KENT CTY. WATER AUTH. v. STATE, DEPT. OF HEALTH

• Decision Date: 29 January 1999
• Docket Number: No. 97-585-MP.,97-585-MP.
• Citation: 723 A.2d 1132
• Parties: KENT COUNTY WATER AUTHORITY v. STATE of Rhode Island (DEPARTMENT OF HEALTH).
• Court: Rhode Island Supreme Court

723 A.2d 1132

KENT COUNTY WATER AUTHORITY v. STATE of Rhode Island (DEPARTMENT OF HEALTH).

No. 97-585-MP.

Supreme Court of Rhode Island.

January 29, 1999.

Joseph J. McGair, Warwick, for Plaintiff.

Mary E. McCabe, Rebecca Tedford Partington, Providence, for Defendant.

Before WEISBERGER, C.J., and LEDERBERG, BOURCIER, FLANDERS, and GOLDBERG, JJ.

OPINION

FLANDERS, Justice.

To prevent situations where there is "Water, water, everywhere, Nor any drop to drink,"¹ the General Assembly enacted legislation "to aid in assuring the public is provided with safe and potable drinking water." G.L.1956 § 46-13-1. As a result, no one may operate a public water-supply system in this state without first obtaining annual approval of that system from the director of the Rhode Island Department of Health (DOH). See § 46-13-2.1(a), (c). To obtain such approval, operators of public water-supply systems must apply to DOH and demonstrate that they satisfy the applicable safety and other regulatory requirements for granting such approval. See id., at (b). DOH is obliged to review such applications and to conduct inspections of the systems in question to determine whether they comply with these requirements. See id.

In this case, Kent County Water Authority (petitioner) has asked us to review a Superior Court judgment upholding the validity of the annual approval fees charged by DOH to petitioner in connection with its operation of a public water-supply system. Objecting to DOH's imposition of these fees, petitioner claims that they amount to a form of taxation from which it is statutorily exempt. It also contends that DOH has been engaging in retroactive ratemaking by continuing to seek payment of these annual approval fees from petitioner after it failed to remit payment of the same in years past. Finally, petitioner argues that DOH's hearing officer should have recused himself from hearing this case because his status as a DOH employee rendered him incapable of serving as a neutral adjudicator. After issuing an administrative hearing notice, DOH conducted a two-part public hearing concerning the validity of these annual fees as applied to petitioner. The hearing officer found that these charges were lawful, prospective licensing fees that were not subject to petitioner's tax exemption. The Superior Court affirmed. For the reasons discussed below, we deny the petition for certiorari and affirm the Superior Court's judgment.

Standard of Review

In reviewing a petition for certiorari, we restrict our scrutiny of the record to the question(s) appearing in the petition. See May v. Penn T.V. & Furniture Co., 686 A.2d 95, 97 (R.I.1996)

. Our task is to scour the record to discern whether any legally competent evidence supports the lower tribunal's decision and whether the decision maker committed any reversible errors of law in the matter under review. See Asadoorian v. Warwick School Committee, 691 A.2d 573, 577 (R.I.1997). If legally competent evidence exists to support that determination, we will affirm it unless one or more errors of law have so infected the validity of the proceedings as to warrant reversal. See id.

Analysis

I

Tax Versus Licensing Fee

The Superior Court concluded that DOH's annual approval fee was a valid licensing measure designed to defray the costs involved in DOH's regulation of public drinking-water supply systems in this state, and that, therefore, petitioner was obliged to pay this fee to DOH. To determine whether legally competent evidence exists to support its judgment, our starting point is the statutory language authorizing DOH's director to impose this charge. See § 46-13-1 ("The purpose of this chapter is to aid in assuring the public is provided with safe and potable drinking water."); § 46-13-2.1(a)-(b) (providing that all public water-supply-systems operators must apply for and receive DOH-director approval); § 46-13-2.1(c) (requiring the DOH director to establish by regulation an "initial [approval] fee" and an "approval renewal fee * * * related to the costs incurred in operating the [water-supply] program"). After giving these provisions their plain and ordinary meaning, see Fleet National Bank v. Clark, 714 A.2d 1172, 1177 (R.I.1998),

it is manifest that the General Assembly has characterized this DOH charge as an annual approval fee and not as a tax. Although this designation is not dispositive, we accord it substantial deference even as we acknowledge the statutory pedestal on which petitioner rests its case—namely, its tax-exempt status as delineated in G.L.1956 § 39-16-13.²

The petitioner asserts that because the DOH "fee" is actually a tax or an assessment "in lieu of taxes," § 39-16-13 exempts it from having to pay such a fee. Again, we accord § 39-16-13 its plain and ordinary meaning and conclude that the General Assembly did indeed intend to exempt petitioner from taxation and from paying sums in lieu of taxes, save for those payments in lieu of taxes described in § 39-16-14.³ Consequently, the pivotal question in this case is whether DOH's § 46-13-2.1(c) approval fee is a licensing measure that applies not only to petitioner but to all other operators of public water-supply systems, or whether it is a de facto tax or a sum in lieu of taxation from which petitioner is exempt under § 39-16-13. The Superior Court concluded that it was the former and thus upheld DOH's imposition of this fee. Our role on certiorari is to ascertain whether legally competent evidence exists in the record to support this determination.

Tax exemptions, which exist solely by virtue of legislative grace, see Gott v. Norberg, 417 A.2d 1352, 1358 (R.I.1980),

arise only from constitutional or statutory provisions, see Woonsocket Hospital v. Quinn, 54 R.I. 424, 428, 173 A. 550, 552 (1934). Any taxpayer claiming entitlement to a statutory tax exemption carries the burden of proving that the assessment in question falls within the terms of the exemption. See Dart Industries, Inc. v. Clark, 696 A.2d 306, 310 (R.I.1997). To show that it qualified for the claimed tax exemption, petitioner needed to establish that DOH's annual approval fee was in fact a tax (or a sum in lieu of taxation) because a true licensing fee would not fall within the ambit of its § 39-16-13 tax exemption. After examining the record, we conclude that petitioner failed to carry its burden of proof in this regard.

We have previously noted the distinction between a tax—which is primarily a revenue-raising measure—and a licensing fee—which is primarily a regulatory imposition. See State v. Foster, 22 R.I. 163, 171, 46 A. 833, 835-36 (R.I.1900) ("If the imposition * * * has for its primary object the regulation of the business, trade, or calling to which it applies, its exercise is properly referable to the police power; but, if the main object is the obtaining of revenue, it is properly referable to the taxing power."); see also Berberian v. Kane, 425 A.2d 527 (R.I.1981)

(holding that annual dues paid to the state bar association are license fees, not taxes); Petition of Rhode Island Bar Association, 118 R.I. 489, 374 A.2d 802 (1977) (same); cf. Sinclair Paint Co. v. State Board of Equalization, 15 Cal.4th 866, 64 Cal.Rptr.2d 447, 937 P.2d 1350, 1358 (Cal.1997) ("[A]ll regulatory fees are necessarily aimed at raising `revenue' to defray the cost of the regulatory program in question, but that fact does not automatically render those fees `taxes.' * * * [I]f regulation is the primary purpose of the fee measure, the mere fact that the measure also generates revenue does not make the imposition a tax.") (Emphasis in original.) Here, legally competent evidence indicates that DOH's annual approval fee is primarily a licensing charge to defray the costs incurred by DOH in connection with its regulation of water-supply systems in this state.

Section 46-13-2.1(c) explains that the purpose for which DOH collects the annual approval fee is to pay for "the costs incurred in operating the [public water-supply approval] program." These costs include expenditures incurred by DOH to (1) review and analyze applications for approval, including any supporting documents, that have been submitted by petitioner and by other public water-supply-systems operators for the purpose of securing DOH's annual approval to operate such systems, and (2) conduct inspections of the public water-supply systems subject to its jurisdiction to determine if they meet the requirements for approval. See § 46-13-2.1(b)-(c). Section 46-13-2.1(c) continues: "[t]he fees as established by the director shall be related to the costs incurred in operating the program and may include administrative, personnel, equipment, laboratory services and such other related costs necessary to carry out the provisions of this section of the law. All fees collected under this section shall be deposited as general revenues." Id.

In an effort to establish a fair and equitable annual fee to defray these approval costs, the Legislature created an advisory committee to assist the DOH director in this endeavor. According to the testimony of June Swallow (Swallow), the Chief of the Office of Drinking Water Quality (ODWQ) at DOH, this committee was comprised of state senators, representatives, and members of the water-system community and was modeled on a similar Environmental Protection Agency consulting group. After considering the revenue needs of both ODWQ and DOH, ODWQ's workload, the requirements under the Safe Drinking Water Act, chapter 13 of title 46, and various possible alternative fee scenarios, the committee recommended a three-tiered "annual fee for licensure" schedule that would enable DOH to recoup the likely costs it would incur in fulfilling its regulatory obligations. DOH accepted this recommendation and adopted the following fee schedule:

"Transient non-community water system.... $150.

"Nontransient [sic ] non-community water system.$250.

"Community water system .. $1.10 per...