating the revenue holistically makes sense. The court is correct: so long as the money isn’t being used for general transportation projects unrelated to the corridor, or for non-transportation projects, it’s still a fee.
The case is Corr v. Metropolitan Washington Airports Authority, No. 13-1076 (4th Cir. Jan. 21, 2014), and was a relatively easy case. The harder one will be where surplus toll or fee revenue is used for non-corridor or non-transportation projects, where it’s part-fee and part-tax. In North Carolina, we argued that the use of surplus lottery revenue for education purposes converted that surplus from a fee to a tax, and we stumped the state Supreme Court into a 3-3 tie.
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