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Court in 1993 Drew Distinction between Municipal Fee and Tax
1. The United States appeals an order declaring that federal agencies that own property in the City of Huntington, West Virginia ("City") are liable for the payment of a municipal service fee imposed by the City. We hold that the service fee is a tax from which the United States is immune, and, accordingly, we reverse.2. West Virginia Code § 8-13-13 authorizes any city that "furnishes any essential or special municipal service, including, but not limited to, police and fire protection ... to impose upon the users of such service reasonable rates, fees and charges...." In 1985, the City enacted an ordinance that imposed a "fire service fee" against owners of residential and commercial buildings. A flood protection fee was added in 1987, and, in 1990, these two fees were combined into a single "municipal service fee." Infrastructure improvements were added in 1991 as another purpose for which the fees could be used. From its inception in 1985, the fee has been assessed on the basis of square footage of the buildings in the City.1 Civil penalties are available for delinquent accounts. 3
The City assessed the fee against federal agencies owning property in Huntington, including the General Services Administration ("GSA") and the United States Postal Service ("USPS").2 These two agencies refused to pay the fee, and the City assessed penalties and instituted collection proceedings in state court. The United States then filed a complaint in federal court asking that the City be enjoined from assessing or trying to collect the tax against the GSA and USPS.3 The federal agencies also requested that the court declare that they were immune from the fees.4
On cross-motions for summary judgment, the district court ruled that GSA and USPS must pay the fees, but that they were not liable for penalties or interest, 793 F.Supp. 1370. The United States appeals; the City does not cross-appeal the injunction against the collection of penalties and interest.
The general principle that states cannot tax the United States derives from Chief Justice Marshall's opinion in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819). Although the immunity of the federal government and its instrumentalities has been the source of often conflicting decisions, "[t]he one constant ... is simple enough to express: a State may not, consistent with the Supremacy Clause, U.S. Const., Art. VI, cl. 2, lay a tax 'directly upon the United States'.... [T]he Court has never questioned the propriety of absolute immunity from state taxation." United States v. New Mexico, 455 U.S. 720, 733, 102 S.Ct. 1373, 1382, 71 L.Ed.2d 580 (1982) (quoting Mayo v. United States, 319 U.S. 441, 447, 63 S.Ct. 1137, 1140, 87 L.Ed. 1504 (1943)). If the service fee is a tax, then immunity is clear.6
Although the Supreme Court has never established a specific standard for determining when a particular assessment is a tax, the Court has consistently adhered to the general rule that what must be considered is "the real nature of the tax and its effect upon the federal right asserted." United States v. Allegheny County, 322 U.S. 174, 184, 64 S.Ct. 908, 914, 88 L.Ed. 1209 (1944) (quoting Carpenter v. Shaw, 280 U.S. 363, 367-68, 50 S.Ct. 121, 123, 74 L.Ed. 478 (1930)). The proper analysis to arrive at the real nature of the assessment is to examine "all the facts and circumstances ... and assess them on the basis of economic realities...." United States v. City of Columbia, Mo., 914 F.2d 151, 154 (8th Cir.1990).4 Under this analysis, we conclude that the service fee imposed by the City is a tax in the most classic sense of the term.57
The United States must pay reasonable user fees. For instance, charges for services from city-owned utilities are clearly fees for which the federal government would be liable to the same extent as any other customer. See United States v. Harford Co., Md., 572 F.Supp. 239, 241 (D.Md.1983) ("The federal government has ... recognized its obligation to pay state or county charges based on the quantum of water or sewer services rendered.") (emphasis in original). But not every assessment tied to some state-provided benefit is a user fee.8
Fire and flood protection and street maintenance are core government services. See Mullen Benev. Corp. v. United States, 290 U.S. 89, 54 S.Ct. 38, 78 L.Ed. 192 (1933) (United States immune from liability for "taxes in the nature of reassessments for sewers and sidewalks."); see also Federal Reserve Bank v. Metro Center Improvement District # 1, 657 F.2d 183 (8th Cir.1981), aff'd, 455 U.S. 995, 102 S.Ct. 1625, 71 L.Ed.2d 857 (1982) (federal immunity from taxation includes immunity from special assessment on real estate owned by federal instrumentality); United States v. Harford Co., Md., 572 F.Supp. 239 (D.Md.1983) (front-foot assessment for the financing of county water and sewer construction projects are taxes from which the federal government was immune). Under the theory advanced by the City, virtually all of what now are considered "taxes" could be transmuted into "user fees" by the simple expedient of dividing what are generally accepted as taxes into constituent parts, e.g., a "police fee."9
User fees are payments given in return for a government-provided benefit. Taxes, on the other hand, are "enforced contribution[s] for the support of government." United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931). Liability for the "user fee" charged by the City arises from GSA's and USPS's status as property owners and not from their use of a City service.6 See Michelin Tire Corp. v. Wages, 423 U.S. 276, 287, 96 S.Ct. 535, 541, 46 L.Ed.2d 495 (1976) ("[Ad valorem] property taxes are taxes by which a State apportions the cost of such services as police and fire protection among the beneficiaries according to their respective wealth ...").10
We are unable to discern any relevant difference between the square-footage method of assessment and the ad valorem method. The service fee is a thinly disguised tax, and, as such, the USPS and GSA are immune from liability for it.11
We reverse the judgment of the district court, and we remand with instructions to enter judgment for the United States.12
REVERSED AND REMANDED WITH INSTRUCTIONS.1
The square-footage method of assessment was a response to state constitutional limitations on ad valorem taxation. See Hare v. City of Wheeling, 171 W.Va. 284, 298 S.E.2d 820 (1982); City of Fairmont v. Pitrolo Pontiac-Cadillac Co., 172 W.Va. 505, 308 S.E.2d 527 (1983), cert. denied, 466 U.S. 958, 104 S.Ct. 2169, 80 L.Ed.2d 553 (1984)2
Since 1985, § 773.04(c) of the City code has provided as follows: "Governmental Buildings and Structures. The City is hereby authorized to negotiate with the County, State and Federal Governments in order to fix an agreement with them so that the City may provide fire protection service to buildings and structures owned by these governments and located within the City." The record does not disclose whether any attempt to negotiate with the agencies was ever undertaken3
There are other federal agencies in the City that own property, but the order mentions only GSA and USPS. According to the appellant's brief, these other federal agencies are not parties to this litigation. Appellant's Brief at 10, n. 144
For the purpose of determining claim priority in the context of bankruptcy, the courts have established the following elements of a tax: "(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property; (b) Imposed by, or under authority of the legislature; (c) for public purposes, including the purpose of defraying expenses of government of undertakings authorized by it; and (d) Under the police or taxing power of the state." In Re Lorber Industries, 675 F.2d 1062, 1066 (9th Cir.1982). The "user fee" at issue in the instant case clearly qualifies as a tax under this definition5
The district court reached its result by three different tests, including the one we have chosen. The first test asked whether the fee is an enforced contribution to provide for the support of government. See United States v. Maryland, 471 F.Supp. 1030, 1036 (D.Md.1979). It begs the question to conclude, as did the district court, that the service fee is not a tax because it is intended to recoup funds expended for fire and flood protection
The third test derives from cases dealing with federal taxation of state governments. See United States v. Maine, 524 F.Supp. 1056 (D.Me.1981) (applying a 3-part test: (1) is the charge imposed in a nondiscriminatory manner; (2) is the charge a fair approximation of the benefits received; and (3) is the charge structured to produce revenues that will not exceed the total costs to the government of the benefits to be supplied). Inasmuch as "[t]he states' immunity from federal taxation is more limited than the federal government's immunity from state taxation, and is based on a different constitutional source," (United States v. City of Columbia, Mo., 914 F.2d 151, 153-54 (8th Cir.1990)), we are of the opinion that the United States v. Maine test is inapplicable here.6
Indeed, the federal government has waived immunity to extent that it actually receives fire protection services. The City may file a claim against the United States for reimbursement of direct costs incurred putting out a fire on federally-owned property. See 15 U.S.C. § 2210(a)
LOWER COURT OPINION BY JUDGE HADEN:
MEMORANDUM OPINION AND ORDER 793 F. Supp. 1370 (1992)
HADEN, Chief Judge.
Pending are cross motions for summary judgment. Since the Court concludes that the fire and flood protection fee charged by the City of Huntington is a user fee rather than a tax, the Court essentially GRANTS the motion of the City of Huntington and substantially DENIES the motion of the United States of America.
The City of Huntington seeks to collect municipal fire and flood protection charges from the United States Postal Service (Postal Service) and the United States General Services Administration (GSA). Pursuant to statutory authority, the City of Huntington's ordinance establishes a fire and flood protection fee payable by property owners at the rate of 3¾ cents ($0.0375) per square foot. Failure to pay the fee results in civil and criminal penalties.
The Postal Service and GSA each own two properties in Huntington. These buildings have been assessed fire and flood protection charges since 1985. The Postal Service has refused to pay the charges while GSA has paid its assessment each year.
The United States filed the present complaint seeking an injunction prohibiting Huntington from assessing, imposing, levying or collecting municipal service taxes from the Postal Service and GSA. The United States seeks a declaratory judgment that it is not liable for the assessed fees. Huntington in its counterclaim seeks the recovery of fees and penalties from the Postal Service and GSA.
States are without authority to tax the United States. McCulloch v. Maryland, 17 U.S. (4 Wheat) 316, 436, 4 L.Ed. 579 (1819); Mayo v. U.S., 319 U.S. 441, 447-48, 63 S.Ct. 1137, 1140-41, 87 L.Ed. 1504 (1943); Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 122, 74 S.Ct. 403, 98 L.Ed. 546 (1954); U.S. v. City of Spokane, 918 F.2d 84, 87 (9th Cir.1990); U.S. v. City of Adair, 539 F.2d 1185, 1189 (8th Cir.1976) Municipalities acting pursuant to state authority are likewise without authority to tax the United States. Since the Postal Service and GSA are instrumentalities of the United States, Huntington is precluded from imposing a direct tax on these entities.
A "tax" is an enforced contribution to provide for the support of government. U.S. v. Tax Comm'n. of Miss., 421 U.S. 599, 606, 95 S.Ct. 1872, 1877, 44 L.Ed.2d 404 (1975) (citing U.S. v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931)). Although the United States enjoys immunity from local taxation it must pay reasonable user fees.
The United States urges the Court to apply three separate tests to determine whether the charges imposed by Huntington are taxes or fees. The first analysis requires the Court to look at all the facts and circumstances and assess them on the basis of the economic realities in order to determine the essential nature of the exaction. U.S. v. Columbia, 914 F.2d 151, 154 (8th Cir.1990). Under this test, the Court is persuaded that the fire and flood charges are fees rather than taxes. Although the exaction was enacted pursuant to a section of the West Virginia Code dealing with the state's taxing power, the fire and flood fees bear a reasonable relationship to the consuming public. Those who own buildings are the users of the fire and flood protection services. Although the ordinance is not perfect in assessing all those who use the service, for example, automobile[793 F.Supp. 1372]
owners, the fees are a reasonable attempt to charge those who use the service. Moreover, the economic realities in this case indicate that the funds received from the fire service collections amount to only one-half of the Huntington Fire Department's annual budget. With the total cost of fire and flood protection exceeding the revenue produced by the fees, it cannot be said that the fee is a tax.
The second analysis focuses on whether the exaction is enforced contribution to provide for the support of the Government. U.S. v. Maryland, 471 F.Supp. 1030, 1036 (D.Md.1979) (citing U.S. v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931)). Again, applying this test the Court concludes that the charges are fees rather than taxes. The fire and flood protection service fees generate revenue that is inadequate to meet the needs of the services provided. Even though upon receipt of the fire and flood protection service fees the City of Huntington places those funds in the general revenue account, it can hardly be said that the funds are for the support of the local government. The fees are simply assessed against property owners to recoup funds expended for fire and flood protection.
The final analysis urged by the Government renders the same result. The third analysis is a three-prong test as follows: (1) Is the charge imposed in a nondiscriminatory manner? (2) Is the charge a fair approximation of the benefits received? (3) Is the charge structured to produce revenues that will not exceed the total costs to the Government of the benefits to be supplied? U.S. v. Maine, 524 F.Supp. 1056, 1059 (D.Me.1981) (citing Massachusetts v. U.S., 435 U.S. 444, 464-67, 98 S.Ct. 1153, 1165-67, 55 L.Ed.2d 403 (1978)). The United States argues that Huntington's fire and flood protection charges are invalid under the first prong since Huntington exempts its own buildings from the fire and flood service fees. This argument is wholly without merit. The fact that Huntington exempts its own buildings in order to reduce administrative costs to itself is not indicative of a discriminatory application of the user fees. The property owners in the City of Huntington each pay the same amount per square foot for the service fee. This across-the-board flat fee is non-discriminatory in nature. By exempting its own buildings, the City of Huntington simply reaps the benefit of avoiding the bookkeeping work involved in charging itself. This is not a discriminatory application of the ordinance.
Applying the second and third prongs, the fire and flood service fees cannot be classified as a tax. The Postal Service and GSA enjoy the benefits of having Huntington's fire department readily available in case of fire. Unquestionably, if one of the governmental buildings at issue caught fire, the United States would expect the Huntington Fire Department to respond and extinguish the fire. To reap the benefits of the fire service, the Postal Service and GSA, like other building owners in Huntington, must pay the fire fee to have the service readily available. The same is true with flood protection service. This, coupled with the fact that the service fees are inadequate to cover the cost of the services indicates that the fire and flood protection charges are fees rather than taxes.
The Court concludes that the Postal Service and GAS must pay the fire and flood service fees to the City of Huntington. The attempt by Huntington to collect penalties or interest on the unpaid fees is another matter. The United States is immune from any exaction that seeks to punish the United States without express congressional authorization. See Missouri Pac. RR. Co. v. Ault, 256 U.S. 554, 563-65, 41 S.Ct. 593, 597, 65 L.Ed. 1087 (1921); Smith v. Russellville Prod. Credit Assoc., 777 F.2d 1544, 1549 (11th Cir.1985). There is no congressional authorization to permit Huntington to charge a penalty on the unpaid fire and flood service fees. Accordingly, the City of Huntington is without authority to assess penalties on the unpaid fire and flood service fees.