Tax/Fee Confusion and Scare Tactics in Virginia

March 7, 2008

In hopes of scaring the unconstitutional Northern Virginia Transportation Authority taxes back into existence, interested government officials are warning that the Virginia Supreme Court’s ruling could threaten fees which sustain park and sewer services, reported by the Examiner :

“The decision casts a giant shadow on those types of entities,” Arlington County Attorney Steve MacIsaac said.[…]

“I think the Supreme Court ruling could be interpreted in a fairly sweeping way that could be injurious to services for citizens throughout the commonwealth,” Fairfax County Chairman Gerry Connolly said. “There is a fear that this ruling was not drawn as narrowly as it could, or perhaps, should have been.”[…]

“Could you read this and say it doesn’t apply to park authorities or others setting fees? No, you couldn’t say that,” [Wake Forest University Professor John Dinan] said.

I disagree; I think you could say that. The argument they raise isn’t new; it was argued by the parties and considered by the court. The NVTA attempted to persuade the court that it resembled long-existing sewer and park districts which impose fees for services, rather than the taxing body it truly was.

The difference between taxes and fees perplexes a lot of people. Fortunately, in its NVTA decision, Virginia’s highest court adopted a clear, precise, accurate definition:

[W]hen the primary purpose of an enactment is to raise revenue, the enactment will be considered a tax, regardless of the name attached to the act….

The converse of that is that when the primary purpose of an enactment is to offset the cost of providing a service, it is a fee. The NVTA case addressed constitutional restrictions on taxes, not fees, which is why sewer and park districts can raise money constitutionally. But the NVTA’s revenue for improving roads and transit lines didn’t come from fares or tolls, it came from taxes on tangentially related services.

Take the NVTA tax on auto repair services. If the NVTA ran auto repair service shops, then a charge on users that went to fund that service would be a fee and would be constitutional. The answer is the same for sewer and park authorities. But the NVTA didn’t run the auto repair service shops-it just imposed a charge and used the money for an array of transit and road improvements. That’s a tax. Or as yours truly put it in the article:

“As long as the revenue is going solely to the services that are underneath them, it’s constitutional,” Henchman said.

We’ve discussed taxes and fees at length in the Heatherly case in North Carolina, which reviewed the leading case on tax-fee distinctions, San Juan Cellular.

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