City of Marion v. Baioni

• Citation: 312 Ark. 423,850 S.W.2d 1
• Decision Date: 29 March 1993
• Docket Number: No. 92-924,92-924
• Parties: CITY OF MARION, Arkansas, et al., Appellants, v. Primo BAIONI, James R. Williford and Crittenden County Homebuilders Association, Appellees.
• Court: Supreme Court of Arkansas

Page 1

850 S.W.2d 1

312 Ark. 423

CITY OF MARION, Arkansas, et al., Appellants, v. Primo BAIONI, James R. Williford and Crittenden County Homebuilders Association, Appellees.

No. 92-924.

Supreme Court of Arkansas.

March 29, 1993.

Hale, Fogleman & Rogers, West Memphis, for appellant.

Kent J. Rubens, West Memphis, for appellee.

GLAZE, Justice.

This case involves certain sewer and water "tap and access fees" the City of Marion has charged appellees, as developers of residential land in and around the city. Marion has experienced a considerable growth in population since 1975, and this influx of new people has resulted in the city exceeding the design capacity of both its water and sewer systems. Between July of 1988 and August of 1990, the city enacted a series of ordinances that placed "tapping fees" on builders or lot owners connecting on to the city's existing water and sewer systems and required "access fees" from any person or entity connecting to the city's transmission lines. These fees only apply to new development. The ordinances, as amended, provide that the funds collected from these respective fees must be placed in separate accounts designed as the "water expansion account" and "sewer expansion account," and used solely to expand the city's water and sewer systems.

The appellees brought suit challenging the constitutionality of the city's ordinances as well as their validity under state law. The chancellor held the ordinances invalid, finding that the fees assessed under the city's ordinances amounted to a general revenue raising scheme and therefore "taxes," that had not been approved by the vote of the people as required under Ark.Code Ann. § 26-73-103 (1987). The city appeals the chancellor's decision.

We first point out, as did the chancellor below, that a municipality's ordinance levying a tax is not valid until the tax is adopted by the voters of the city at a special or general election. Section 26-73-103. Here the City of Marion held no election to authorize a tax to expand the city's water and sewer systems, presumably because the city believed it could underwrite the costs of such expansions by charging tapping and access fees (sometimes called impact fees) to persons who would benefit from such extensions.

The distinction between a tax and a fee is that government imposes a tax for general revenue purposes, but a fee is imposed in the government's exercise of its police powers. City of North Little Rock v. Graham, 278 Ark. 547, 647 S.W.2d 452 (1983). An example of a fee charged in the exercise of a city's police power is found in Holman v. City of Dierks, 217 Ark. 677, 233 S.W.2d 392 (1950). There, the court held that an "annual sanitation charge" of $4.00 per business and residence which was to pay for fogging the city with insecticide three times a year was a fee, not a tax, for services to be rendered. On the other hand, the Graham court considered the validity of a North Little Rock ordinance which imposed a $3.00 per month "public safety fee" on the water bill of each household, business and apartment resident for the purpose of increasing the salaries of the city policemen and firemen and held such a fee was in actuality a tax because the so-called fee was for the cost of maintaining a traditional governmental function and services already in effect and not for a special service as was the case in the Holman case. 278 Ark. at 549, 647 S.W.2d at 453. As is illustrated by the Graham decision, this court in determining whether a governmental charge, assessment or fee is a tax is not bound by how the enactment or levy labels it. See also City of Hot Springs v. Vapors Theatre Restaurant, Inc., 298 Ark. 444, 769 S.W.2d 1 (1989); cf. Rainwater v. Haynes, 244 Ark. 1191, 428 S.W.2d 254 (1968).

In this case, the chancellor reviewed considerable legal authority leading him to the general conclusion that a governmental levy or fee, in order not to be denominated a tax, must be fair and reasonable and bear a reasonable relationship to the benefits conferred on those receiving the services. We agree with the chancellor's conclusion, which seems to be the prevailing rule in other jurisdictions. However, the rule's application is not always an easy one for the courts. See Bldg. Ind. Ass'n of S. Cal. v. City of Oxnard, 150 Cal.App.3d 535, 198 Cal.Rptr. 63 (2 Dist.1984) (a growth requirement capital fee applicable to new development held a tax because the fee was designed to collect revenues to benefit the community as a whole); Contractors & Builders Ass'n v. City of Dunedin, 329 So.2d 314 (Fla.1976) (connection fees to expand water and sewage systems held a tax because the use of the money collected was not limited to the costs of expansion); Eastern Diversified v. Montgomery County, 319 Md. 45, 570 A.2d 850 (1990) (development impact fees to raise funds to finance construction of roads held a tax because funds benefited general public); Amherst Builders Assn v. City of Amherst, 61 Ohio St.2d 345, 402 N.E.2d 1181 (1980) (sewer tap-in or connection fees of $400 for single family homes of new users upheld as valid fee, not a tax); but see State ex rel. Waterbury Development v. Witten, 58 Ohio App.2d 17, 387 N.E.2d 1380 (1977) (water tap-in fee of $720 held a tax because it exceeded cost of service provided new users); Hayes v. City of Albany, 7 Or.App. 277, 490 P.2d 1018 (1971) (sewer connection fee of $255 for a single family dwelling for construction and expansion of sewer system held valid because proceeds must be used directly in development and maintenance of sewer system); Haugen v. Gleason, 226 Or. 99, 359 P.2d 108 (1961) (land acquisition fee held tax because the use of money produced no direct benefit or relationship to the new division); Hillis Homes, Inc. v. Snohomish County, 97 Wash.2d 804, 650 P.2d 193 (1982) (development fees imposed on new residential subdivisions constituted taxes because the primary purpose was to raise money not regulate land subdivision).

In the present case, the chancellor found that the City of Marion had demonstrated that the costs or fees were fair and equitable, reasonably related to the benefits conferred on the appellees (developers and builders), and are restricted to future use for...