ARTICLES
MUNICIPAL FINANCE AND THE COMMERCE
CLAUSE: ARE USER FEES THE NEXT TARGET
OF THE “SILVER BULLET”?*
Suellen M. Wolfe**
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. MUNICIPAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Policy of Municipal Finance . . . . . . . . . . . . . . . . . . . . .
B. Financing Local Government
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. The Economics of User Fees . . . . . . . . . . . . . . . . . . . . .
III. CONSTITUTIONAL ISSUES PERTAINING TO
LOCAL TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Review of Major Constitutional Issues . . . . . . . . . . . . .
B. Judicial Review of User Fees in Florida . . . . . . . . . . . .
728
731
733
736
741
745
745
751
* WALTER NAGEL ET AL., LEADING UNITED STATES SUPREME COURT STATE TAX
CASES: OFFICIAL SYLLABI, NOTES, AND INDICES § 3.11 (1995) (indicating that
the Commerce Clause is still the “silver bullet” of state taxation constitutional
challenges).
** Associate Professor of Law, Widener University School of Law; J.D. 1976,
Dickinson School of Law; LL.M. (Taxation) 1979, New York University School of Law;
Chief Deputy Attorney General, Commonwealth of Pennsylvania, Tax and Finance Section 1986–1989, Charitable Trusts and Organizations Section 1984–1986; Deputy Attorney General, Commonwealth of Pennsylvania, Tax Litigation 1982–1984. This Article is
dedicated to the memory of the person who most inspired me and taught me that nothing is impossible: my father, Robert E. Wolfe. Michael Butler made substantial contribution to the Article in its later stages. Lisa Nelson provided research assistance. Stephen
Reed, Mayor of the City of Harrisburg, read a draft of the Article. I also wish to thank
Sandy Graeff, Paula Heider, and Shannon Whitson for their production assistance.
728
Stetson Law Review
[Vol. XXVI
IV. COMMERCE CLAUSE ISSUES . . . . . . . . . . . . . . . . . . . . . 757
A. Broadening the Scope of Interstate Commerce . . . . . . 757
B. Erosion of the Immunity Doctrine:
The Fabrication of Discrimination . . . . . . . . . . . . . . . .
C. History of Flat User Fees . . . . . . . . . . . . . . . . . . . . . . .
1. Special Revenue Statutes — Taxing the
Privilege of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. General Revenue Statutes — Taxing the Use . . . .
3. Application of Discrimination Concepts to
Special Revenue User Fees — the Scheiner
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Constitutional Defects of User Fees . . . . . . . . . . . . . . .
1. Distinguishing Taxes and User Fees . . . . . . . . . . .
2. The Commerce Clause Challenge:
Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
760
765
765
773
781
785
785
788
800
I. INTRODUCTION
User fees are an integral part of local government finance. As
their utilization becomes more widespread and sophisticated, these
fees will be prey to constitutional challenges. This Article concludes
that user fees are vulnerable to charges of discrimination resulting
in invalidation under Commerce Clause principles. Discrimination is
the “silver bullet” that the challenger to a fiscal statute has in its
arsenal. If the user is able to establish a record demonstrating that
the burden of the exaction favors in-state interests, its litigation
should be successful. The conclusion instructs the governing body of
municipal governments to choose the measure of the user fee with
care, utilizing as much economical information as is available. The
tax incidence should fall proportionately to the expenses a user generates. Taxing statutes which do not take into consideration a variety of factors to influence their burdens surely will be targets of discrimination as the term becomes more clearly defined.
Local governments must be more aggressive in raising revenue.
The increasing federal debt causes a decline in federal funding of
state and local governments' operations. The nation's physical infrastructure is crumbling. There is a constant effort to mobilize all
levels of government to achieve adequate levels of financing for ser-
1997]
Municipal Finance and User Fees
729
vices and economic growth. Utilization of impact user fees, leasing,
tax incentives, and joint public-private development has increased.1
This “economic federalism” has also precipitated a growth in user
charge financing.
Litigation involving state tax issues is widely publicized. Constitutional principles applicable to state tax law apply to municipal
taxing ordinances. Historically, user fees have been differentiated
from taxes. Separate categorization was the basis for two lines of
discrimination opinions rendered by the United States Supreme
Court. Recent rulings by the Court suggest that the difference between user fees and taxes may be a distinction without a difference.
A general understanding of the nature of a user fee is essential
to understanding how a challenge to its constitutionality could succeed. The first part of this Article provides a brief background of
municipal finance. It explains the growth in popularity of user fees.
Part II, section A, introduces highway user fees as a recognizable
example. It explains how political policy dictates the adoption of
unique municipal fiscal schemes. Financing through user fees has
very attractive attributes, but it has flaws as well. Public facilities
should be financed, at least in part, by users. When the individual
user is assessed his or her expense and pays directly for it, the
appropriateness of the charge is much more apparent to him or her
than the payment of a tax for general governmental purposes.
Part II, section B, provides a basic description of the financial
schemes of a local government. The financial structure of a local
government is extremely sophisticated. Although generalizations
may be made, local taxes and fees are a complex of legal principles,
accounting concepts, the scope of services and facilities which a government offers, and general revenue requirements of the local government. Section C briefly examines the rudiments of the economics
of user fees. The study of the economic influence of user fees is critical to accurately establish an appropriate base for a fee, and to burden those who use the facility in proportion to their use.
In addition to the Commerce Clause issues, local financial ordinances engender litigation of other constitutional issues. Part III
examines additional constitutional limitations on user fees. Section
1. See Robert H. Freilich et al., Federalism in Transition: The Emergence of New
State and Local Strategies in the Face of the Vanishing Tenth Amendment, 20 URB. LAW.
863, 876 (1988).
730
Stetson Law Review
[Vol. XXVI
A highlights equal protection, due process, and uniformity issues of
user fee litigation. Although these holdings have not undergone
recent radical change, it is likely that these issues will be coupled
with Commerce Clause objections. The southeastern states of the
United States have enacted the largest number of user fees. Major
Florida user fee cases are reviewed in section B revealing the typical
genre of state level litigation of user fee issues.
The Commerce Clause is the focus of Part IV. While a tax enacted by a local government appears to be a distinctly local event, its
impact on interstate commerce is no less than that of a state tax.
The illusion of an intra-state character to local government operations provided fertile ground for early autonomy of local government
fiscal schemes. Nutrients for growth in the range of interstate commerce abound simultaneously with the demise of the interstate commerce immunity doctrine. Section A reflects the slowly closing door
on local government fiscal independence caused by broadening of the
concept of interstate commerce.
Section B of Part IV traces interstate commerce's loss of immunity from state taxation. Taxes imposed on interstate commerce
immediately became subject to the vast and powerful protection
afforded by the Commerce Clause. The privilege doctrine was discredited and eliminated from Commerce Clause analysis engendering growth in taxes imposed on interstate commerce. Increased challenges to state taxes, primarily allegations of discrimination, resulted.
Section C of Part IV profiles the history of litigation heard by
the United States Supreme Court involving user fees. Most user fee
cases before the Court involve highway user taxes. A user fee,
whether it is a highway user fee or of a more parochial nature, is
subject to the same constitutional limitations. The principles extracted from the highway user fee series of cases provide insight into
constitutional limitations on user fees generally.
In a series of cases decided between 1935 and 1950, the United
States Supreme Court upheld flat user taxes for highway use, despite allegations that such fees violated the Commerce Clause. The
sheer magnitude of the highway system and its cost has made these
fees attention-worthy. Evansville-Vanderburgh Airport Authority
1997]
Municipal Finance and User Fees
731
District v. Delta Airlines2 articulated requirements for user fees
which were subject to distinctive limitations as special revenue
funds.3 The criteria differed from the test eventually articulated in
Complete Auto Transit, Inc. v. Brady4 applicable to general revenue
taxes.5
The line of firmly established user fee opinions was disenfranchised in a 1987 Supreme Court opinion which generally held as
follows: the precedents upholding flat taxes can no longer support
the broad proposition that every flat tax for the privilege of using a
state's highways must be upheld, even if it has a clearly discriminatory effect on commerce by reason of that commerce's interstate
character.6
The final section of Part IV probes inherent weaknesses of user
fees which make them susceptible to Commerce Clause challenges.
The inquiry begins with a seemingly simple inquiry: Is the charge a
user fee or a tax? That determination may no longer be relevant if
the Evansville-Vanderburgh Airport test is no longer viable. Regardless, the probe into user fees will continue. User fee litigation will
highlight discrimination. Part V reviews some of the Supreme
Court's discrimination opinions. Their vague instructions and
holdings, lacking extensive factual proof as to the distribution of the
tax burden, provide little guidance to those attempting to ascertain
the line which demarcates discrimination.
The conclusion of this Article suggests that local governments
pay particular attention to the measure of the user fee. The correct
choice can assist in defending a discrimination charge. As the dust
from recent litigation settles, local governments will be in a much
better position to judge the constitutionality of their user fee systems. However, until that time, all user fees are in jeopardy.
II. MUNICIPAL FINANCE
2.
3.
4.
5.
6.
405
See
430
See
See
U.S. 707 (1972).
id. at 714–20.
U.S. 274 (1977).
id. at 287–89.
American Trucking Ass'ns v. Scheiner, 483 U.S. 266, 292 (1987).
732
Stetson Law Review
[Vol. XXVI
The fiscal powers of local governmental entities depend upon
state enabling acts because such entities lack inherent sovereign
power.7 Their fiscal authority is further constrained by federal limitations on taxing powers within our federal system.8
Thus, a legislative authorization must exist before a local entity
may impose upon taxpayers a financial burden, whether or not it is
labeled a tax.9 However, the public clamor which greets any new
taxpayer burden does not accurately determine whether the action
infringes upon constitutional limitations.
State constitutional provisions for local fiscal affairs are diverse
in content and complexity. Some constitutions prohibit the use of
certain tax features.10 A constitution may limit the tax revenue
growth to an increase provided by some factor such as the percentage growth of the value of real property.11 In addition, constitutions
often contain specific debt limitations.
Throughout the 1970s and 1980s, while the public demanded
more public services,12 local government budgets were being limited.
The obvious response was an increase in charges for public services.13 Some previously free services became privatized.14 Contracting
with private firms to deliver the service for a fee relieved the local
government of not only financial burdens, but also administrative
headaches.15 The government was enabled to provide new services
as well.
Funding sources, including some overlapping ones, have now
multiplied for local governments. Charges may be made for public
transportation and health care services. Fees may be charged for
important but less essential services such as parks and recreation.
7. See Ashton v. Cameron County Water Improvement Dist. No. One, 298 U.S.
513, 529–30 (1936).
8. See RICHARD A. MUSGRAVE & PEGGY B. MUSGRAVE, PUBLIC FINANCE IN THEORY
AND PRACTICE 28 (5th ed. 1989).
9. See Ashton, 298 U.S. at 529–30.
10. For instance, progressive tax rates may be prohibited.
11. See, e.g., CAL. CONST. art. XIII, § 1. See generally ADVISORY COMMISSION ON
INTERGOVERNMENTAL AFFAIRS, THE TAXPAYERS SPEAK: PROPOSITION 13 AND INTERGOVERNMENTAL RELATIONS 4 (1978).
12. See M. DAVID GELFAND & PETER W. SALSICH, JR., STATE AND LOCAL TAXATION
AND FINANCE IN A NUTSHELL 81 (1985).
13. See id. at 90.
14. See id.
15. See id. Water supply and waste disposal are two services often provided by
private commercial business.
1997]
Municipal Finance and User Fees
733
Fees may also be imposed as a condition of developmental approval.16 Tax policy decisions now require a purposeful choice between a
general tax or a user assessment.
Beyond characterization, the equity of charging the public for a
service must be addressed. The type of service involved, the method
of structuring the public charge, and the administration to provide
the public with necessary and fringe benefits vary widely. These
elements make the charge susceptible to constitutional challenge.
A. Policy of Municipal Finance
Politics and financial necessity require local governments to
seek alternate and supplemental sources of revenue. So, it is not a
surprise that systems of municipal finance have increased in complexity. There is no longer a typical local tax structure which was
the result of “political custom rather than a constitutional or legislative arrangement of national local taxes.”17
Methods of financing government services include “General
Obligation Bonds, . . . Special Assessment Bonds, . . . Purchase Subject to a Mortgage, . . . Bonds Payable from Special Property Tax, . . .
Lease With Option to Purchase, . . . Conditional Sales Contract, . . .
and Revenue Bonds.”18 Local governments impose in-kind exactions,
as well.19
Financial and tax policy matters often create great disagreements in the general public over the value of social programs. However, a member of the public generally knows exactly how much he
or she is required to contribute to the public coffers. Politicians,
cognizant of the public's frame of mind, recognize that voters, not
favoring pure taxes, prefer other methods of financing.
User fees might be more acceptable today, for example, for a
huge project such as repairing and replacing a city's or county's
infrastructure. It is such seemingly “free” public facilities which are
16. Developers may have development agreements compelling contribution of land,
construction of public facilities, or providing the public with certain services. Developers
may also be charged impact fees, linkage fees, user fees, and tolls. See generally 16 EUGENE MCQUILLIN, THE LAW OF MUNICIPAL CORPORATIONS § 44.94 (3d ed. 1994).
17. STEPHEN G. UTZ, TAX POLICY: AN INTRODUCTION AND SURVEY OF THE PRINCIPAL
DEBATE 215 (1993).
18. LAWRENCE E. CHERMAK, THE LAW OF REVENUE BONDS 59–62 (1954).
19. See ALAN A. ALTSHULER ET AL., REGULATION FOR REVENUE: THE POLITICAL
ECONOMY OF LAND USE EXACTIONS 3 (1993).
734
Stetson Law Review
[Vol. XXVI
paid for, ultimately, by the public. More mundane facilities could be
financed in this manner, as well.
User charge financing provides many advantages. General tax
revenue must be allocated by the local government's governing body,
while user charges limit the need for allocation. Revenue from
charges is directed primarily to the public facility or service20 resulting in improvements in public planning and budgeting decisions.21
With careful planning and projection, user fees enable the local government to provide large scale and expensive public facilities.22 User
charges provide a funding incentive for the proper maintenance of
those facilities which should have a long, useful life.23 In addition,
user fees provide financial discipline for providers and users.24
The public itself has an element of control in a user fee system.25
Members of the public decide whether or not the service is worth
their individual fees. They also makes more subtle decisions. During
heavy use times, a facility may charge a higher fee.26 Individuals
must decide whether they will assume the additional cost by independently determining when it is best for them to use the facility.27
Widespread use of user fees may seem economically efficient.28
In reality, however, user fees may not be practically structured.29
Policy considerations provide a limitation on a government's imposition of user fees.30 The poor cannot afford to pay the fee to receive
20. See id. at 3–4.
21. See ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS, FINANCING PUBLIC PHYSICAL INFRASTRUCTURE 22 (1984) [hereinafter INFRASTRUCTURE].
22. See id.
23. See id.
24. See id. When facilities are congested, user fees should be structured to encourage users to make more efficient and less costly use. See id.
25. See id.
26. See id.
27. See id.
28. See ALTSHULER ET AL., supra note 19, at 115.
29. See INFRASTRUCTURE, supra note 21, at 23.
30. User fees are justifiable when benefits are direct so that there will be no “loss
of external benefits”; prices have elasticity to aid in resource allocation and eliminate
excessive utilization; fees do not cause inequities to lower income groups; and the cost of
collection is reasonable. See ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS,
LOCAL REVENUE DIVERSIFICATION — USER CHARGES 25 (1987) [hereinafter LOCAL REVENUE DIVERSIFICATION].
Use of charges is questionable when: loss of external benefits may be significant;
the demand is perfectly elastic, causing resource allocation to be insensitive to the pricing system; equity standards require all income groups to obtain the services; and collec-
1997]
Municipal Finance and User Fees
735
the service. Therefore, its use is not available to them.31 Some members of society believe public facilities and services should be equally
available to all citizens.32 Social policy considerations may characterize user fees as unfair to the poor of the society.
Policy urges that only nonessential services should be subject to
user fees. Withholding a service must not subject the citizen to serious harm or other significant consequences; otherwise the user fee,
as a source of revenue, is inappropriate.33
Although local tax policy enjoys virtual autonomy from the
federal government, provisions of the Internal Revenue Code influence the desirability of types of local government financing. Since
1913, state and local taxes have been deductible from federal income
tax.34 The taxpayer, as an individual, is not the benefactor of the
payment. Because no person directly benefits, the tax payment is
not considered income to the government. User fees are not deductible for federal income tax purposes because they do not yield general benefits to the community at large, but only to the individual
making the payment. Obviously, payments that qualify for federal
tax deduction are attractive. Federal deductibility is essentially a
grant-in-aid to state and local governments.35
Interest received from state and local government bonds is not
included in gross income. Section 148 of the Internal Revenue Code
permits local governments to borrow at an effectively lower interest
rate than other debtors.36 As a result, the overall cost of state and
local public services is reduced.37 Subsidization for state and local
government debt financing is subject to criticism. The alternatives,
revenue sharing or direct subsidies, may be more politically cor-
tion costs are high and alternative usage schemes can be implemented. See id.
31. Another problem with the fees is that they are “unbundling.” As more local expenditures are funded by charging the benefactor, tax-financed activities directed to the
needs of the poor are reduced. See id. at 40–41.
32. See id. at 25.
33. See generally LOCAL REVENUE DIVERSIFICATION, supra note 30, at 25–26.
34. See I.R.C. § 164 (1994).
35. An amendment to the Internal Revenue Code reducing deductibility of state
and local government taxes would increase reliance on user fees.
36. See I.R.C. § 130 (1994); see also I.R.C. § 148 (1994).
37. See South Carolina v. Baker, 485 U.S. 505, 525 (1988) (stating that the purpose
of tax immunity is not to give a financial advantage to a government); see also I.R.C.
§ 265 (1994) (regarding deductibility of expenses and interest on tax-exempt related income); cf. I.R.C. § 163(f) (1994) (regarding denial of interest deductibility on non-registered bonds).
736
Stetson Law Review
[Vol. XXVI
rect.38
User fees are not exclusive to local government financing. Currently, the national highway infrastructure, built in the 1950s, is in
grave need of rehabilitation and replacement.39 The financing of the
interstate highways is primarily based on taxing the user. The revenue for highway improvement is generated from federal excise taxes
on motor fuel.40 The proceeds are then deposited in a special fund,
the highway trust. At the state level, the tremendous costs associated with highway construction are absorbed, in part, through registration and other motor vehicle fees.41 Local government taxation
pays the remaining, comparatively small, cost.
As a result of the huge amount and the various contributors
generating highway user fees, constitutional issues often center on
this subject. In fact, it has been the significant changes in constitutional law, particularly the Commerce Clause, applied to highway
user fees, which have generated the subject of this Article.
B. Financing Local Government Operations
Through a combination of the different methods,42 revenue for
government operations is generated by taxes, charges, and borrowing.43 Taxes are compelled payments; charges and borrowing are
voluntary transactions.44 Neither taxes nor charges require repayment. Borrowing, on the other hand, requires the government's
promise to repay a sum certain on a future date,45 while paying interest on the outstanding principal during the term of the obligation.
Municipal funds must be used for public purposes,46 according
38. See I.R.C. § 103 (1994) (regarding exclusion from gross income of state and
local government bond interest).
39. See INFRASTRUCTURE, supra note 21, at 6.
40. See ALTSHULER ET AL., supra note 19, at 118.
41. See MUSGRAVE & MUSGRAVE, supra note 8, at 169. The state system is used as
a base for federal support. It also provides for grants to local governments. See id.
42. User fees and debt-financing are examples. See JOSEPH A. PECHMAN, WHO PAID
THE TAXES, 1966–85, at 59 (1985).
43. Extraordinary sources of revenue include receipts from loans, bond issues, trust
funds, or bequests. See CHERMAK, supra note 18, at 59.
44. See MUSGRAVE & MUSGRAVE, supra note 8, at 212; see also LOCAL REVENUE
DIVERSIFICATION, supra note 30, at 5.
45. See Gelpoke v. City of Dubuque, 68 U.S. 175, 206 (1 Wall.) (1863).
46. See Cole v. City of La Grange, 113 U.S. 1, 6 (1884); City of Ottawa v. Carey,
108 U.S. 110, 122–23 (1883); City of Parkersburg v. Brown, 106 U.S. 487, 501 (1883);
1997]
Municipal Finance and User Fees
737
to a constitution, statute, or charter, which created the authority for
collection and disbursement of the funds.47 The governing document
also provides limits on local officials' powers and privileges with
respect to funds.48
Funds will be designated by purpose, such as general, special, or
enterprise.49 Most taxes, license fees, and other revenues are deposited in the general fund.50 The general fund is an asset of the local
government, expendable, after appropriate approval, for expenses of
operating the government for the benefit of the public at large.51
Obligations constituting legal expenses of the local government are
payable from a general fund.52
A local government also imposes fees for specific purposes.53
Dodge v. Mission Township, 107 F. 827, 829 (8th Cir. 1901).
47. See Town of Hackleburg v. Northwest Ala. Gas Dist., 170 So. 2d 792, 793 (Ala.
1964); State ex rel. Bennett v. Glynn, 224 A.2d 711, 714–15 (Conn. 1966); Village of
Lombard v. Illinois Bell Tel. Co., 90 N.E.2d 105, 108–09 (Ill. 1950); Carter Carburetor
Corp. v. City of St. Louis, 203 S.W.2d 438, 443–44 (Mo. 1947); In re 1966 Earned Income
Tax Ordinance, 222 A.2d 499, 501 (Pa. Super. Ct. 1966); Chesapeake & Potomac Tel. Co.
v. City of Morgantown, 105 S.E.2d 260, 275 (W. Va. 1958); Walker v. City of
Morgantown, 71 S.E.2d 60, 63 (W. Va. 1952); cf. Taylor v. McFadden, 50 N.W. 1070,
1071 (Iowa 1892) (stating that the charter or statute establishing municipal corporations
limits their powers); Oconto City Water-Supply Co. v. City of Oconto, 80 N.W. 1113,
1115 (Wis. 1899) (expressing doubt that a city could contract with a private corporation
to provide water).
The delegation to local government by the state legislature of part of a power is
constitutional. See English v. School Dist., 55 A.2d 803, 807 (Pa. 1947); see also
Radiofone, Inc. v. City of New Orleans, 616 So. 2d 1243, 1246 (La. 1993); City of Humble v. Metropolitan Transit Auth., 636 S.W.2d 484, 494 (Tex. App. 1982).
48. See Ashton v. Cameron County Water Improvement Dist. No. One, 298 U.S.
513, 529–30 (1936).
49. Other funds of local government are capital projects, debt service, expendable trust, nonexpendable trust, pension trust, and agency. See LEON E. HAY & JOHN
H. ENGSTROM, ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT
ORGANIZATIONS 5–6 (1987).
50. See Marr v. Southern Cal. Gas Co., 245 P. 178, 182 (Cal. 1926); Pure Milk
Producers & Distribs. Ass'ns v. Morton, 125 S.W.2d 216, 219 (Ky. Ct. App. 1939).
A local government's general fund is the “entity that accounts for all the assets
and resources used for financing the general administration of the unit and the traditional services provided to the people.” LEON E. HAY, ACCOUNTING FOR GOVERNMENTAL
AND NONPROFIT ENTITIES 36 (8th ed. 1989).
51. See State ex rel. Clark v. Bailey, 44 P.2d 740, 747 (Mont. 1935). A governing
document may designate a specific purpose for charge on the public. See Marr, 245 P. at
181.
52. See Marr, 245 P. at 182; Pure Milk Producers, 125 S.W.2d at 219.
53. The special assessment is becoming increasingly important. The special assessment is a mandatory fee levied on property to pay for specific investments such
as sidewalks and street paving that will be of benefit to the property owner. See J. RICH-
738
Stetson Law Review
[Vol. XXVI
Revenues generated by a special levy are deposited in special
funds.54 Legally, a special revenue fund may be viewed as similar to
a trust fund.55 Thus, they may not be diverted.56 Special funds must
be segregated; commingling is prohibited.57 An action in equity may
be brought to prevent a diversion of the fund or to demand an accounting.58
There is no legislative authority that would enable a local government to engage in an enterprise that is regarded as a private
function.59 However, functions that primarily serve a public purpose,
while possessing identical private characteristics, would be lawful.60
A local government, which provides a proprietary service, derives
revenues that generally constitute enterprise funds.61 In effect, the
local government is equated with a commercial provider of the service.62
Construction activities of government also require specific legislative authority. Building a new municipal facility and improving an
existing one63 provide the clearest examples of property owned by
ARONSON & JOHN L. HILLEY, FINANCING STATE AND LOCAL GOVERNMENTS 155 (4th
ed. 1986).
54. See, e.g., Clark, 44 P.2d at 746. Special revenue funds “account for the proceeds
of specific revenue sources (other than expendable trusts or for major capital projects)
that are legally restricted to expenditures for specified purposes.” HAY, supra note 50, at
13.
55. See Clark, 44 P.2d at 746.
56. See Meriwether v. Garrett, 102 U.S. 472, 502 (1880); Getz v. City of Harvey,
118 F.2d 817, 822 (7th Cir. 1941); Hart v. City of New Orleans, 12 F. 292 (C.C.E.D. La.
1882); GEORGE T. BOGERT, TRUSTS §§ 95, 99 (6th ed. 1987).
57. See Commissioners of Woburn Cemetery v. Treasurer of Woburn, 64 N.E.2d
627, 629 (Mass. 1946); BOGERT, supra note 56, § 100.
58. See Smith v. Boise City, 18 F. Supp. 385 (D. Iowa 1937); BOGERT, supra note
56, §§ 142–143.
59. See Cole v. City of La Grange, 113 U.S. 1 (1885); City of Ottawa v. Carey, 108
U.S. 110 (1883); City of Parkersburg v. Brown, 106 U.S. 487 (1883).
60. See Johnson City v. Weeks, 180 S.W. 327 (Tenn. 1915); see also City of Chattanooga v. Marion County, 315 S.W.2d 407, 409 (Tenn. 1958) (following Johnson City).
61. Impact taxes are imposed as conditions to granting land use approval for construction of new residential or promotional development. Examples are water fees or fees
for the use of a municipal golf course. Proprietary funds consist of enterprise funds. See
GELFAND & SALSICH, supra note 12, at 95–96.
62. See ROBERT S. AMDURSKY & CLAYTON P. GILLETTE, MUNICIPAL DEBT FINANCE
LAW 8 (1992).
63. See id. at 10. Even though debt was incurred in the construction of a facility,
its expansion and improvement may also be paid for, in part, by user fees. See id. at
10–11.
ARD
1997]
Municipal Finance and User Fees
739
the public.64 Construction financing for this property may be drawn
from the general fund or be provided by incurring bond debt. User
fees are inappropriate for construction because they cannot provide
the immediate cash needed to pay to complete project phases. However, they are perfectly appropriate to cover the facility's operating
and repair costs. User fees may accumulate excesses or profits that
ordinarily will be deposited into the general fund.65
The operation of a public facility financed through a user charge
system is always unique.66 The actual charge to the benefactor
should reflect all direct expenses of operation including employee
wages and the assumption of new administrative responsibilities.
Local political and financial policies will also affect a public facility's
ultimate cost to the local government.67 For instance, a desire to fiscally discipline municipal officers will inevitably have such an impact.
Generally extended a presumption of validity,68 the amount of a
user fee ought to bear a reasonable correlation to the expense of providing the service. In addition, user fees must be “fair, reasonable
and just, uniform and nondiscriminatory.”69 A fee's reasonableness
may be established by comparing it to private enterprise fees, so
long as the public facility's profits are not excessive.70
64. See Ohio Power Co. v. Craig, 197 N.E. 820, 821 (Ohio Ct. App. 1935) (holding
that in the absence of statutory authority, funds derived from revenue-producing enterprises cannot be diverted). But cf. People ex rel. Chicago Title & Trust Co. v. Village of
Glencoe, 23 N.E.2d 697, 699 (Ill. 1939) (holding that revenues from municipality-owned
utility belongs to the municipality; they are available for use for any governmental purpose).
In City of Wichita Falls v. Kemp Public Library, 593 S.W.2d 834, 836–37 (Tex.
Civ. App. 1980), a city was permitted to deposit excess revenue from a specific library
tax into the general fund rather than for the exclusive use of the library. A donor made
a gift conditional on the requirement that the library be run independently of the city.
See id. at 836–37. But the city provided continued financial support for the library. See
id.
65. See South Tex. Pub. Serv. Co. v. Jahn, 7 S.W.2d 942, 945 (Tex. Civ. App.
1928).
66. A fee for residential, agricultural, commercial, or industrial use may differ for
an identical facility. See GELFAND & SALSICH, supra note 12, at 93.
67. See INFRASTRUCTURE, supra note 21, at 22–23.
68. “The burden of proof is on the complaining party.” GELFAND & SALSICH, supra
note 12, at 95.
69. Id. at 92.
70. See id. at 94. Surplus revenues generally may be used for any other general
governmental purpose. The amount of revenue generated by the charge and available for
allocation to the general fund purposes may reflect an unfair and unreasonable fee. See
740
Stetson Law Review
[Vol. XXVI
During the 1970s, local user fees were the “fastest-growing
component of local government revenues.”71 They increased 40%
between the period of 1977 and 1983.72 The increase in the quantity
and quality of local government services and a decrease in “inflation
created assistance” generated greater local government dependence
on user charges.73
The designers of these diverse local tax systems sought to burden nonresidents with the bulk of the taxes or fees. By enticing payments from nonresidents and those who benefit less from the services, the designers engaged in the practice known as “tax exporting.”74
In the northeast portion of the United States, business enterprises developed as the keystone of the local economy. Excise taxes
were avoided and property taxes were utilized to generate revenue.
In the southern states, land constituted the greatest resource. As a
result, there was an early reliance on taxation of out-of-state operations using license and privilege taxes.75 The popularity of the license and privilege tax system developed in the early south and is
still apparent. The greatest concentration of states currently using
user fees is still located in this region.76
The strategy to shift the burden of taxes to the nonresident
id. at 92–93.
71. ARONSON & HILLEY, supra note 53, at 156; see also id. at 157 tbl.8–7 (relying
on materials by Robert Cline and published by the Advisory Commission on Intergovernmental Relations). There were three important time periods when there was a resurgence of user fees: in the late 1980s; from 1977 to 1983; and from 1983 to 1985. See id.
at 156–59.
72. See DANIEL R. MANDELKER & DAWN CLARK NETSCH, STATE AND LOCAL GOVERNMENT IN A FEDERAL SYSTEM 291 (3d ed. 1990).
73. ARONSON & HILLEY, supra note 53, at 156. The importance of user fees was
motivated by tax expenditure limitations, including Proposition 13 in California and
Proposition 2 1/2 in Massachusetts. See Anthony T. Logalbo, Responding to Tax Limitation: Finding Alternative Revenues, GOVERNMENTAL FINANCE, Mar. 1982, at 13, 14.
74. UTZ, supra note 17, at 218; see also RONALD JOHN HY & WILLIAM L. WAUGH,
STATE AND LOCAL TAX POLICIES 194 (1995).
75. See JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION ¶ 1.02
(2d ed. 1993). Examples are fees placed on peddlers, auctioneers, saloon keepers, trades,
slaves, horses, keepers of ferries, toll bridges, and turnpikes. See id.
76. “User charges are [still] relied on most heavily in the Southeast, Southwest,
and Far West. The Northeast makes least use of this source of financing.” ARONSON &
HILLEY, supra note 53, at 156 (relying on material by Robert Cline and published by the
Advisory Commission on Intergovernmental Relations); see also RICHARD T. ELY, TAXATION IN AMERICAN STATES AND CITIES 131 (1888); EDWIN R.A. SELIGMAN, ESSAYS IN TAXATION 16–17 (10th ed. 1925).
1997]
Municipal Finance and User Fees
741
prompts constitutional issues within the structure of federalism.77
Because the United States Constitution establishes a federal system
of government in which sovereignty is shared between the nation
and the states, the local government enjoys only partial freedom in
developing its tax schemes.78
Federalism also subjects local government financing techniques
to limits provided in the federal constitution. For example, from
1876 to 1946, the United States Supreme Court invalidated taxes on
persons (out-of-state drummers) having no established business in
the local jurisdiction.79 The Court held the taxes to be discriminatory
and against the Commerce Clause because these fee licenses bore
more heavily on the transient vendor than those permanently established in the locality.80
C. The Economics of User Fees
Recognizing that individuals want to receive reasonable value
for their payment, user charges seem fair because those consuming
benefits are bearing the expense. Although it may be possible to
identify consumers, sometimes it is impossible or impractical to
identify or charge them.81
This impossibility may be demonstrated on a “continuum” of
services arranged according to necessity.82 A water supply is a necessity; street lighting might be considered desirable; and a public
77. The Tenth Amendment provides: “[T]he powers not delegated to the United
States by the Constitution nor prohibited by it to the States, are reserved to the States
respectively, or to the people.” U.S. CONST. amend. X. The Guarantee Clause provides:
“The United States shall guarantee to every State in this Union a Republican Form of
Government . . . .” U.S. CONST. art. IV, § 4.
78. See Fry v. United States, 421 U.S. 542, 545–47 (1975); see also Freilich et al.,
supra note 1, at 863; M. David Gelfand, Local Government in the American Federal System: The Bicentennial as a Time of Crisis and Opportunity, 19 URB. LAW. 569 (1987);
Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 MICH. L.
REV. 895, 920–21 (1992); Symposium, Federalism in the Bicentennial Year of Our Constitution — A Comprehensive Analysis of Historical Perspectives, Current Issues and Creative Solutions, 19 URB. LAW. 431 (1987).
79. See HELLERSTEIN & HELLERSTEIN, supra note 75, ¶ 4.12[1][a].
80. See id. See infra notes 266–72 and accompanying text for more discussion on
the drummers.
81. In education, it is difficult to identify the level of use, whereas identification of
other users is sometimes quite easy, as in the case of public water accessed by meters to
the water lines.
82. See INFRASTRUCTURE, supra note 21, at 24.
742
Stetson Law Review
[Vol. XXVI
park nonessential on the scale. Identifying the beneficial users of
the street lighting and the park could be economically impractical, if
not impossible.83 In such situations, another consumer or a non-user
would be charged the fee.84
If user fees could be assessed on actual consumption, the system
would be virtually faultless.85 In actuality, a user charge system only
crudely reflects benefit taxation.86 It is extremely difficult to charge
individual consumers according to their level of patronage.87 Most
user fees reflect the average cost of consuming a public facility or
service.
Actual attempts to identify the user produce an increase in the
ratio of administrative and compliance costs to all other costs.88 To
maximize the efficiency of a user-fee system, a marginal costing
method is used. The goal of marginal costing is for the consumer to
completely pay the expense associated with his or her personal use.
If the consumer pays more of the actual expense caused by his use,
he contributes to other expenses of local government. This practice
violates the principle of marginal cost pricing because it provides
cost subsidization.
Economists consider a levy “`use-efficient” if it requires “consumers to internalize the marginal cost impacts of their decisions.”89
The objective is to “bring supply and demand into balance at a level
that accurately reflects users' willingness to pay.”90
Expenses of providing public services are created by many variables. Some are not obvious. The length of use often strongly affects
cost. Distance within a single jurisdiction may also have to be considered because:
The cost of providing infrastructure services differs considerably
among locations in any metropolitan area because of the diversification in topology, densities of existing development, and distances
83. See id. For example, water consumption can be easily traced by metering,
street lighting and public park use cannot.
84. See id.
85. The standard could be a gallon of water utilized or miles driven per bus ride.
86. See INFRASTRUCTURE, supra note 21, at 26–27.
87. See id. at 24–25.
88. See LOCAL REVENUE DIVERSIFICATION, supra note 30, at 25; see also ALAN A.
ALTSHULER & JOSE A. GÓMEZ-IBÁÑEZ, REGULATION OF REVENUE 119 (1993).
89. ALTSHULER ET AL., supra note 19, at 137.
90. Id.
1997]
Municipal Finance and User Fees
743
from central infrastructure facilities or employment centers. By
contrast, infrastructure user charges typically do not.91
A sophisticated user-charge system differentiates rates by monitoring the season, time of day, and demand conditions.92 Detailed
cost records enable the local government to charge the consumer a
fee close to actual cost. Use of marginal cost pricing causes consumers to pay their own way and each additional increment of a fee is
based on a margin of additional use.93 The information derived from
such a system can also reduce peak demand without affecting periods of low demand.94
However, as it is generally known that few local governments
keep sufficiently detailed records for this complex analysis of facility
operations, prototype marginal cost pricing cannot be implemented,
so approximations must be used. The result is a setting of average
fees that are usually lower than marginal costs.95 The use of averaging eases administrative burdens and can be efficient if categorization or estimates reflecting location or time can be made.96
Another impediment to the use of marginal costing is a concern
over burdening consumers and the desire to impose fiscal limitations on local management.97 Thus, governments often collect only
current expenses from user fees.
User fees shift usage patterns because individuals paying fees
attempt to reduce usage to economize.98 Household water usage
sharply declines when a locality changes from general taxation to a
91. Id. at 119.
92. See id.
93. Marginal cost is “the derivative of the total cost with respect to output”:
dC
MC = dq =
1'(q)
JAMES M. HENDERSON & RICHARD E. QUANDT, MICROECONOMIC THEORY 55–56 (1958). As
to these components, dC is the total differential of the cost equation; dq is the total
differential of the product function; and 1'(q) is the quantity of output. See id.
94. An ancillary benefit to a user-fee system is a structure satisfying the greatest
amount of demand with any fixed local capacity. Large scale capacity expansion projects
can be deferred. See ALTSHULER & GÓMEZ-IBÁÑEZ, supra note 88, at 137. See generally
LOCAL REVENUE DIVERSIFICATION supra note 30, at 26–29.
95. See ALTSHULER ET AL., supra note 19, at 117.
96. See id. at 119.
97. See id. at 118–19.
98. See id. at 117.
744
Stetson Law Review
[Vol. XXVI
meter system of charging.99 This shift in usage patterns assists in
planning and budgeting local government operations. In addition,
unnecessary and expensive facilities can be identified.
A determination of the maximum user fee becomes necessary
because of these concerns. This determination requires analysis of
not only the costs of the facility, but also of the value the consumer
places on it. Intangible elements must be examined. If the consumer
makes a judgment that the financial expense, in combination with
other personal factors, is worth payment of the fee, he will use the
facility.100 As a result, revenues collected and any profit generated
reflect how highly the public values a facility, how much benefit it
provides, and how willing consumers are to pay for it.
Water charges illustrate the imperfection of a user system. Water demand is largest in the summer. However, water charges seldom have seasonal variations.101 Also, water rates are constant from
location to location even though some areas are obviously more difficult to access and maintain than others.102 Water use charges are
frequently inaccurate because the charge is the same regardless of
location, time of day, or season.103
As another public facility service financed by a form of user
charge, the highway system reflects benefit taxation only in a crude
way.104 The charge for motor fuel is the same regardless of time of
day or location, but the marginal cost of providing for motorists varies tremendously.105 Variations of highway use include individuals
who drive during peak and off-peak times.106 Increases in off-peak
driving entail little cost.107 Construction costs are higher in the center of an urban area than in the suburbs. Although fuel tax receipts
99. See id. at 137.
100. See ALTSHULER ET AL., supra note 19, at 137.
101. See id.
102. See id.
103. See INFRASTRUCTURE, supra note 21, at 25. Even if there are good records, difficulties arise. For example, aside from incidental expenses, the marginal cost of using
crowded public tennis courts is related to congestion. Hardship is imposed on the wouldbe players. On the average, cost of congestion is estimated by asking people how much
they would be willing to pay without a wait. Reserving time at peak hours is simpler
than imposing the theoretically precise users charge. See id.
104. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.
105. See id. Motor fuel excises and license fees differ by the type of vehicle. Vehicle
type relates only superficially to benefits or damage costs.
106. See id.; see also INFRASTRUCTURE, supra note 21, at 118.
107. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.
1997]
Municipal Finance and User Fees
745
are set to approximately cover highway construction and maintenance costs in urban areas, rush-hour and urban area motorists are
not charged their marginal costs.108 Drivers in off-peak periods and
in rural locations, in turn, are overcharged.109
If a sophisticated toll charge system were operating, frequency
and costs of individual use would be reflected in the charge.110 Unfortunately, the toll systems one observes currently are quite basic.
Presently, direct toll receipts constitute an insignificant portion of
highway revenue receipts.111 Usually the average cost of travel categorized by class of motorists determines the fee.112
Proper fees should be continually revised to correspond to
changes in cost.113 Fees are often underpriced because they are
based on historical costs.114 Replacement costs are rarely considered
when local governments impose fees. If the debt originally incurred
to finance the facility has been satisfied, capital charges are still
appropriate.115
Moreover, user charges should provide a source for the cost of
proper maintenance. The public, by refusing to patronize poorly
maintained facilities, forces fees to be reduced.116 User fees could encourage local governments to maintain capital investments. However, before user fees are feasible, the exclusion of some members of
the public from enjoyment of the facility or service must be acceptable. In addition, the necessary cost of administering the user
charge system must be considered to avoid operating deficits.
108. See id.
109. See id.
110. See id.
111. See id.
112. User fees covering highway costs apparently do not affect a motorist's decision
about how much or when to drive. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.
113. Very often that is resolved by having the facility operated through a franchise
agreement. Many factors affecting price are too sophisticated to be discussed in this article. For example, the facility must be constructed large enough to handle peak loads.
“Smoothing out” use can prevent the need to add extra capacity, saving money in the
long run. At the time, those who value the convenience of using the facility at peak
times may consider the fee charged to be worthwhile, particularly if non-peak patronage
incurs a reduced fee or no fee at all. Individuals can decide for themselves when to use
the facility. See INFRASTRUCTURE, supra note 21, at 23.
114. See ALTSHULER & GÓMEZ-IBÁÑEZ, supra note 88, at 118.
115. See ALTSHULER ET AL., supra note 19, at 118.
116. See INFRASTRUCTURE, supra note 21, at 23.
746
Stetson Law Review
[Vol. XXVI
III. CONSTITUTIONAL ISSUES PERTAINING TO
LOCAL TAXATION
A. Review of Major Constitutional Issues
Federal constitutional principles limit a local government's ability to impose user fees. Taxation is a sovereign right reserved to the
state government.117 Still, there has been extensive litigation on the
federal constitutional limitations of state and local exactions. This
section will address challenges to user fees alleging violations of
constitutional principles.
Realistically, a taxpayer will most likely challenge a fiscal statute as violative of several constitutional provisions.118 Constitutional
provisions other than the Commerce Clause have been successfully
asserted to invalidate a financial ordinance.119 Typically, adjudication focuses on equal protection and due process.
A tax imposed by a state on property, income, or activity within
its borders has few constitutional limitations. The Federal Constitution limits neither the types of tax nor the exactions. It does not
provide a maximum rate of tax.120 The state is
117. See Stockard v. Morgan, 185 U.S. 27, 37 (1902). A state has the power to tax
individuals and property within its jurisdiction. See id.
118. See Western & S. Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648,
655–58 (1981) (addressing Privileges and Immunities, Commerce, and Equal Protection
Clauses).
119. Principles of the commerce, due process, equal protection, import/export, privileges and immunities, and supremacy clauses have been the generally recognized basis
for most challenges to taxing statutes.
The Privileges and Immunities Clause, which applies to individual citizens, provides that “[t]he Citizens of each State shall be entitled to all Privileges and Immunities
of Citizens in the several States.” U.S. CONST. art. IV, § 2.
Section One of the Fourteenth Amendment also contains a Privileges and Immunities Clause. U.S. CONST. amend. XIV, § 1. The test is whether (1) a privilege or immunity of a state citizenship is involved; and (2) whether in utilizing a balancing test to
determine whether the challenged discrimination against the privilege or immunity is
substantially justified. See NAGEL ET AL., supra note *, § 7.3. Most of the issues concerning privileges and immunities protected under the Fourteenth Amendment involve licensing of fees assessed against nonresidents. See id.
States are also specifically prohibited from imposing taxes on exports and imports. U.S. CONST. art. I, § 10, cl. 2.
There is a narrow proscription entitled the Duty of Tonnage which is imposed by
Article I, Section 10, Clause 3 of the United States Constitution. U.S. CONST. art. I,
§ 10, cl. 3. It prohibits a state from taxing the tonnage of a vessel. See Clyde Mallory
Lines v. Alabama ex rel. State Docks Comm'r, 296 U.S. 261, 265–66 (1935).
120. The Supreme Court has repeatedly concluded that even a state tax so burden-
1997]
Municipal Finance and User Fees
747
free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its
power in relation to opportunities which it has given, to protection
which it has afforded, to benefits which it has conferred by the fact
of being an orderly civilized society.121
The Fourteenth Amendment to the United States Constitution
provides for equal protection of the law.122 The tax scheme of the
state must have a rational relationship to a legitimate governmental
interest. States are permitted to establish classes of taxpayers and
provide for a different method of taxation for each class. State classification of taxpayers and their activities for purposes of applying
different tax rates may be so arbitrary as to violate the Equal Protection Clause.123 Taxpayers, therefore, typically challenge statutory
classifications.124
Equal protection issues focus on property valuation,125 business
competition,126 or residency versus non-residency127 classification.
Equal protection challenges may also involve discrimination that is
unreasonable, arbitrary, or invidious.128 Although the Constitution
gives discretion to local governments to classify people, property,
some as to destroy business does not violate the Constitution. See Stewart Dry Goods
Co. v. Lewis, 294 U.S. 550, 562–63 (1935); Fox v. Standard Oil Co., 294 U.S. 87, 99–100
(1935); A. Magnano Co. v. Hamilton, 292 U.S. 40, 45–47 (1934); Alaska Fish Salting &
By-Products Co. v. Smith, 255 U.S. 44, 48–49 (1921).
121. Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940).
122. See U.S. CONST. amend. XIV, § I, cl. 2. The Equal Protection Clause provides:
“No State shall . . . deny to any person within its jurisdiction the equal protection of the
laws.” Id.
123. See Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 400–02 (1928).
124. See, e.g., Hillsborough Township v. Cromwell, 326 U.S. 620, 621 (1946).
125. See generally Nordlinger v. Hahn, 505 U.S. 1 (1992); Allegheny Pittsburgh Coal
Co. v. County Comm'n, 488 U.S. 336 (1989). The Equal Protection Clause permits separate classification in taxation with different types of property. See generally Charleston
Fed. Sav. & Loan Ass'n v. Alterson, 324 U.S. 182 (1945).
126. See generally Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356 (1973);
White River Lumber Co. v. Arkansas, 279 U.S. 692 (1929).
127. See generally Williams v. Vermont, 472 U.S. 14 (1985); Metropolitan Life Ins. v.
Ward, 470 U.S. 869 (1985); Western & S. Life Ins. Co. v. State Bd. of Equalization, 451
U.S. 648 (1981); Wheeling Steel Corp. v. Glander, 337 U.S. 562 (1949).
128. See Nordlinger v. Hahn, 505 U.S. 1 (1992); Puget Sound Power & Light Co. v.
City of Seattle, 291 U.S. 619 (1934); Holt v. City of Maumelle, 786 S.W.2d 581 (Ark.
1990); City of Pittsburgh v. Commonwealth, 559 A.2d 513 (Pa. 1989); Mountain Fuel
Supply Co. v. Salt Lake City Corp., 752 P.2d 884 (Utah 1988).
748
Stetson Law Review
[Vol. XXVI
and activity for tax purposes,129 categorization of persons or corporations domiciled outside the local government's jurisdiction are classified differently.130 The Equal Protection Clause prohibits discrimination against nonresidents.131 Most courts have upheld different
rates for nonresident users as a separate class. This classification
has been accepted as reasonable based on the distance from the origins of services or cost of extending the service line. If residents and
nonresidents are treated as one class, a rate differential based on
nonresidency may be unreasonably discriminatory unless otherwise
justifiable and specifically authorized by statute.
In City of Texarkana v. Wiggins,132 the court struck down different tax rates imposed on nonresidents as arbitrary.133 The court
could find no basis to justify the differential except the municipal
boundary line. There was no obligation to compel the municipality to
serve persons outside of a municipal boundary. If the municipality
provides services beyond its boundaries, however, it may not discriminate against nonresidents without a reasonable basis for doing
so.134
In Town of Terrell Hills v. City of San Antonio,135 the city
charged the nonresidents of Terrell Hills a higher rate for water
than city residents.136 The court justified the higher fees because the
129. See Northwestern Mut. Life Ins. Co. v. Wisconsin, 247 U.S. 132, 138–39 (1918);
Fox Bakersfield Theatre Corp. v. City of Bakersfield, 222 P.2d 879, 883–84 (Cal. 1950);
Jensen v. City of Denver, 806 P.2d 381, 384–85 (Colo. 1991) (en banc); Sandstrom v. City
of Ft. Lauderdale, 133 So. 2d 755, 757 (Fla. 2d Dist. Ct. App. 1961); Panama City v. HiOctane Terminal Co., 121 So. 2d 197 (Fla. 1st Dist. Ct. App. 1960); City of Louisville v.
Sebree, 214 S.W.2d 248 (Ky. 1948); Town of Morristown v. Woman's Club, 577 A.2d 1309
(N.J. Super. Ct. App. Div. 1990), aff'd, 592 A.2d 216 (N.J. 1991).
130. See Town of St. Helena v. Butterworth, 244 P. 357, 358 (Cal. 1926) (holding
unconstitutional different taxes on wholesale merchants outside of town who deliver by
vehicle and out-of-town wholesale merchants who deliver by other means); City of Central v. Axton, 410 P.2d 173, 181 (Colo. 1966) (en banc) (holding that different occupation
taxes on merchants, whose stock consists of more than 50% souvenirs manufactured
outside of town, were discriminatory); O'Connell v. Kontojohn, 179 So. 802, 804 (Fla.
1938) (holding different license taxes on bakeries inside and outside the city unconstitutional); cf. Continental Baking Co. v. Escondido, 69 P.2d 181, 183 (Cal. Dist. Ct. App.
1937) (holding different taxes on merchants within the city and other merchants constitutional).
131. U.S. CONST. amend. XIV, § 1.
132. 246 S.W.2d 622 (Tex. 1952).
133. See id. at 627.
134. See id. at 627–28.
135. 318 S.W.2d 85 (Tex. Civ. App. 1958).
136. See id. at 86.
1997]
Municipal Finance and User Fees
749
cost of nonresident meter readings was substantially higher;
standby water demand was greater outside of the city boundaries;
rates outside the city were based on a high physical plant value; and
a substantial charge for fire protection was necessary outside the
city.137
User charges with irrational classification rates run the risk of
violating equal protection. In Kadrmas v. Dickinson Public School,138
the Supreme Court upheld a state statute permitting fees to be
charged by local public school districts that were not reorganized
into large systems.139 Bus transportation in reorganized school districts was free.140 The Court found a rational basis for the distinction
between reorganized and nonreorganized school districts.141 The
stated objective in encouraging school districts to reorganize was to
alleviate concern about continued availability of transportation. The
Court held that a nonreorganized school district board could vote to
charge persons whose children used the provided transportation.142
The Due Process Clause encompasses the territorial reach of the
states' taxing power.143 In Chicago & Northwestern Railway v.
State,144 the court articulated the following test:
[T]here must be some appreciable relation between the municipality exacting the tax and the person upon whom the burden is cast,
either directly or by reference to the property taxed, from which
137. See id. at 88–89.
138. 487 U.S. 450 (1988).
139. See id. at 465; see also Alamo Rent-A-Car, Inc. v. Sarasota-Manatee Airport
Auth., 825 F.2d 367, 370–72 (11th Cir. 1987) (upholding user charges differentiated between off-airport courtesy car rental vehicles and motel and hotel courtesy vehicles);
Warrenville Plaza, Inc. v. Warren Township Sewerage Auth., 553 A.2d 874, 880–82 (N.J.
Super. Ct. App. Div. 1989) (upholding assessment of sewage connection charges for commercial condominium development).
140. See Kadrmas, 487 U.S. at 453–54.
141. See id. at 465.
142. See id.; cf. Weber Basin Home Builders Ass'n v. Roy City, 487 P.2d 866 (Utah
1971). Building permits and licensing charges create similar issues. In Weber, the court
struck down an increase in building permit fees on equal protection grounds because it
was passed to obtain additional revenues for the city general fund. See id. at 869. The
increase fell unequally on new residents and could not be justified by allegations that
the new residents increased the cost of city government. See id.
143. See U.S. CONST. amend. XIV, § 1. The Due Process Clause provides: “nor shall
any State deprive any person of life, liberty, or property, without due process of law.” Id.
Due process also grants to the taxpayer procedural rights, including the right of appeal.
See LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 557–58 (1978).
144. 108 N.W. 557 (Wis. 1906).
750
Stetson Law Review
[Vol. XXVI
there can reasonably be seen reciprocal duties to accord benefits on
the one hand, and to respond therefor on the other.145
There are two requirements for a state statute to guarantee the
protection of due process of the individual.146 The two-pronged substantive test requires (1) a minimal connection between the subject
of the tax and the taxing state;147 and (2) a rational relationship between the amount of the tax and the activity or property taxed.148
The local government must provide the property or its owner sufficient services to justify the tax as reasonable and fair.149 Courts
have held an exaction amounting to a confiscatory tax unconstitutional150
A public rate established for water and sewer services that compared favorably with the rates of private utilities was upheld in
Apodaca v. Wilson.151 That opinion established a standard for user
fees.152 The Apodaca court clearly held that the user fees involved
were not taxes.153 The fees must be reasonable in amount, and not
be limited to a recovery of costs.154 A fair profit may be generated for
use by the general public.155 An unreasonable reliance on utility
revenues for general government purposes may impose unfair bur-
145. Id. at 589.
146. See Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992); International Shoe
Co. v. Washington, 326 U.S. 310, 316–18 (1945).
147. In tax law, this connection is labeled “nexus.” See Quill, 504 U.S. at 311 (citing
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977)).
148. See id. at 306.
149. See, e.g., Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444–45 (1940).
150. The Due Process Clause protects an individual against a local tax “only if the
act be so arbitrary as to compel the conclusion that it does not involve the exertion of
the taxing power, but constitutes, in substance and effect, the direct exertion of a different and forbidden power, as, for example, the confiscation of property.” A. Magnano Co.
v. Hamilton, 292 U.S. 40, 44 (1934); see also City of St. Petersburg v. Florida Coastal
Theatres, Inc., 43 So. 2d 525, 527–28 (Fla. 1949) (en banc); Oil Heat Inst. v. Town of
Mukilteo, 498 P.2d 864, 866 (Wash. 1972) (en banc); cf. Lassen v. Caruso, 578 So. 2d
940, 941–42 (La. Ct. App. 1991) (concluding the Due Process Clause was not violated
because the plaintiff was given the same opportunity as a neighbor, even though the
opportunity was not exercised).
151. 525 P.2d 876 (N.M. 1974).
152. See id. at 881–86.
153. See id. at 886.
154. See id. at 884.
155. See id. (citing 5 EUGENE MCQUILLIN, THE LAW OF MUNICIPAL CORPORATIONS 64,
65 (2d ed. 1944)).
1997]
Municipal Finance and User Fees
751
dens on those paying user fees.156
Although the Due Process Clause does not prohibit double taxation,157 the measure of a tax must rationally relate to the taxpayer's
activity and presence in the state.158 Commonwealth Edison Co. v.
Montana159 examined Montana's Coal Severance Act. The Court
determined that federal policy intended to encourage the use of coal
did not preempt the Act.160 The rate of taxation is:
essentially a matter for legislative and not judicial resolution . . .
[and] in essence, appellants ask this Court to prescribe a test for
the validity of state taxes that would require state and federal
courts, as a matter of federal constitutional law, to calculate acceptable rates or levels of taxation of activities that are conceded to be
legitimate subjects of taxation. This we decline to do.161
Commonwealth Edison Co. involved a levy on value, energy
content, and the method of extraction of coal.162 The Court considered it crucial that the tax burden be measured by the amounts of
coal extracted.163 This insures that no distinction exists between in-
156. See Apodaca, 525 P.2d at 883–84; see also Contractors & Builders Ass'n v. City
of Dunedin, 329 So. 2d 314, 318 & n.5 (Fla. 1976) (stating sewer linkage fees as a condition precedent to obtaining a permit are permissible only if the fees are used to meet
the cost of expansion).
Linkage fees are used as a condition to granting necessary development permits
under local government division regulation ordinances. In City of Key West v. R.L.J.S.
Corp., 537 So. 2d 641, 646–47 (Fla. 3d Dist. Ct. App. 1989), an assessment of impact
fees on a condominium development was upheld even though a building permit had already been issued and several units sold.
157. See Wisconsin v. J.C. Penney Co., 311 U.S. 435, 442, 444–45 (1940); Graves v.
Elliott, 307 U.S. 383, 387 (1939) (Hughes, J., dissenting); Curry v. McCanless, 307 U.S.
357, 367 (1939).
Tangible personal property is taxed where it is located. See Frick v. Pennsylvania, 268 U.S. 473, 492 (1925). See generally Boris I. Bittker, The Taxation of Out-of-State
Tangible Property, 56 YALE L.J. 640 (1947).
158. See Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 772–73
(1992); Quill Corp. v. North Dakota, 504 U.S. 298, 306–08 (1992); Norfolk & W. Ry. v.
Missouri State Tax Comm'n, 390 U.S. 317, 323–25 (1968); J.C. Penney, 311 U.S. at
444–45; Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S 123, 134
(1931).
159. 453 U.S. 609 (1981).
160. See id. at 629–33.
161. Id. at 627–28 (footnotes and citations omitted).
162. See id. at 612–14.
163. See id. at 626–27.
752
Stetson Law Review
[Vol. XXVI
state and out-of-state consumption.164
Some state constitutions require uniformity of laws.165 The
uniformity provision requires that all members of a particular class
be treated equally.166 The Governor of Wisconsin vetoed a bill passed
by the legislature as violative of the Wisconsin Uniformity Clause.
The bill required payment of a user fee on property exempt from
taxation.167 The Wisconsin Attorney General determined that the fee
had multiple infirmities because it applied only to exempt property;
local governments could choose to impose it only on some categories
of exempt property; and the fee, if legal, would reflect costs of services, such as fire and police protection, which do not inure directly
or exclusively to the benefit of exempt property.168
B. Judicial Review of User Fees in Florida
Municipal governments in Florida are expressly authorized to
impose user fees.169 The user fees, in turn, have affected the financial resources of municipalities in Florida through a sharing of state
164. See Commonwealth Edison, 453 U.S. at 619.
165. See, e.g., PA. CONST. art. VIII, § 1. These uniformity requirements may apply
only to certain types of taxes. See, e.g., ARIZ. CONST. art. IX, § 1; COLO. CONST. art. X,
§ 3; DEL. CONST. art. VIII, § 1; MICH. CONST. art. IX, § 3; MINN. CONST. art. X, § 1;
N.D. CONST. art. X, § 5; OHIO CONST. art. XII, § 2; S.C. CONST. art. X, § 6; S.D. CONST.
art. VI, § 17; VA. CONST. art. X, § 1; WASH. CONST. art. VII, § 1; WIS. CONST. art. VIII,
§ 1; WYO. CONST. art. I, § 28.
166. See 508 Chestnut, Inc. v. City of St. Louis, 389 S.W.2d 823, 830 (Mo. 1965);
Freeman v. City of Philadelphia, 116 A.2d 349, 353 (Pa. Super. Ct. 1955); Hill v. City
Council, 38 S.E. 11, 24 (S.C. 1901). Mathematical precision, though, is not required. See
Alfred J. Sweet, Inc. v. City of Auburn, 180 A. 803, 805 (Me. 1935); Associated Indus. v.
State Tax Comm'n, 722 S.W.2d 916, 919 (Mo. 1987) (en banc).
167. The property subject to the user fee was held by non-profit entities. See
DEBORAH KOCH, THE UNION INSTITUTE, THE NONPROFIT POLICY AGENDA: RECOMMENDATIONS FOR STATE AND LOCAL ACTION 87, 93 (1992).
168. See id. at 93.
169. See FLA. STAT. § 166.201 (1995), which provides in pertinent part: “A municipality may raise, by taxation and licenses authorized by the constitution or general law,
or by user charges or fees authorized by ordinance, amounts of money which are necessary . . . .” See also City of Jacksonville v. Jacksonville Maritime Ass'n, 492 So. 2d 770
(Fla. 1st Dist. Ct. App. 1986). The court in Jacksonville addressed the validity of an
ordinance that “impose[d] `user fees' on certain vessels anchored in storage for more
than 48 hours on the St. Johns River and its tributaries within city limits.” Id. at 771.
The stipulated facts stated that payment of the fee did not provide for a city service. See
id. The court found the ordinance violated Article VII, Section 1 of the Florida Constitution. See id. at 772. In addition, the court held that the user fee was neither an ad valorem tax nor issued pursuant to general law. See id.
1997]
Municipal Finance and User Fees
753
revenues with cities and counties.170 User fees are acknowledged to
be a separate and distinct function of government.171 Much of the litigation in Florida results from the source of funds used to discharge
general obligation debt.172
In City of Daytona Beach Shores v. State,173 the Florida Supreme
Court upheld a local user fee for motor vehicle beach access.174 The
court reasoned that although:
Florida's beach sovereignty lands must be accessible to the public,
[this] does not prohibit local governments from imposing reasonable
user fees for motor vehicle beach access, so long as the revenue is
expended solely for the protection and welfare of the public using
that particular beach, as well as for improvements that will enhance the public's use of the sovereign property.175
As in other jurisdictions, the issue frequently arises regarding
170. The State of Florida requires the actual amount of the user fee be disclosed.
See Herrick v. Florida Dep't of Bus. Regulation, 595 So. 2d 148, 152–53 (Fla. 1st Dist.
Ct. App. 1992).
171. See Advisory Opinion to the Attorney General re Tax Limitation v. Smith, 644
So. 2d 486, 493–94 (Fla. 1994). In an advisory opinion to the Attorney General, the
Florida Supreme Court evaluated three proposed amendments to the Florida Constitution: “Tax Limitation,” “Voter Approval of New Taxes,” and “Property Rights.” See id. at
489. The relevant portion of the proposal for tax limitations provided a prohibition on
the “imposition of new State taxes or fees on or after November 8, 1994 by constitutional amendment unless approved by two-thirds of the voters voting in an election.” Id.
at 491. The court held that the “initiative fails to meet the single-subject requirement
because it combines taxes and fees.” Id. The court reasoned that “tax and user fee provisions may not be joined in a single initiative.” Id. (citing Fine v. Firestone, 448 So. 2d.
984, 990–91 (Fla. 1984)). In addition, the court reemphasized that “when an amendment
`changes more than one government function, it is clearly multi-subject.'” Id. at 490
(quoting Evans v. Firestone, 457 So. 2d 1351, 1354 (Fla. 1984)).
172. See City of Palatka v. State, 440 So. 2d 1271, 1272 (Fla. 1983); County of
Volusia v. State, 417 So. 2d 968, 969 (Fla. 1982); State v. Miami Beach Redev. Agency,
392 So. 2d 875, 885 (Fla. 1980).
173. 483 So. 2d 405 (Fla. 1985).
174. See id. at 407 (finding that “[t]he [Daytona Beach user fee] ordinance restricted
the expenditure of the funds to payment of existing beach-related services, law enforcement, fire and rescue services, and public works, and provided that any excess would be
used for future beach improvements”).
The County of St. Johns and City of St. Augustine Beach user-fee ordinances
“provid[ed] for a fee of one dollar per motor vehicle for beach access during high use
periods.” Id.; see also City of New Smyrna Beach v. Board of Trustees of the Internal
Improvement Trust Fund, 543 So. 2d 824 (Fla. 5th Dist. Ct. App. 1989) (upholding a
reasonable user fee for beach access as long as the fee was related to beach expenses).
175. Daytona Beach, 403 So. 2d at 408.
754
Stetson Law Review
[Vol. XXVI
the determination of the character of an exaction.176 Florida courts
have defined user fee services as electric, water, gas, garbage collection, and transportation services, where the user pays for the services he or she received.177 In Delta Air Lines, Inc. v. Department of
Revenue,178 the Florida Supreme Court relied on EvansvilleVanderburgh Airport Authority District v. Delta Air Lines, Inc.179 to
determine the nature of a “true `user fee' or user tax.”180
In State v. City of Port Orange,181 the court was required to
ascertain whether a transportation utility fee was a valid user fee or
a tax.182 The court held that user fees have unique features dis
176. An action against a Florida tax statute:
[C]an only be maintained when the following conditions concur: (1) The tax
must be illegal and void and not merely irregular; (2) it must have been paid
under compulsion or the legal equivalent; (3) it must have been paid over by
the collecting officer and have been received to the use of the municipality; (4)
the party must not have elected to proceed in any remedy he may have had
against the tax assessor or collector.
North Miami v. Seaway Corp., 9 So. 2d 705, 707 (Fla. 1942) (en banc).
177. See Evans v. Firestone, 457 So. 2d 1351, 1357 (Fla. 1984); Fine v. Firestone,
448 So. 2d 984, 991 (Fla. 1984). In Florida, user fees are contrasted with impact fees.
See, e.g., St. Johns County v. Northeast Fla. Builders Ass'n, 583 So. 2d 635, 640 (Fla.
1991); see also Temp. Tech. Adv. Mem. No. 87 (AER)-198, 1987 Fla. Tax LEXIS 232 (Fla.
Dep't Rev. Sept. 11, 1987) (distinguishing fees from optional user charges). In St. Johns
County, an impact fee was imposed on new residential construction to be used for new
school facilities. See 583 So. 2d at 637. The fee effectively became a user fee because the
operation of the statute was such that it was actually imposed only upon households
that had children in public schools. See id. at 640. The state constitution requires free
schools. See id. at 639 (citing FLA. CONST. art. IX, § 1). The actual recipient of the subsidized benefits, whether the school board or the county commission, was not determinative of the nature of the exaction. See id. at 641. That portion of the fee characterized as
a user fee was severed to preserve the constitutionality of the statute. See id.
178. 455 So. 2d 317 (Fla. 1984).
179. 405 U.S. 707 (1972).
180. Delta Air Lines, 455 So. 2d at 323 (determining the exaction in the case was
not a true user fee); see also Harris v. Wilson, 656 So. 2d 512 (Fla. 1st Dist. Ct. App.
1995). In Harris, the court distinguished user fees because individuals paid them on a
voluntary basis. See id. at 514 n.3.
181. 650 So. 2d 1 (Fla. 1994).
182. See id. at 3. The City of Port Orange Transportation Utility Ordinance provided
in pertinent part:
[A] fee is imposed upon the owners and occupants of developed properties within the City. No fees are imposed on undeveloped property. Any unpaid fee becomes a lien upon the property until such fee is paid. The costs to be defrayed
by the fee are the City's expenses relating to the operation, maintenance, and
improvement of the local road system.
Id. at 2.
In addition, City of Port Orange examined multiple issues including whether a
1997]
Municipal Finance and User Fees
755
tinguishing them from taxes.183 In particular, the court stated that
user fees are charged in exchange for a particular governmental service.184 The court determined the levy to be a tax because “it involved a[n] [in]voluntary choice to connect into an existing instrumentality of the municipality.”185 The court reasoned that “the City's
transportation utility fee . . . convert[ed] the roads and the municipality into a toll road system, with only owners of developed property in the city required to pay the tolls.”186
The City of Jacksonville imposed an authorized user fee on
nontenant rental car companies for access by their vans to public
airport roads and terminal airport ramps.187 Alamo Rent-A-Car, Inc.
challenged the fee as an unlawful tax.188 The court upheld the exaction, defining it as a user fee.189 Previously, the Florida Supreme
Court had defined a tax as involuntary and not dependent or controllable by those upon whom it is imposed.190 In the instant case,
Jacksonville Public Authority (JPA) was the proprietor of the airport
system and the user fee was an incident of that proprietary sta-
public body has the authority to issue the subject bonds, determining if the purpose of
the obligation is legal, and ensuring that the authorization of the obligation complies
with the requirements of law. See id. at 2–4.
183. See id. at 3. The court specifically stated that:
User fees are charges based upon the proprietary right of the governing body
permitting the use of the instrumentality involved. Such fees share common
traits that distinguish them from taxes: they are charged in exchange for a
particular governmental service which benefits the party paying the fee in a
manner not shared by other members of society, and they are paid by choice,
in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge.
Id. (citations omitted). This concept of user fees was developed by the same court in City
of Daytona Beach Shores v. State, 483 So. 2d 405, 408 (Fla. 1985).
184. See City of Port Orange, 650 So. 2d at 3.
185. Id. at 4. The court further stated that the bond ordinance “[was] a tax which
must be authorized by general law.” Id. at 3.
186. Id. at 4. This case is also significant because it raises the issue of discrimination. The court stated that the “capital gives old users a windfall at the expense of new
users,” which suggests that there is an element of discrimination. Id. This approach may
become more relevant in the future.
187. See Jacksonville Port Auth. v. Alamo Rent-A-Car, Inc., 600 So. 2d 1159 (Fla.
1st Dist. Ct. App. 1992). The fee in question “impos[ed] on nontenant rental car companies a six percent gross receipts `user' or `privilege' fee for access by their vans to public
airport roads and terminal ramps.” Id. at 1160.
188. See id. at 1161.
189. See id. at 1164–65.
190. See id. at 1162 (citing State ex rel. Gulfstream Park Racing Ass'n v. Florida
State Racing Comm'n, 70 So. 2d 375, 379 (Fla. 1953)).
756
Stetson Law Review
[Vol. XXVI
tus.191 The court reasoned:
[Because] Alamo uses and benefits from all of the JPA's airport
facilities, and [because] the fee is charged to Alamo as a percentage
of the revenues from customers it picks up at [the airport], and
[because] Alamo pays the fee only if it uses and benefits from the
facilities the fee supports, the fee is based on the furnishing of a
specific benefit to Alamo and is thus not a tax but an authorized
user fee under the Charter.192
As illustrated in Jacksonville Port Authority, Florida courts
distinguish between general revenue taxes and user fees.193 A general revenue tax benefits the taxpayer for “the privileges of living in
an organized society.”194 A user fee is imposed for a specific state facility or service.195 Governments also impose user fees to cover current costs, to avoid burdening the user, to impose physical discipline
on authority managers, and to cover administrative costs.196
Considerations giving due regard to the provisions of the United
States Constitution control in Florida.197 In the author's opinion, the
Florida cases facilitate bringing an action under Commerce Clause
principles. Thus, the Commerce Clause may impact user fees.198
In Day v. High Point Condominium Resorts, Ltd.,199 the Florida
Supreme Court analyzed a constitutional challenge to a statute
which imposed ad valorem taxes on time-share property.200 The
plaintiffs asserted a violation of due process and equal protection.201
The court acknowledged the Legislature's great freedom to classify
191. See id. at 1164.
192. Id. at 1164–65.
193. See Jacksonville Port Auth., 600 So. 2d at 1162; see also Fine v. Firestone, 448
So. 2d 984, 986 (Fla. 1984) (holding that a statute violated the Florida Constitution's
single subject requirement).
194. Florida Dep't of Revenue v. Seminole Elec. Coop., Inc., 598 So. 2d 115, 118
(Fla. 2d Dist. Ct. App. 1992) (quoting Commonwealth Edison Co. v. Montana, 453 U.S.
609 (1981)).
195. See id.
196. See generally LOCAL REVENUE DIVERSIFICATION, supra note 30, at 27–31.
197. See Florida Dep't of Revenue, 598 So. 2d at 117–18.
198. The case of Harris v. Wilson, 656 So. 2d 512 (Fla. 1st Dist. Ct. App. 1995),
should be reviewed when considering the author's position.
199. 521 So. 2d 1064 (Fla. 1988).
200. See id. at 1064.
201. See id. at 1065.
1997]
Municipal Finance and User Fees
757
taxpayers.202 The Legislature, however, must classify on a rational
basis and not arbitrarily.203 A statute favoring a certain class may be
valid if founded upon reasonable distinction or a difference in state
policy.204
In City of Pompano Beach v. Oltman,205 the court examined the
city's charge on nonresidents for the availability of city water, which
was double the city residents' charge.206 The court held “a utility rate
ordinance is presumed valid, and the burden rests on those who
attack such rates to clearly demonstrate that such rates are arbitrary, unreasonable, or discriminatory.”207 The court held that the
nonresidents did not prove that the utility's rate of return was excessive.208 The Florida Constitution entitles cities to make a reasonable profit from utility operations “and to use the proceeds thus
derived for other valid municipal purposes.”209
In Alamo Rent-A-Car, Inc. v. Sarasota-Manatee Airport Authority,210 Alamo challenged the Sarasota-Manatee Airport Authority
user fees imposed upon off-airport rental cars.211 The case examined
whether there was a “rational basis for assessing a flat fee for hotel
and motel courtesy vehicles while charging the similarly situated
off-airport car rental companies a substantial percentage of their
receipts.”212 A second challenge was based on a violation of equal
protection.213 The court found no violation of any provision of the
Constitution.214 The Authority had “tailored its entire schedule of
fees to account for differences in vehicle use and the differing bene-
202. See id. at 1066 (citing Eastern Air Lines, Inc. v. Department of Revenue, 455
So. 2d 311, 314 (Fla. 1984)).
203. See id.
204. See id. (citing Eastern Air Lines, 455 So. 2d at 314).
205. 389 So. 2d 283 (Fla. 4th Dist. Ct. App. 1980).
206. See id. at 284.
207. Id. at 286.
208. See id.
209. Id. Florida law permits cities to charge higher rates to nonresident utility users
so long as they are reasonable and non-discriminatory. See id.
210. 825 F.2d 367 (11th Cir. 1987).
211. See id. at 368–69.
212. Id. at 370. The off-airport rental companies had to pay “10% of all gross business receipts derived from the rental of automobiles to passengers picked up at the Airport,” payable monthly for the permit's duration. Id. at 369. The on-airport rental companies had to pay a fixed rent in addition to a 10% “concession fee.” See id. at 370.
213. See id. at 372.
214. See id. at 373–74.
758
Stetson Law Review
[Vol. XXVI
fits realized by vehicles at the airport.”215
IV. COMMERCE CLAUSE ISSUES
A. Broadening the Scope of Interstate Commerce
At first blush, a user fee imposed on a service or facility furnished by a municipality may seem to be a distinctly local occurrence. Because the protection provided by the Commerce Clause
inures exclusively to interstate commerce, the question arises: Are
user fees distinctly local or intrastate?216 Unfortunately, opinions of
the United States Supreme Court delineating the scope of an activity as local or interstate have become a “quagmire.”217 The potential
for a Commerce Clause attack on state legislation, including municipal fiscal ordinances, has increased as the concept of what constitutes interstate commerce has broadened.
It is impossible to identify the precise moment when interstate
commerce ends and intrastate commerce begins.218 Theoretically, the
event identifying the commencement of intrastate commerce is the
end of the stream of interstate commerce.219 The Court has held that
taxes imposed on in-state mining, manufacturing, and publishing
are imposed on intrastate commerce regardless of the fact that the
goods were intended for sale outside the state.220 In fact, the Court
215. Id. at 371.
216. See North Am. Co. v. SEC, 327 U.S. 686, 700 (1946). Before the issue arises as
to whether a tax causes an undue burden, commerce must be involved. See Gibbons v.
Ogden, 22 U.S. (9 Wheat.) 1, 189 (1824). Gibbons defined commerce as “traffic, but it is
something more: it is intercourse. It describes the commercial intercourse between nations, and parts of nations, in all its branches.” Id. at 189–90. The Court refused to accept a more limited interpretation and rejected defining commerce as “traffic, to buying
and selling, or to the interchange of commodities,” because to do so would “restrict a
general term, applicable to many objects, to one of its significations.” Id. at 189; see also
Goldfarb v. Virginia State Bar, 421 U.S. 773, 785 (1975) (holding that a title examination can constitute interstate commerce).
217. See, e.g., Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450,
457–58 (1959).
218. See Nashville, Chattanooga & St. Louis Ry. v. Wallace, 288 U.S. 249, 265–66
(1933); Champlain Realty Co. v. Town of Brattleboro, 260 U.S. 366, 376 (1922); Wagner
v. City of Covington, 251 U.S. 95, 103 (1919); American Mfg. Co. v. City of St. Louis,
250 U.S. 459, 464 (1919); Diamond Match Co., v. Ontonagon, 188 U.S. 82, 93–96 (1903);
Coe v. Town of Errol, 116 U.S. 517, 526 (1886); Von Hamm-Young Co. v. City of San
Francisco, 178 P.2d 745, 747–48 (Cal. 1947).
219. See Coe, 116 U.S. at 525.
220. See Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938)
1997]
Municipal Finance and User Fees
759
in Commonwealth Edison Co. v. Montana221 rejected the argument
that state severance taxes are protected from a Commerce Clause
attack based on the theory that Montana imposed the taxes on goods
prior to their entry into the stream of commerce.222
Cases pertaining to congressional regulation of interstate commerce were initially distinguished from cases involving state statutes taxing interstate commerce.223 The Court did not consider regulation cases as precedent for state tax cases because the harm to be
guarded against differed significantly.224 Subsequently, the Court
expressed the view that “the same interstate attributes that establish Congress' power to regulate commerce also support constitutional limitations on the powers of the States.”225
Recent United States Supreme Court opinions reviewing regulation of interstate commerce address the local nature of a transaction. In 1986, Maine v. Taylor226 held that prohibiting transportation
of minnows into the state for sale did not violate the Commerce
Clause.227 Although Maine “prohibit[ed] the importation of live
baitfish, [the appellee] arranged to have 158,000 live golden shiners
delivered to him from outside the [s]tate.”228 The Supreme Court
reasoned that Maine's own bait supplies were intrastate products.
Regulating the disposal of the minnows within the state served a
legitimate local purpose that could not be served by available non(publishing); Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 178–79 (1923) (mining);
American Mfg. Co. v. City of St. Louis, 250 U.S. 459, 464 (1919) (manufacturing).
221. 453 U.S. 609 (1981).
222. See id. at 617.
223. See Exxon Corp. v. Eagerton, 462 U.S. 176, 184–85 (1983) (exempting the sale
of oil and gas). Exxon cited a House Committee report that provided: “[S]ales for resale,
or so-called wholesale sales, in interstate commerce (for example, sales by producing
companies to distributing companies) . . . have been considered to be not local in character and, even in the absence of Congressional action, not subject to State regulation.” Id.
(citing H.R. REP. NO. 75-709, at 1–2 (1937); S. REP. NO. 75-1162, at 2 (1937)). This view
of interstate commerce may be unique to the product involved — natural gas. See id.
224. See Minnesota v. Blasius, 290 U.S. 1, 8 (1933); Stafford v. Wallace, 258 U.S.
495, 518–20 (1922); Swift & Co. v. United States, 196 U.S. 375, 388–89 (1905).
225. Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 39 (1980) (citing City of Philadelphia v. New Jersey, 437 U.S. 617, 622–23 (1978)); see also Commonwealth Edison Co. v.
Montana, 453 U.S. 609, 619 (1981). The dictum in Lewis may not be intended to mean
that the powers of Congress to regulate interstate commerce are coterminous with the
limitations imposed by the Commerce Clause on the powers of the states to tax interstate commerce.
226. 477 U.S. 131 (1986).
227. See id. at 151.
228. Id. at 132 (footnote omitted).
760
Stetson Law Review
[Vol. XXVI
discriminatory alternatives.229
Conversely, in C & A Carbone, Inc. v. Town of Clarkstown,230
the Court determined that a solid-waste disposal regulation violated
the dormant Commerce Clause.231 The differentiation of streams of
commerce in itself is not sufficient to justify discrimination. To survive a challenge under the dormant Commerce Clause, a state must
make “the clearest showing that the unobstructed flow of interstate
commerce itself is unable to solve the local problem.”232
To appreciate the potential for user fees being invalidated on
Commerce Clause principles and the delay to date in initiation of
such an attack, it is necessary to examine the long and tenuous history involving state taxes and Commerce Clause concepts. Principles
of state taxes, as a counterpart to municipal taxes, may provide an
inference as to the application of Commerce Clause principles to
user fees.
Limitation of traffic has been the issue in several transportation-related tax cases. Oklahoma Tax Commission v. Jefferson
Lines, Inc.233 involved a sales tax on the gross price of interstate bus
tickets sold by a taxpayer in Oklahoma.234 The Court held that the
state sales tax on the full price of the ticket for travel from Oklahoma to another state did not violate Commerce Clause principles.235
The Court determined that the State of Oklahoma taxed only travel
that originated within the state, and the bus ticket business did not
constitute interstate commerce.236 The percentage of the business,
however, was substantial.237 The Court distinguished the sale of a
229. See id. at 151–52. But see Hughes v. Oklahoma, 441 U.S. 322, 337–38 (1979)
(invalidating a state statute that prohibited the transportation of minnows beyond state
boundaries).
230. 511 U.S. 383 (1994).
231. See id. at 394.
232. Id. at 393. Implicitly, even solid waste is part of interstate commerce.
233. 115 S. Ct. 1331 (1995).
234. See id. at 1334.
235. See id. at 1345. The Court applied the four-prong test of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 281 (1977) (discussed infra note 261). See Oklahoma Tax
Comm'n, 115 S. Ct. at 1337. In applying the second prong, the Court reiterated that a
properly apportioned tax must be both internally and externally consistent. See id. at
1338. Internal consistency examines whether a tax's identical application by every state
would place interstate commerce at a disadvantage as compared with intrastate commerce. See id.
236. See id. at 1345.
237. See id.
1997]
Municipal Finance and User Fees
761
ticket from the actual travel.238 The purchaser and the particular
branch of business pertaining to ticket sales may reap benefits for
the state selling the ticket. The Court determined that selling the
ticket constituted intrastate commerce.239
At the time when broad tax-free immunity for interstate commerce existed, the Court used refined nuances to differentiate
streams of commerce.240 When the Justices interpreted the Commerce Clause as prohibiting the states from imposing any direct
taxes on interstate commerce, the distinction between intrastate
and interstate commerce became important.241 It is impossible to
ascertain a specific physical location where interstate commerce
ends and intrastate activities begin.242 The issue is now largely irrelevant to the determination of whether provisions of the Commerce
Clause have been violated.243
Since 1924, the United States Supreme Court has taken very
few opportunities to define interstate commerce. When it has undertaken the task of defining interstate commerce, its focus depended on furthering the Court's economic desires and agenda.244 Although what constitutes interstate commerce may elude the Supreme Court, it is clear that a local government may not discriminate against interstate commerce in favor of local trade, but may
impose no greater burden on interstate commerce than on local business.
B. Erosion of the Immunity Doctrine: The Fabrication of
Discrimination
In contemporary application of the Commerce Clause, one of its
most potent forms is “the imposition of protective conditions on the
238. See id.
239. See Oklahoma Tax Comm'n, 115 S. Ct. at 1346.
240. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 616 n.6 (1981).
241. See id. at 615.
242. See Complete Auto, 430 U.S. at 283–84. There is no apparent method to identify interstate commerce or the limitations imposed by the Complete Auto test. The cases
seem to depend on the type of tax involved, the industry, the date of the decision, or
some intangible element which is impossible to articulate. See id. at 283–87.
243. See id. at 279–87.
244. See Henry Wolf Biklé, The Silence of Congress, 41 HARV. L. REV. 200, 202–03
(1927–1928) (examining the implied will of Congress regarding the constitutional propriety of a particular exaction).
762
Stetson Law Review
[Vol. XXVI
privilege of engaging in an activity that affects interstate commerce
or utilizes the channels or instrumentalities of such commerce.”245
This rule, however, does have its limitations.246 Initially, the states
had no power to tax the privilege247 of doing interstate business because it is a privilege granted by the federal government.248 Ultimately, the Court permitted a state to tax activities within its borders if the federal government failed to provide a specific legislative
privilege.249
Beginning in 1887, the United States Supreme Court held that
the state has no power to tax interstate commerce.250 Goods in transit cease being a part of interstate commerce when their movement
ends and they become “part of the common mass of property within
the state.”251
245. LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 311 (2d ed. 1988). Professor Tribe also asserts that the Commerce Clause could allow Congress to “impose whatever conditions it wishes, so long as the conditions themselves violate no independent
constitutional prohibition, on the privilege of producing for, serving customers in, or
otherwise `sitting astride the channels of,' interstate commerce.” Id. at 312 (citation
omitted in original).
The purpose of privileges preserved in both state constitutions and the Fourteenth Amendment is to provide equal treatment for every individual without favoring or
discriminating against one side or another. See Shaffer v. Carter, 252 U.S. 37, 53 (1920).
246. These limitations were clarified by the Supreme Court in 1939. The Court realized that without a legislative requirement the privilege of interstate commerce would
be applicable to too large a class. Penn Dairies, Inc. v. Milk Control Comm'n, 318 U.S.
261, 278 (1943), held that if there is no express intent to exclude a state regulation, the
State may impose burdens on the entity without the regulation necessarily being invalid.
247. BLACK'S LAW DICTIONARY 1197 (6th ed. 1990), defines privilege as:
A particular and peculiar benefit or advantage enjoyed by a person, company,
or class, beyond the common advantages of other citizens. An exceptional or extraordinary power or exemption. A peculiar right, advantage, exemption, power,
franchise, or immunity held by a person or class, not generally possessed by
others.
Id. However, a privilege tax is defined as “[a] tax on the privilege of carrying on a business or occupation for which a license or franchise is required.” Id. at 1198.
248. See Robbins v. Taxing Dist., 120 U.S. 489, 497 (1887).
249. See Mayo v. United States, 319 U.S. 441, 447–48 (1943). This creates a federal
immunity of sorts because the activities under the purview of the federal government
cannot be infringed upon by the state. See id. at 448.
250. See Robbins, 120 U.S. at 497. Principles of state taxes, as a counterpart to
municipal taxes, may provide an inference as to the application of Commerce Clause
principles to user fees. Cf. id. (discussing principles of state tax).
251. Henneford v. Silas Mason Co., 300 U.S. 577, 582 (1937); see also Independent
Warehouses, Inc. v. Scheele, 331 U.S. 70, 85 (1947) (holding that the Commerce Clause
is not violated by the business of storing goods for hire without payment of license fee);
cf. International Harvester Co. v. Department of Treasury, 322 U.S. 340 (1944) (holding
1997]
Municipal Finance and User Fees
763
The total immunity of interstate commerce from state taxation
began to erode as early as the 1920s.252 The Commerce Clause does
not relieve persons engaged in interstate commerce from “their just
share of state tax burden.”253 However, cumulative tax burdens
caused by the interstate operation of a business are prohibited.254 In
addition, the Supreme Court held that taxes that discriminate
against interstate commerce are unconstitutional.255
The Court prohibited local governments from taxing the privilege of doing business in interstate commerce.256 The so-called immunity doctrine established a meaningful limitation on local taxing
power.257 Confusion reigned as the Court adopted a formalistic analysis of state taxation to ascertain categories of taxes. For instance,
the Court examined the levy to determine whether it was a direct or
indirect tax.258 The Court found that “a direct tax on interstate sales,
even if fairly apportioned and nondiscriminatory, [is] . . . unconstitu-
that a state tax on interstate transactions within state borders did not violate the Commerce Clause when the State treated local transactions in the same manner). In International Harvester, the sale by a local merchant to an out-of-state purchaser who delivered
the article for immediate transport outside the state was characterized as an interstate
sale. See id. at 346–47. However, the sale was considered a taxable event in the state of
purchase. Nexus was established in the verbal transaction “separate and distinct from
the transportation or intercourse which is interstate commerce.” Id. at 346.
252. See, e.g., Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938).
253. Id. The Supreme Court has declared that:
[B]ecause there is a flow of interstate commerce which is subject to the regulating power of the Congress, it does not necessarily follow that, in the absence of
a conflict with the exercise of that power, a state may not lay a nondiscriminatory tax upon property which, although connected with that flow as a general course of business, has come to rest and has acquired a situs within the
state.
Minnesota v. Blasius, 290 U.S. 1, 8 (1933).
254. See J.D. Adams Mfg. Co. v. Storen, 304 U.S. 307, 314 (1938); Western Live
Stock v. Bureau of Revenue, 303 U.S. 250, 256 (1938).
255. See Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458
(1959). Language in this opinion was overruled by the Complete Auto holding that a tax
may be levied on the privilege to carry on business in interstate commerce as long as
certain conditions are satisfied. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,
288–89 (1977).
The multiple tax doctrine also shifted the focus to whether the levy was properly
apportioned. See Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 661–64 (1948).
256. See Champlain Realty Co. v. Town of Brattleboro, 260 U.S. 366, 376 (1922).
257. See David F. Shores, State Taxation of Interstate Commerce — Quiet Revolution
or Much Ado About Nothing?, 38 TAX L. REV. 127, 132–34 (1982).
258. See Case of the State Tax Freight Tax, 82 U.S. (15 Wall.) 232, 272–75 (1872).
764
Stetson Law Review
[Vol. XXVI
tional per se.”259
The immunity doctrine ended with the decision in Complete
Auto Transit, Inc. v. Brady.260 Complete Auto eliminated the form
over substance focus.261 The Court held that “interstate commerce
may be made to pay its own way.”262 Despite the effort to end the immunity of interstate commerce from appropriate state taxation, the
Complete Auto decision did not fully clarify the concepts of its nowlongstanding test. The rule of Complete Auto, favoring substance
over form, invites various interpretations of the scope of interstate
commerce. The validity of a levy under the Commerce Clause is
evaluated by the national or local character of the tax.263
The Supreme Court most often judged a levy's validity under
the Commerce Clause by examining whether the tax discriminated
against interstate commerce.264 The Court decided a long line of
drummer's cases which were invalidated because “the tax on drummers operates greatly to their disadvantage in comparison with the
merchants and manufacturers of [the taxing jurisdiction].”265
In 1875, Welton v. Missouri266 was the first decision declaring a
drummer's license tax invalid. The Court held that:
[C]ommercial power continues until the commodity has ceased to be
the subject of discriminating legislation by reason of its foreign
character. That power protects it, even after it has entered the
259. Complete Auto, 430 U.S. at 280 (citing Freeman v. Hewit, 329 U.S. 249 (1946)).
This concept was known as the Spector rule because it was followed in Spector Motor
Service, Inc. v. O'Connor, 340 U.S. 602, 609–10 (1951). See Complete Auto, 430 U.S. at
278–79.
260. 430 U.S. 274, 288–89 (1977); see also infra notes 349–59 and accompanying
text.
261. See id. at 281. The four-prong test in Complete Auto provided that a state may
tax interstate commerce if: (1) the commerce has a substantial nexus with the state;
(2) the tax is fairly apportioned; (3) the tax is not discriminatory on interstate commerce;
and (4) the tax is fairly related to the services of the state. See id.; see also infra notes
349–59 and accompanying text.
262. Complete Auto, 430 U.S. at 281 (citation omitted in original).
263. See Cooley v. Board of Wardens, 53 U.S. (12 How.) 299, 319 (1852).
264. Facially discriminatory taxes imposed solely on merchants or products from outof-state were historically held invalid. See Walling v. Michigan, 116 U.S. 446, 455 (1886);
Webber v. Virginia, 103 U.S. 344, 350–51 (1880); Cook v. Pennsylvania, 97 U.S. 566, 573
(1878); Welton v. Missouri, 91 U.S. 275, 282, 283 (1875).
265. American Trucking Ass'ns v. Scheiner, 483 U.S. 266, 284 n.16 (1987) (quoting
Robbins v. Taxing Dist., 120 U.S. 489, 498 (1887)).
266. 91 U.S. 275 (1876).
1997]
Municipal Finance and User Fees
765
State, from any burdens imposed by reason of its foreign origin.267
The leading case of Robbins v. Shelby Taxing District268 held
that a license tax as applied to an out-of-state merchant discriminated in effect against interstate commerce.269 The Court reasoned
that such commerce is more likely to be conducted by drummers
than the domestic commerce with which it competes.270 The tax disadvantaged business conducted over state borders.271 The Court
found the practical effect of the statute to be the key to evaluating
its constitutionality.272
267. Id. at 282; see also Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318,
332–33 n.12 (1977) (quoting Welton, 91 U.S. at 282).
Solicitors' activities were considered to be the commencement of interstate commerce. See Real Silk Hosiery Mills, Inc. v. City of Portland, 268 U.S. 325, 335 (1925);
Robbins, 120 U.S. at 497. The Court reached this conclusion because of discrimination
against the solicitor in favor of local merchants. See Welton, 91 U.S. at 283. The potential effect of a cumulative burden was also emphasized. Cf. Town of Farmington v.
Miller, 328 P.2d 589, 593 (1958) (holding that a city ordinance levying an occupation tax
was not unconstitutional as applied to a foreign drummer who regularly solicited orders
in town).
268. 120 U.S. 489 (1887).
269. See id. at 498.
270. See id. at 499. The statute in Robbins imposed a tax on “[a]ll drummers, and
all persons not having a regular licensed house of business in the taxing district, offering
for sale or selling goods . . . by sample.” Id. at 490–91 (quoting TENN. STAT. ch. 96, § 16
(1881) (overruled 1887)).
271. See id. at 498. Vendors' license taxes were valid if imposed upon vendors who
brought their goods into the state directly for sale from their wagons. Cf. Wagner v. City
of Covington, 251 U.S. 95, 102 (1919) (holding a state tax on itinerant vendors is valid
when enforced impartially to goods manufactured in and outside the state); Baccus v.
Louisiana, 232 U.S. 334, 337–38 (1914) (holding that the State could forbid the sale of
drugs by itinerant vendors because drugs are in the power of state regulation); Kehrer v.
Stewart, 197 U.S. 60, 65–66 (1905) (holding that all goods are taxable property of the
state upon arrival despite origination or destination); American Steel & Wire Co. v.
Speed, 192 U.S. 500, 519–20 (1904) (finding that goods shipped between states are not
imported goods and are subject to taxation); Emert v. Missouri, 156 U.S. 296, 318–19
(1895); Machine Co. v. Gage, 100 U.S. 676, 677 (1879) (upholding a peddler tax when
levied without regard to place of growth, manufacture, or production of goods).
Another type of discrimination is subjecting nonresidents to higher tax rates
than local businesses. See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389,
394–95 (1952).
272. See Robbins, 120 U.S. at 498; see also George Brody, Recent Decisions, 44
MICH. L. REV. 1135 (1946); A. McAlevy, Recent Cases, 20 TEMP. L.Q. 586 (1946–1947);
Anna E. Laskowsi, Recent Decisions, 9 U. DET. L.J. 214 (1946); cf. Dunbar-Stanley Studios, Inc. v. Alabama, 393 U.S. 537, 542 (1969). In 1946, the Court set aside, under
Commerce Clause principles, a license tax imposed by the City of Richmond on “engaging in business as solicitor[s].” Nippert v. City of Richmond, 327 U.S. 416, 417, 434
(1946).
766
Stetson Law Review
[Vol. XXVI
Taxes and exactions that discriminate against interstate commerce, even when composed in part of intrastate commerce, are
unconstitutional.273 Moreover, the Court has held a facially discriminatory local tax constitutional if local commerce is subject to an
equivalent, although technically different, tax.274
A tax discriminates not only facially, but also when it discriminates in effect.275 The Commerce Clause focuses primarily on economic events.276 Fulton Corp. v. Faulkner277 assessed the constitutionality of North Carolina's intangible tax on corporate stock owned
by state residents.278 The Court stated that the dormant Commerce
Clause “prohibits economic protectionism — that is, `regulatory
measures designed to benefit in-state economic interests by burdening out-of-state competitors.'”279 The initial step in applying this
doctrine is to determine whether the state's measure “regulates
evenhandedly with only `incidental' effects on interstate commerce,
or discriminates against interstate commerce.”280
273. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 73 (1963).
274. See Associated Indus. v. Lohman, 511 U.S. 641, 647 (1994). A facially discriminatory tax may be constitutional if it is compensatory. The Court defined a compensatory tax as one that is “designed simply to make interstate commerce bear a burden already borne by intrastate commerce.” Id.
275. See West Point Wholesale Grocery Co. v. City of Opelika, 354 U.S. 390, 391–92
(1957) (holding invalid a city ordinance that imposed a privilege tax on nonresident
wholesalers, but taxed resident wholesalers after a certain level of sales had been
reached); Nippert, 327 U.S. at 431; Best & Co. v. Maxwell, 311 U.S. 454, 456–57 (1940).
276. See United States v. Lopez, 115 S. Ct. 1624, 1630–31 (1995). In Lopez, the
Court found the connection between handgun control and commerce too attenuated a
link to fall within the clause. In its analysis, the Court reviewed the evolution of the
Commerce Clause application, pointing out that it is directed to the traffic of goods. See
id. at 1626–30. The Lopez decision reiterated the position that commerce does not extend
to internal workings “which [are] carried on between man and man in a State, or between different parts of the same State, and which does not extend to or affect other
States.” Id. at 1627 (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 194 (1824)).
277. 116 S. Ct. 848 (1996).
278. See id. at 852. Fulton Corporation, a North Carolina company, owned stock in
six other corporations, five of which neither did business nor earned income within the
state. See id. The five out-of-state corporations were not subject to the state's income
tax. See id. The sixth corporation, Food Lion, conducted 46% of its business in North
Carolina. See id. All the stock was subject to the state's intangible tax, and the five outof-state corporations' stock was taxed on 100% of its value. See id. Food Lion stock was
taxed on 54% of its value. See id.
279. Id. at 853 (quoting Associated Indus., 511 U.S. at 647 (quoting New Energy Co.
v. Limbach, 486 U.S. 269, 273 (1988))).
280. Id. at 854 (quoting Oregon Waste Sys., Inc. v. Department of Envtl. Quality,
511 U.S. 93, 99 (1994)).
1997]
Municipal Finance and User Fees
767
If the Commerce Clause is used as the basis for invalidating
user fees, the challenge will most likely be based on discrimination.
A state tax is “discriminatory if it `tax[es] a transaction or incident
more heavily when it crosses state lines than when it occurs entirely
within the State.'”281
C. History of Flat User Fees
1. Special Revenue Statutes — Taxing the Privilege of Use
Highway user fees have had a lengthy history of constitutional
scrutiny.282 Concepts developed to assure the constitutionality of
highway user fees imposed on interstate motor carriers are instruc-
281. Fulton, 116 S. Ct. at 854 (quoting Chemical Waste Management, Inc. v. Hunt,
504 U.S. 334, 342 (1992)).
282. The Court has approved graduated fees. See, e.g., Dixie Ohio Express Co. v.
State Revenue Comm'n, 306 U.S. 72, 74, 78 (1939) (approving fees on manufacturer's
rated capacity); Clark v. Poor, 274 U.S. 554, 660 (1927) (approving fees on vehicle
caravaning); Hendrick v. Maryland, 235 U.S. 610, 624–25 (1915) (approving motor vehicle
registration fee based on the vehicle's horsepower rating); cf. Hicklin v. Coney, 290 U.S.
169 (1933); Kane v. New Jersey, 242 U.S. 160 (1916).
In Clark, 274 U.S. at 555, a statute required that a motor transportation company, desiring to operate within the state, obtain a certificate from the Public Utilities
Commission prior to commencing operations. The company also had to pay an annual
tax, graduated according to the number and capacity of the vehicles used. See id. at
555–56. The Court stated that the tax did not discriminate against interstate commerce
because highways are public property. See id. at 557. Its users are subject to state regulation “to ensure safety and convenience and the conservation of the highways.” Id. Even
if a tax is used for other purposes, it is constitutional if it has a “proper purpose and is
not objectionable in amount[;] the use to which the proceeds are put is not a matter
which concerns [those charged the fee].” Id.
Dixie Ohio Express addressed the Georgia Maintenance Tax Act. 306 U.S. at 73.
The statute imposed a tax on each motor vehicle not for hire: $15 on each one and one
half ton vehicle, $30 on each two ton vehicle, and $30 on each trailer. See id. at 74.
When used for hire, taxes were $50, $75, and $30, respectively. See id. The money went
to the maintenance of United States rural postal roads and not to the highways. See id.
at 75.
The Court held that the statute did not discriminate against interstate commerce. See id. at 77. The amount of the charges for using the highways and the methods of collecting those charges were left to the states so long as they were reasonable
and did not burden interstate commerce. See id. at 76. The statute did not impose a fee
on the privilege or business of interstate commerce; its clearly stated purpose was to
collect compensation for the privilege of operating vehicles on state roads. See id. at 77.
A state does not offend the Commerce Clause if it “chooses to use part or all of the proceeds for purposes other than the construction, improvement, or maintenance of its highways.” Id. In addition, the Court found that the appellants did not fulfill the burden of
proving that their use of this state's highways did not equal the amount of the fee. See
id. at 78.
768
Stetson Law Review
[Vol. XXVI
tive because highway user fees represent the type of user fee most
often challenged and, correspondingly, most often studied.283 The
following series of cases provides a mechanism to evaluate the
evolution of legal principles governing user fees.284
Graduated flat fees on highway use have been sanctioned since
1915.285 Early decisions of the United States Supreme Court required highway user fees to be fairly related to the services provided
by the state.286 By 1935, however, the Court sanctioned completely
flat user taxes imposed on the “use” or the “privilege of use” of highways.287 It was considered impossible to account for all of the factors
contributing to the cost of providing a highway system. The administrative difficulties of matching the cost of providing the highway
system to a specific user outweighed potential error in assignment of
the expense.
Interstate motor carriers have had designs on actual mileagebased user systems since the beginning of the century.288 Their argu-
283. Highway user fees are higher than most user fees because of the tremendous
associated costs. See generally Capitol Greyhound Lines v. Brice, 339 U.S. 542, 544
(1950); Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 506 (1947);
Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285, 289 (1935).
284. User taxes are generally flat for ease of collection. For a discussion of user fees
that are graduated or specially computed, see the cases cited in infra notes 286, 288.
285. See Hendrick v. Maryland, 235 U.S. 610, 623–24 (1915). In Hendrick, the Motor
Vehicle Law of Maryland mandated that vehicle owners pay an annual registration fee
determined by the vehicle's horsepower. See id. at 619. Nonresidents of Maryland were
exempt from this rule for 14 days under certain conditions, but residents of the District
of Columbia were not included in the exemption. See id. at 620. The state used the fees
for construction, maintenance, and repair of the streets of Baltimore as well as state
roads. See id. The Court held that the statute did not discriminate against interstate
commerce because highways are inherently dangerous and public safety depended on
proper maintenance. See id. at 622. Roads must be improved to meet the needs of the
growing public who use them. See id. Additionally, the plaintiff failed to produce evidence of the fee's unreasonableness. See id. at 624.
286. See Interstate Transit, Inc. v. Lindsey, 283 U.S. 183, 186 (1931). The statute in
this case provided a graduated fee imposed upon operating interstate motor busses based
on seating capacity for the privilege of operating on the highways. See id. at 185. The
Court held that the statute discriminated against interstate commerce. See id. at 190. A
state cannot impose a tax on the privilege of interstate commerce, but can impose a fee
for the use of its highways and their maintenance. See id. at 185.
287. See Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285,
289 (1935).
288. See Kane v. New Jersey, 242 U.S. 160, 168–69 (1916) (addressing the validity
of New Jersey automobile law of 1906). The statute in Kane provided that no person
shall drive a vehicle upon the state's highways unless they had been licensed and the
automobile had been registered. See id. at 164. The fee was graduated based upon horse-
1997]
Municipal Finance and User Fees
769
ments have had no weight because the charge imposed to travel on a
particular road was not a levy on the actual use of the roads, but
upon the privilege of using the roads.289 Thus, the actual amount of
road use was irrelevant. The “privilege doctrine” permitted the motor carrier to make as extensive a use of the road as desired. The
motor carrier's individual choice of business routes determined the
cost per mile. The Supreme Court stated:
The [flat] fee is for the privilege for a use as extensive as the carrier
wills that it shall be. There is nothing unreasonable or oppressive
in a burden so imposed. One who receives a privilege without limit
is not wronged by his own refusal to enjoy it as freely as he may.290
Early opinions also differentiated between exactions imposed by
general revenue statutes and those imposed by special revenue statutes. This distinction resulted in two lines of cases. Special revenue
funds are generated by fees which could be utilized solely to provide
the facilities offering the privilege of use. A statute creating a special revenue fund had to satisfy a unique test. The test was first
clearly articulated in Evansville-Vanderburgh Airport Authority
power. See id. The fees generated helped to maintain the Motor Vehicle Department,
and any excess went to highway improvements. See id. The statute did not discriminate
against interstate commerce because the state has a “right to exact reasonable compensation for special facilities afforded as well as reasonable provisions to ensure safety.” Id.
at 167.
289. The tax must be in the form of reimbursement for the cost of providing public
highways. See Ingels v. Morf, 300 U.S. 290, 294 (1937). The act at issue in Ingels imposed a fee of $15 on caravans that was paid into the general fund of the state treasury
for administrative expenses as well as policing the highways to provide for safety of
traffic where caravaning was being conducted. See id. at 292–93. The Court held that
the statute burdened interstate commerce. See id. The statute's declared purpose was to
administer the act and police the highways. See id. at 295. The Court held that the
State cannot declare another purpose when the statute states otherwise. See id. at 296.
Additionally, the appellee met its burden by showing that the fees were unreasonable in
relation to its purpose and the fees collected. See id. at 296–97; cf. Morf v. Bingaman,
298 U.S. 407, 408–12 (1936) (addressing chapter 56 of the New Mexico Session Laws of
1935). The statute required a permit to sell autos within the state at the cost of $7.50, if
transported under their own power, and $5.00 if towed or drawn by another vehicle. See
id. at 409. The statute also taxed auto-sellers for transporting cars over state roads. See
id. at 408. The Court found the statute did not discriminate against interstate commerce. See id. at 410. Unlike Interstate Transit, the statutory language in Morf identified the fee as a charge for the privilege of using the state's highways. See id.
290. Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285, 289
(1935) (citations omitted).
770
Stetson Law Review
[Vol. XXVI
District v. Delta Airlines, Inc.291 Fees or taxes generating general
revenue funds that inure to general public use were subjected to a
different test292 which the Court ultimately articulated in Complete
Auto.293
Litigation subsequent to Evansville-Vanderburgh Airport and
Complete Auto appears to maintain the separate test scheme.294
However, the opinion rendered in American Trucking Ass'ns v.
Scheiner295 makes the argument plausible that the separate tests for
fees generating special revenue funds and general revenue funds
have been merged.296 The four-prong test established in Complete
Auto remains the archetypal test, but it is unclear whether it is now
the sole test for determining the constitutionality of state taxes imposing fees for the exercise of a privilege under the Commerce
Clause.
An attempt to ascertain the current test of constitutionality of
user fees is aided by a study of the refinement of principles of the
major user fee cases. In 1935, the Court in Aero Mayflower Transit
Co. v. Georgia Public Service Commission297 sanctioned a twenty-
291. 405 U.S. 707, 716–17 (1972).
292. See generally Sprout v. City of S. Bend, 277 U.S. 163 (1928) (basing a gross
receipts tax on seating capacity). The opinion suggested that the tax would have been
constitutional if the revenue had been specifically segregated for highway use. See id. at
171.
293. 430 U.S. 274, 279 (1977).
294. The separate and distinct qualifications for the different funds were:
Aero Mayflower
(special revenue)
(1) Nexus (implied)
(2) Fair approximation of use
(all incidents taking place in-state)
(3) No Discrimination
(4) Not manifestly disproportionate
or excessive
Complete Auto
(general revenue)
(1) Nexus
(2) Apportionment
(3) Discrimination
(4) Fairly related
Compare Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 501–02
(1947), with Complete Auto, 295 U.S. at 279.
295. 483 U.S. 266 (1987).
296. See id. at 295–96.
297. 295 U.S. 285 (1935). The litigation involved Georgia's Motor-Carrier Act of
1931, which provided that a private carrier for hire must “apply for and obtain from the
Public Service Commission a certificate of public convenience and necessity . . . must
pay a registration and license fee of $25 for every vehicle so operated.” Id. at 287. Proceeds were devoted to highway repair and maintenance. See id. at 287. The Court held
that the fee did not unlawfully burden interstate commerce because it was moderate,
1997]
Municipal Finance and User Fees
771
five dollar flat tax for the use of Georgia's state roads.298 The Court
concluded that collecting a tax on a proportionate, per-mileage basis
would produce “administrative difficulties.”299 In 1935, it was extremely difficult to document a particular carrier's use of the roads
in Georgia.
The Court in Aero Mayflower Transit Co. v. Board of Railroad
Commissioners,300 refused to invalidate a non-mileage related state
tax. The Supreme Court upheld the tax because to invalidate it:
[W]ould mean that a state could never impose a minimum fee, but
would have to adjust its taxes to the inevitable variations in the use
of the highways made by various carriers. The Federal Constitution
does not require the state to elaborate a system of motor vehicle
taxation which will reflect with exact precision every graduation in
use. In return for [a] $15 fee, appellant can do business grossing
$3,000 per vehicle annually for operations on Montana roads.
Appellant was not wronged by its failure to make the full use of the
highways permitted.301
“exacted without hostility to foreign or interstate transactions,” and imposed “upon domestic vehicles operated in like conditions.” Id. at 289.
298. See id. Flat highway taxes were held not to impermissibly discriminate against
out-of-state carriers engaged in interstate commerce because: (1) A tax precisely calibrated to the wear and tear caused to the highways by a particular vehicle would not be
administratively feasible; (2) the taxes at issue were imposed for the privilege of using
the highways rather than for their actual use; (3) out-of-state vehicles could not complain if they failed to avail themselves of the opportunity to use the roads as much as
in-state vehicles; and (4) the taxes at issue were not burdensome to interstate carriers.
See id.
299. Id.
300. 332 U.S. 495 (1947). The Court interpreted Montana's Motor Carriers Act,
which provided “a flat tax of $10 for each vehicle operated by a motor carrier over the
state's highways, payable on issuance of a certificate or permit, which must be secured
before operations begin and annually thereafter.” Id. at 496. The act also imposed an
annual fee of $15. See id. at 497. The funds “were allocated to the state's general fund.”
Id. The state, however, imposed the fee “in consideration of the use of the highways of
this state.” Id. at 501 (citation omitted). The statute did not discriminate against interstate commerce because each fee applied to both local and interstate operations. See id.
In American Trucking Ass'ns v. Scheiner, 483 U.S. 266 (1987), the trucking industry argued that the industry had changed, becoming more interstate and competitive.
Brief for Appellant at 45, Scheiner (No. 86-357). The economic impact of multiple taxes
enacted by numerous states increased substantially. See id. at 46. Thus, the trucking
industry argued that Aero Mayflower Transit Co. v. Board of R.R. Comm'rs was appropriate. See id. at 45–48.
301. Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 506 n.19
(1947) (citations omitted).
772
Stetson Law Review
[Vol. XXVI
In Capitol Greyhound Lines v. Brice,302 the Court rejected a
challenge to a Maryland tax that allocated proceeds specifically to
highway use.303 The base of the tax was the fair market value of the
vehicle.304 This tax base was obviously suspect. There seemed to be
no correlation between the expense of providing a state highway
system and the value of a vehicle using it. Not surprisingly, the
statute was challenged. The Court acknowledged the existence of
“innumerable factors bearing on the fairness of compensation” required from motor carriers.305 The Court refused to select one factor,
such as mileage, as the talisman for curing inequities in a state
taxing scheme.
The Court explicitly rejected the argument that the Maryland
tax was unsound because it lacked “uniformity among carriers in
relation to road use.”306 The tax's lack of precision was not confounding to the Supreme Court because:
Complete fairness would require that a state tax formula vary with
every factor affecting appropriate compensation for road use. These
factors . . . are so countless that we must be content with rough
approximation rather than precision. Each additional factor adds to
administrative burdens . . . . [which we recognize] may be sufficient
to justify states in ignoring even such a key factor as mileage.307
The Court's rather rudimentary test determined whether the
total amount of the tax was “shown to be in excess of fair compensation for the privilege of using state roads.”308 Fair market value,
302. 339 U.S. 542 (1950).
303. See id. at 548. This is an example of a special revenue statute.
304. See id. at 543. Jerome Hellerstein offers this definition of the formal structure
of a tax:
A workable definition of the subject of a tax is (1) the property taxed in the
case of a property tax; (2) the activity, event, privilege or specific property right
taxed in the case of an excise tax; and (3) the income received or accrued in
the case of an income tax.
JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE AND LOCAL TAXATION 31 (5th ed.
1988). “The measure of a tax is the yardstick or base to which the tax rate is applied.”
Id.
305. Capitol Greyhound, 339 U.S. at 544.
306. Id. at 546–47.
307. Id. (citation omitted).
308. Id. at 547. Carriers will succeed in challenging state road taxes only if they
prove that the total state taxes are out of line with fair compensation due to the state.
See id.
1997]
Municipal Finance and User Fees
773
when viewed in combination with other mileage-based taxes imposed by Maryland, was a constitutionally acceptable base for the
tax.309
Evansville-Vanderburgh Airport involved a one dollar fee imposed on each passenger enplaning commercial aircraft at Dress
Memorial Airport.310 The Court held that the statute was not an unreasonable burden on interstate commerce. 311 EvansvilleVanderburgh Airport explicitly recognized the distinction of the line
of cases involving a tax “levied as compensation for the use of highways.”312 The Court characterized its earlier highway toll opinions as
“instructive.”313 “[A] charge designed only to make the user of stateprovided facilities pay a reasonable fee to help defray the costs of
their construction and maintenance may constitutionally be imposed
on interstate and domestic users alike.”314 The fee “must reflect a
`uniform, fair and practical standard' relating to public expenditures, it is the amount of the tax, not its formula, that is of central
concern.”315 The toll must be “based on some fair approximation of
use or privilege for use.”316 Moreover, the toll must neither discriminate against interstate commerce nor exceed the governmental
309. See id. at 546. When the entire taxing scheme is considered, “the total charge
as among carriers does vary substantially with the mileage traveled.” Id.
Maryland v. Louisiana, 451 U.S. 725 (1981), reaffirmed the concept that “[a]
state tax must be assessed in light of its actual effect considered in conjunction with
other provisions of the State's tax scheme.” Id. at 756.
310. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.
707, 709 (1972). The money collected was for the maintenance of the airport. See id. The
Supreme Court stated: “Our inquiry is whether the use of airport facilities occasioned by
enplanement is a permissible incident on which to levy these fees.” Id. at 714–15. The
inquiry in Evansville-Vanderburgh Airport focused on nexus and proportionality. See id.
at 716–17. Those fees applied to all individuals, regardless of their residence, and were
directly related to the individual's presence at the airport and use of the facilities. See
id. at 717.
311. See id.
312. Id. at 713–14 n.6 (quoting Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602,
607 (1951)). The Spector case involved a different type of tax. See id., 340 U.S. at 603.
In Spector, a “state tax construed as falling `upon the privilege of carrying on a business
that was exclusively interstate in character'” was the issue. Evansville-Vanderburgh Airport, 405 U.S. at 713–14 n.6 (quoting Spector, 340 U.S. at 609).
313. See Evansville-Vanderburgh Airport, 405 U.S. at 715. “[A] State may impose a
flat fee for the privilege of using its roads, without regard to the actual use by particular
vehicles, so long as the fee is not excessive.” Id. at 715.
314. Id. at 714.
315. Id. at 716 (citation omitted).
316. Id. at 716–17.
774
Stetson Law Review
[Vol. XXVI
benefit conferred. However, discrimination does not occur because
“some other formula might reflect more exactly the relative use of
the state facilities by individual users.”317 There was no suggestion
of individually evaluating the extent of an individual's consumption
of the facility or the extent the privilege was offered or used.
The Court reaffirmed Evansville-Vanderburgh Airport in Massachusetts v. United States.318 The State of Massachusetts imposed
registration fees on aircraft.319 The statute did not discriminate
against interstate commerce because the registration tax was imposed to recover part of the marginal cost by the possible user, “and
to ensure that the fee system reflects in some manner the additional costs that heavier and faster . . . aircraft impose upon it.”320 Revenue measures that “operate only to compensate a government for
benefits supplied” do not offend the Commerce Clause.321 “A governmental body has an obvious interest in making those who specifically benefit from its services pay the cost . . . .”322 The charge should be
“structured to compensate the government for the benefit conferred.”323 A tax “`should be judged by its result, not its formula, and
must stand unless proven to be unreasonable.'”324 The administrative costs of ascertaining actual costs leads to a higher fee than setting a flat fee.325
The Massachusetts v. United States opinion relied extensively on
earlier flat tax decisions to evaluate the validity of the challenged
fee. The Court limited its analysis to fees generating special revenue
317. Id. at 717.
318. 435 U.S. 444 (1978). In Massachusetts v. United States, there was no Commerce
Clause issue. The issue was the constitutional doctrine of implied immunity of state
government from federal taxation. See id. at 446.
319. See id. at 449–50. The statute in question was the Airport and Airway Revenue
Act of 1970 which required payment of an annual registration tax “on all civil aircraft —
including those owned by State and National Governments — that fly in the navigable
airspace of the United States.” Id. at 449–50. “The amount of the annual [fee] depends
upon the type and weight of the aircraft.” Id. at 450.
320. Id. at 451 n.9.
321. Massachusetts v. United States, 435 U.S. at 462.
322. Id.
323. Id.
324. Id. at 463 (quoting Capitol Greyhound Lines v. Brice, 339 U.S. 542, 545 (1950)).
“The requirement that total revenues not exceed expenditures places a natural ceiling on
the total amount that such charges may generate and the further requirement that the
measure be reasonable and nondiscriminatory precludes the adoption of a charge that
will unduly burden state activities.” Id. at 467.
325. See Massachusetts v. United States, 435 U.S. at 466.
1997]
Municipal Finance and User Fees
775
funds. The opinion did not cite a single case involving general revenue funds.326 The Massachusetts v. United States decision clearly
confirmed that states are free to levy a nondiscriminatory,
nonexcessive fee for the use of public facilities.327
2. General Revenue Statutes — Taxing the Use
As the Aero Mayflower line of cases relating to special revenue
user fees developed, there was a parallel line of litigation targeting
general revenue flat privilege taxes.328 Because the taxes were not
proportioned on the extent of contact between the taxing jurisdiction
and the subject of taxation (usually a merchant), they were held
unconstitutional.
In Robbins v. Taxing District,329 the United States Supreme
Court ruled a flat tax with a discriminatory impact on out-of-state
business was unconstitutional.330 The so-called “drummer's tax” was
facially neutral. The tax was imposed on persons engaged in the sale
of goods in Memphis who did not have a fixed place of business in
the city.331 The tax “discriminat[ed] against the merchants and manufacturers of other states.”332 “This [type] of taxation is usually imposed at the instance and solicitation of domestic dealers, as a
means of protecting them from foreign competition.”333
In Sprout v. City of South Bend,334 the Court overturned a city
326. See id. at 463–67.
327. See id. at 464. Reasonable compensation was generally not disputed unless the
amount was so large that it was suspect. See id. (quoting Capitol Greyhound Lines, 339
U.S. at 547).
328. These cases may also rely, in part, on the privilege doctrine, the principle that
local governments may not impose taxes on the right of interstate merchants to “do business” within their jurisdiction. See Nippert v. Richmond, 327 U.S. 416, 420 (1945); Best
& Co. v. Maxwell, 311 U.S. 454, 456 (1940); Sprout v. City of S. Bend, 277 U.S. 163, 168
(1928); Robbins v. Shelby County Taxing Dist., 120 U.S. 489, 496–97 (1887).
The Supreme Court has observed “that the rule of Robbins v. Shelby County
Taxing District . . . has been narrowly limited to fixed-sum license taxes imposed on the
business of soliciting orders for the purchase of goods to be shipped interstate.”
McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 57 (1940).
329. 120 U.S. 489 (1887). For further discussion of Robbins, see supra notes 268–72
and accompanying text.
330. See id. at 498–99.
331. See id. at 490–91.
332. Id. at 498.
333. Id.
334. 277 U.S. 163 (1928).
776
Stetson Law Review
[Vol. XXVI
licensing fee for buses.335 This statute was also facially neutral.336 It
discriminated against out-of-state companies because the tax was
“the same for busses [sic] plying the streets continuously in local
service and for busses [sic] making, as do many interstate busses
[sic], only a single trip daily.”337 Importantly, but not surprisingly,
the Court implied that the standard for nondiscrimination in operation may be different if the fee revenue has been “applied to the construction or maintenance of the city streets.”338 At the time Sprout
was decided, a clear delineation existed between general revenue
and special revenue taxes and fees.
The Court followed the Robbins and Sprout precedents in striking down a facially neutral privilege tax on itinerant sellers in Best
& Co. v. Maxwell.339 The objectionable pattern was repeated. Out-ofstate businesses paid a disproportionately large amount of taxes.340
There was no relation between the amount of the tax and the company's actual activities in the state.341 The Court declared the tax
unconstitutionally discriminatory.342
In Nippert v. City of Richmond,343 the Court adhered to the holdings of the so-called “drummer” cases. The Court followed its now
“long line”344 of general revenue opinions to invalidate a flat tax on
solicitors that discriminated against out-of-state merchants.345 In
Nippert, the City of Richmond imposed an annual license tax for the
privilege of soliciting business in the city.346 The Court observed
that, with respect to the fifty-dollar flat fee, “a single act of . . . solicitation would bring the [flat tax] into play” and that the tax “inherently bore no relation to the volume of business done or of returns
from it.”347 The Court objected to the tax's in
335. See id. at 171–72.
336. A city motor bus ordinance “prescrib[ed] license fees [that varied] with the seating capacity of the bus.” Id. at 167.
337. Id. at 170.
338. Id.
339. 311 U.S. 454, 456–57 (1940).
340. See id.
341. See id. at 456.
342. See id.
343. 327 U.S. 416 (1946).
344. Id. at 417.
345. See id. at 417–18, 434.
346. A $50 flat fee was imposed, in addition to a 0.5% tax on gross earnings. See id.
at 418.
347. Id. at 427. It is “common knowledge” that local commercial influences induce
1997]
Municipal Finance and User Fees
777
terference with commerce because:
[A] flat license tax annually imposed lacking any proportion to the
number or length of visits or the volume of the business or return,
can only mean the stoppage of a large amount of commerce which
would be carried on either in the absence of the tax or under the
incidence of one taking account of these variations.348
This second line of cases invalidated general fund state tax statutes that discriminated against interstate commerce either facially
or in operation. Facial discrimination is not difficult to discern. Even
if the statute is neutral in its application, the operating effect of the
tax may favor in-state over out-of-state interests. Such a statute is
equally infirm but more difficult to identify.
In Complete Auto Transit, Inc. v. Brady,349 the Court eliminated
the interpretation of Commerce Clause principles granting immunity from state taxes imposed on the privilege of conducting interstate
business.350 Complete Auto involved a challenge to a Mississippi statute imposing a sales tax on the privilege of doing interstate business
in that state.351 The Court explicitly overruled prior law and upheld
the levy.352 The privilege doctrine was abolished in favor of observing
economic realities and the rationale that interstate commerce
should “pay its way.”353
adoption of this type of statute because: “Provincial interests and local political power
are at their maximum weight in bringing about acceptance of this type of legislation.”
Id. at 434.
The Court has cited Nippert with approval in recent opinions. See, e.g., American
Trucking Ass'ns v. Scheiner, 483 U.S. 266, 296 (1987); Capital Cities Cable, Inc. v. Crisp,
467 U.S. 691, 713 (1984); Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 403 (1984);
Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615, 626, 629 (1981); Boston Stock
Exch. v. State Tax Comm'n, 429 U.S. 318, 329 (1977).
348. Nippert, 327 U.S. at 430–31. The Court applied principles of both the third and
fourth prongs of the Complete Auto test to invalidate the $50 flat tax at issue. See id. at
431, see also supra note 261.
349. 430 U.S. 274 (1977).
350. See id. at 288–89, see also discussion infra section IV.D.2.
351. See id. at 275.
352. See id. at 288–89. Complete Auto eliminated the artificial classification of taxes
according to the label assigned to a statute by the state. See id. at 288. The test is “a
standard of permissibility of state taxation based upon its actual effect rather than its
legal terminology.” Id. at 281.
353. Complete Auto, 430 U.S. at 279, 281. For an excellent summary of the history
of the immunity of privilege taxes from state taxes, see Complete Auto, 430 U.S. at
278–87.
778
Stetson Law Review
[Vol. XXVI
Complete Auto discarded the distinction placed on “privilege”
taxes.354 State taxes must comply with a four-prong test.355 First,
Complete Auto required a “substantial nexus” between the taxing
state and the contact or activity which forms the basis for the tax.356
Second, a tax must be “fairly apportioned” to the activity within the
taxing state.357 Third, a tax may not “discriminate against interstate
commerce.”358 The final requirement of the test stipulated that the
tax must be “fairly related” to the services and benefits provided by
the state.359
Although the Supreme Court has reiterated the Complete Auto
test in almost every subsequent case challenging a state tax under
the Commerce Clause,360 it did not explicitly state that the test was
universal or if the special revenue test articulated by EvansvilleVanderburgh Airport remained viable.361 Complete Auto cited two
special revenue flat fee cases, implicitly reaffirming their viability. 362
354. See id. at 279, 288–89.
355. See id. at 279.
356. See id.; see, e.g., General Motors Corp. v. Washington, 377 U.S. 436, 441 (1964);
see also State v. Quill Corp., 470 N.W.2d 203, 216 (N.D. 1991). This requirement is similar to the state's personal service jurisdiction examined in the early tax case, International Shoe Co. v. Washington, 326 U.S. 310, 321 (1945). The State of Washington was
permitted to exercise in personam jurisdiction over International Shoe's activities because
they were systematic and continuous. For Commerce Clause purposes, there is no substantial nexus requirement for a state to impose a use tax when a solicitor seeks sales
solely through the mail or by common carrier. See Quill, 470 N.W.2d at 418.
357. See id.; Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 115 S. Ct. 1331 (1995)
(sustaining a sales tax imposed by the State of Oklahoma on bus tickets from Oklahoma
to an out-of-state destination).
358. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).
359. See id.
360. See, e.g., Commonwealth Edison Co. v. Montana, 453 U.S. 609, 617 (1981);
Maryland v. Louisiana, 451 U.S. 725, 754 (1981).
361. The uncertainty is not unique. Footnote 37 in Crane v. Commissioner, 331 U.S.
1, 13–14 (1947), inspired controversy for years. The puzzle was whether the full amount
of nonrecourse debt should be included in the “amount realized” for I.R.C. § 1001(b)
purposes if the fair market value of the property is less than the amount of the obligation. Commissioner v. Tufts, 461 U.S. 300, 307 (1983), resolved the issue by finding fair
market value irrelevant in the analysis.
362. 453 U.S. 609 (1981). Complete Auto cited six cases as antecedents of the fourpart test. 430 U.S. at 278 n.6. Two of the cited cases involved special revenue highway
user taxes similar to Pennsylvania's axle tax: Clark v. Paul Gray, Inc., 306 U.S. 583
(1939), and Ingels v. Morf, 300 U.S. 290 (1937).
In Clark, the California Caravan Act of 1937 required a fee of $15 for each automobile driven into the state for sale. See 306 U.S. at 585–86. The fees were to be used
to “`reimburse the State for expense incurred in administering police regulations . . .
and to public safety upon the highways' . . . the other is `compensation for the privilege
1997]
Municipal Finance and User Fees
779
Coupling these cases with general revenue tax cases without distinction may suggest a merging of the analyses of EvansvilleVanderburgh Airport and Complete Auto.
Subsequent cases have not specifically addressed the issue and
are ambiguous. In Commonwealth Edison Co. v. Montana,363 a challenge to the Montana coal severance tax, a general revenue tax, was
initiated.364 The appellant alleged that the tax violated the fourth
prong of the Complete Auto test, describing it as excessive in relation
to the services provided by the State.365 The appellant relied on the
excessiveness limitation applicable in the user fee cases.366 In rejecting the appellant's position, the Court held that the Montana severance tax was a general revenue tax rather than a user charge.367 As
such, the amount of the tax did not have to be tied to the value of
the services provided to the company or the costs incurred by the
State resulting from the mining companies' presence in the state.368
The measure of the tax must bear a reasonable relation to the
taxpayer's presence and,
of using the public highways.'” Id. at 586 (quoting The Caravan Act of 1937). Two exceptions are those vehicles moving into the northern or southern zones of the state. See id.
at 586–87.
The Court held that the statute does not discriminate against interstate commerce because “states have constitutional authority to exact reasonable fees for the use
of their highways by vehicles moving interstate.” Id. at 593 (citing Dixie Ohio Express
Co. v. State Revenue Comm'n, 306 U.S. 72 (1939); see also Morf v. Bingaman, 298 U.S.
407 (1936); Sprout v. City of S. Bend, 277 U.S. 163 (1928); Clark v. Poor, 274 U.S. 554
(1927); Kane v. New Jersey, 242 U.S. 160 (1916); Hendrick v. Maryland, 235 U.S. 610
(1915)).
States “may classify [a] vehicle[ ] according to the character of the traffic and the
burden it imposes on the state by that use” but the charge for the use may not be
unreasonable or excessive. Clark, 306 U.S. at 593–94 (citing Dixie Ohio Express Co., 306
U.S. at 72); see also Morf, 298 U.S. at 413; Hicklin v. Coney, 290 U.S. 169 (1933); Continental Baking Co. v. Woodring, 286 U.S. 352, 370–71 (1932)). This is a “legislative, not
a judicial,” question. See Clark, 306 U.S. at 594. In addition, “the Fourteenth Amendment does not require classification for fees . . . to follow any particular form or words.”
Id. at 595. The burden of proof that the fee is excessive is on the party questioning the
statute. See id. at 600. “If the fees charged do not appear to be manifestly disproportionate to the services rendered,” the Court cannot determine that they are excessive solely
from its knowledge or experience. See id.
363. 453 U.S. 609 (1981).
364. See id. at 612.
365. See id. at 620–21.
366. See id. at 621.
367. See id.
368. See id. at 626, 629.
780
Stetson Law Review
[Vol. XXVI
[t]he relevant inquiry under the fourth prong of the Complete Auto
Transit test is not, as appellants suggest, the amount of the tax or
the value of the benefits allegedly bestowed as measured by the
costs the State incurs on account of the taxpayer's activities. Rather, the test is closely connected to the first prong of the Complete
Auto Transit test. Under this threshold test, the interstate business
must have a substantial nexus with the State before any tax may
be levied on it. Beyond that threshold requirement, the fourth
prong of the Complete Auto Transit test imposes the additional
limitation that the measure of the tax must be reasonably related
to the extent of the contact, since it is the activities or presence of
the taxpayer in the State that may properly be made to bear a “just
share of state tax burden.”369
What is clearly apparent in Commonwealth Edison is that the
Court refused to mandate a review of a general revenue tax for an
acceptable rate or level of taxation of activities to satisfy the “fairly
related” standard. Under the holding, all that a state is required to
provide the taxpayer is the “benefits of a trained work force and the
advantages of a civilized society.”370 Commonwealth Edison reaffirmed Complete Auto. It has been alleged that Commonwealth Edison removed the substance from the fourth prong of the Complete
Auto test. Undoubtedly, the impact of the fourth prong of the Complete Auto test is now severely limited in general revenue statutes.
In Commonwealth Edison, the Court also rejected the
appellants' allegations of discrimination. A tax burden primarily
borne by out-of-state consumers does not make a tax discriminatory.371 The tax burden did not shift as a result of a distinction between in-state and out-of-state consumers. The State measured the
tax by the amount of coal consumed. Commonwealth Edison accepted this measure as a proportional tax clearly satisfying the
fourth prong of the Complete Auto test:
369. Commonwealth Edison, 453 U.S. at 625–26 (quoting Western Live Stock v.
Bureau of Revenue, 303 U.S. 250, 254 (1938) (footnotes and citations omitted)). As a
result, a taxpayer may not challenge a tax as “unreasonable in amount for the privilege
granted” as suggested in Capitol Greyhound Lines v. Brice, 339 U.S. 542, 545 (1950). See
Commonwealth Edison, 453 U.S. at 627–28.
370. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 445 (1979); see Commonwealth Edison, 453 U.S. at 629.
371. See Commonwealth Edison, 453 U.S. at 618. The appellants argued that because 90% of the coal was shipped out of state, the tax was discriminatory. See id. at
617.
1997]
Municipal Finance and User Fees
781
Rather, when the measure of a tax is reasonably related to the
taxpayer's activities or presence in the State . . . the taxpayer will
realize, in proper proportion to the taxes it pays, “[t]he only benefit
to which the taxpayer is constitutionally entitled, . . . that derived
from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public
purposes.”372
Does Commonwealth Edison stand for the proposition that all
state taxes must be proportional in order to meet the fourth part of
the Complete Auto test? The quoted dictum in Commonwealth Edison clearly stated that a proportional general revenue tax meets the
fourth prong of the Complete Auto test.373 The Court characterized
Montana's coal severance tax as acceptable because its measure is
proportional to the taxpayer's mining activity within the state. The
tax is measured by the value of coal taken in Montana, an appropriate standard.374 Therefore, the tax is fairly related to the services
provided by the State.375
Whether this language specifically and invariably requires proportionality is subject to some disagreement.376 The EvansvilleVanderburgh Airport standard requires user fees to be nonexcessive,
a very different standard.377 The opinion in Commonwealth Edison
differentiates between principles of constitutional law solely relevant to user fees as opposed to general revenue taxes. The Court
stated:
372. Id. at 628–29 (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495,
522 (1937)).
“[T]he incidence of the tax as well as its measure [must be] tied to the earnings
which the State . . . has made possible, insofar as government is the prerequisite for the
fruits of civilization for which, as Mr. Justice Holmes was fond of saying, we pay taxes.”
Id. at 626 (quoting Wisconsin v. J.C. Penney Co., 311 U.S. 435, 446 (1940)).
373. See Commonwealth Edison, 453 U.S. at 627.
374. The Court stated: “We are satisfied that the Montana tax, assessed under a
formula that relates the tax lability to the value of appellant coal producers' activities
within the State, comports with the requirements of the Complete Auto Transit test.” Id.
at 629.
375. See id. at 626.
376. See id. at 622 n.12. The standard in Commonwealth Edison was determined to
be fairly apportioned with a standard which is both externally and internally consistent.
See id. at 629.
377. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.
707, 719–20 (1972).
782
Stetson Law Review
[Vol. XXVI
The Montana Supreme Court held that the coal severance tax is
“imposed for the general support of the government.” [A]nd we have
no reason to question this characterization of the Montana tax as a
general revenue tax. Consequently, in reviewing appellants' contentions, we put to one side those cases in which the Court reviewed
challenges to “user” fees or “taxes” that were designed and defended as a specific charge imposed by the State for the use of
state-owned or state-provided transportation or other facilities and
services.378
Each of the cases the Court cited in the foregoing passage involved a user fee imposed on transportation.379 Did this passage
signify that user fees are exempt from the Complete Auto test? The
Court may have put such cases to one side solely to make it clear
that user taxes would remain subject to the Evansville-Vanderburgh
Airport analysis; or the language may indicate that the excessiveness requirement, outlined in Evansville-Vanderburgh Airport, is an
additional and distinctive inquiry required under the Complete Auto
test for special revenue taxes.
User charges do have a definitive limitation on excessiveness.380
The amount of tax, not its formula, is important. If it is concluded
that Complete Auto applies to special revenue fees, the fourth prong
o f t h e test still has substance. 3 8 1 If not s o i n t e r
378. Commonwealth Edison, 453 U.S. at 621 (citation and footnote omitted).
379. See, e.g., Evansville-Vanderburgh Airport, 405 U.S. at 709; Clark v. Paul Gray,
Inc., 306 U.S. 583, 586 (1939); Ingels v. Morf, 405 U.S. 291, 292 (1936).
380. The cost of providing the facility provides a natural ceiling on the total amount
of revenue which can be collected from such a tax.
As the Court has stated, “such imposition, although termed a tax, cannot be
tested by [the same] standards which generally determine the validity of taxes.” Interstate Transit, Inc. v. Lindsey, 283 U.S. 183, 190 (1931). “Because such charges are purportedly assessed to reimburse the State for costs incurred in providing specific quantifiable services, we require[ ] a showing, based on factual evidence in the record, that “the
fees charged do not appear to be manifestly disproportionate to the services rendered . . . .” Commonwealth Edison, 453 U.S. at 622 n.12 (quoting Clark, 306 U.S. at
599); see Morf, 300 U.S. at 296–97.
The matter of a rate of tax is uniformly held to be within the discretion of the
Legislature. See Commonwealth Edison, 453 U.S. at 627 (citing Helson v. Kentucky, 279
U.S. 245, 252 (1929)); cf. City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369 (1974)
(stating that the Court will not determine the reasonableness of a tax within Congress'
power); A. Magnano Co. v. Hamilton, 292 U.S. 40 (1934) (finding that the legislature's
motive for levying a tax is outside the scope of judicial review).
381. The sharing of the just burden of the state tax burden has already been ap-
1997]
Municipal Finance and User Fees
783
preted, the fourth prong has little present viability.
3. Application of Discrimination Concepts to Special Revenue User
Fees — The Scheiner Opinion
The highway user-fee opinions established a set of applicable
considerations different from those applied to general revenue taxes,
reflecting the unique nature of user fees.382 In American Trucking
Ass'ns v. Scheiner,383 the United States Supreme Court abandoned
over a half century of precedent. It struck down Pennsylvania's flat
annual highway tax as it applied to truckers engaged in interstate
commerce.384 Pennsylvania's axle tax ranged in amount from $72 to
$180 per truck.385 The State also imposed a $25 identification marker fee.386 Additionally, Pennsylvania charged registration
fees and fuel consumption fees that all states imposed on the trucking industry.387
The trucking industry attacked these levies, arguing that if
Pennsylvania had the right to impose a flat tax on their operations,
then so could every other state.388 The cumulative consequences of
such a regime would impose a crippling financial burden on the
interstate motor carriers.389
The Court observed that the earlier highway user fee cases pivoted on the fact that the taxes were exacted in consideration for the
privilege of using state highways, which created a distinctly local
taxable event.390 It is irrelevant if the event precipitating the imposition of the axle tax was for the privilege of conducting interstate
plied in determining the fairness of fees. See generally Reidy Terminal, Inc. v. Director
of Revenue, 898 S.W.2d 540 (Mo. 1995) (en banc).
382. See PAUL J. HARTMAN, FEDERAL LIMITATIONS ON STATE AND LOCAL TAXATION
665–66 (1981).
383. 483 U.S. 266 (1987). See generally Robert J. Borrello, American Trucking
Associations v. Scheiner: Truckers Challenge Pennsylvania's Highway User Fees Under
the Dormant Commerce Clause, 41 U. MIAMI L. REV. 1117 (1987).
384. See Scheiner, 483 U.S. at 297. Whether the opinion in Scheiner related to
apportionment, discrimination, or a claim that the taxes are not fairly related to the
services provided by the state, remains unclear.
385. See id. at 274 (citing 75 PA. CONS. STAT. § 9902 (1984)).
386. See id.
387. See id. at 274–75.
388. See id. at 285.
389. See Scheiner, 483 U.S. at 285.
390. See id. at 292–94.
784
Stetson Law Review
[Vol. XXVI
business.391 The privilege doctrine has been discredited.392 It has
been eliminated from Commerce Clause analysis.393 The Court stated:
[T]he precedents upholding flat taxes can no longer support the
broad proposition . . . that every flat tax for the privilege of using a
State's highways must be upheld even if it has a clearly discriminatory effect on commerce by reason of that commerce's interstate
character. Although out-of-state carriers obtain a privilege to use
Pennsylvania's highways that is nominally equivalent to that
which local carriers receive, imposition of the flat taxes for a
privilege that is several times more valuable to a local business
than to its out-of-state competitors is unquestionably discriminatory and thus offends the Commerce Clause.394
A state cannot unfairly burden interstate commerce to provide
for its fiscal needs if the cost to be paid by interstate commerce
greatly exceeds the cost paid by local commerce. Discrimination
against interstate commerce will occur at some point.395 Moreover,
interstate commerce is responsible for paying its part to use an expensive public facility. However, it must be treated fairly when compared with local commerce.396
Taxing a privilege which is several times more valuable to intrastate commerce is a form of discrimination against interstate commerce.397 The Court struck down the axle tax as discriminatory because it imposed a greater burden on out-of-state trucks than instate trucks.398 Highway user fees imposed by Pennsylvania must be
391. See id. at 294–95.
392. See id., see also Complete Auto, 430 U.S. at 281.
393. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 614–17 (1981); Department of Revenue v. Association of Wash. Stevedoring, 435 U.S. 734, 743–50 (1978);
Complete Auto, 430 U.S. at 278–89.
394. Scheiner, 483 U.S. at 296.
395. See id. at 282.
396. See id. at 282–83.
397. See Goldberg v. Sweet, 488 U.S. 252, 261 (1989) (holding that unfair apportionment of income from another state is a form of discrimination against interstate commerce).
398. See Scheiner, 483 U.S. at 290; see also American Trucking Ass'ns v. Goldstein,
483 A.2d 47, 56 (Md. 1984) (upholding a flat highway user charge against Commerce
Clause attack). In Goldstein, the Maryland Court of Appeals rejected the taxpayer's argument that the Complete Auto case overruled the long line of flat fee cases. See id. at 54.
1997]
Municipal Finance and User Fees
785
applied in a fair and apportioned manner.399 The opinion blurred the
concepts of discrimination and apportionment. The axle tax was
found discriminatory against interstate commerce because, in practical effect, it imposed a higher per mile cost on interstate trucks
compared to local trucks. The tax violated the fourth prong of the
Complete Auto test because it did not vary directly with mileage,
and thus did not fairly relate to the services the State provided.400 It
is now unequivocally clear that Commerce Clause principles require
apportionment for some user fees.401 The drummer line of cases cited
in Scheiner documented the Court's belief that unapportioned flat
taxes imposed on both interstate and intrastate commerce may violate the Commerce Clause if they subject the taxpayer to the risk of
cumulative tax burdens to which intrastate commerce is not subject.402
399. See Scheiner, 483 U.S. at 280. Apportionment also requires a standard which is
both internally and externally consistent. The Court's consideration of this argument
gave it the opportunity to further elaborate on internal consistency. The Court held that
Pennsylvania's unapportioned flat taxes for the use of its roads failed the internal consistency test because Pennsylvania provided no immunity for payment of like taxes to other
states. See id. at 284. Interstate commerce was at a competitive disadvantage because of
cumulative tax burden. Pennsylvania's registration fees were upheld because of the
State's reciprocity and apportionment provisions. See id. at 282–83; see also Goldberg v.
Sweet, 488 U.S. 252, 267 (1989) (upholding a five percent tax on the gross charges of
interstate telecommunications); Tyler Pipe Indus., Inc. v. Washington State Dep't of Revenue, 483 U.S. 232, 240–51 (1987) (discussing and criticizing the internal consistency
test); Armco Inc. v. Hardesty, 467 U.S. 638, 645–46 (1984) (holding a gross receipts tax
on businesses selling tangible property at wholesale unconstitutional); Melvin L. Doxie,
Squaring State Flat Taxes with the Internal Consistency Test: American Trucking Associations v. Scheiner, 41 TAX LAW. 461 (1988) (discussing the Supreme Court's retreat from
its prior presumption of nondiscrimination in its application of the “internal consistency
test”).
400. See Scheiner, 483 U.S. at 291. In the Author's interpretation, the Aero
Mayflower line of cases was overruled, apparently, except to the extent that flat taxes
are the only practical means of collecting revenue from users and the use of a more
finely graduated revenue user fee schedule would create genuine administrative burdens.
401. See Scheiner, 483 U.S. at 292. Scheiner may be interpreted to have declared
that all taxes must be directly proportional to the taxpayer's contact with the State. See
id. at 292; see also Suellen M. Wolfe, Recovery from Halper, The Pain of Additions to
Taxes Is Not the Sting of Punishment, 25 HOFSTRA L. REV. 161 (1996).
402. See Scheiner, 483 U.S. at 285–86; see also Tyler Pipe Indus., Inc. v. Washington
State Dep't of Revenue, 483 U.S. 232 (1987) (manufacturing tax on goods manufactured
in-state and sold to nonresidents); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
(liquor tax with exemption for certain local producers); Armco Inc. v. Hardesty, 467 U.S.
638 (1984) (gross receipts tax with exemption for local manufacturers); Westinghouse
Elec. Corp. v. Tully, 466 U.S. 388 (1984) (franchise tax permitting a credit for exports
originating in state); Container Corp. v. Franchise Tax Bd., 463 U.S. 159 (1983) (contain-
786
Stetson Law Review
[Vol. XXVI
Prior to Scheiner, not a single opinion of the United States Supreme Court questioned the vitality of the highway user fee decisions.403 In the author's opinion, what the Court articulated in
Scheiner was revolutionary.404 The Court reversed its previous position and, apparently, established a new principle of law.405 After
Scheiner, user fees may be in jeopardy of being labeled unconstitutional.
D. Constitutional Defects of User Fees
1. Distinguishing Taxes and User Fees
er company with overseas subsidiaries); F.W. Woolworth Co. v. Taxation & Revenue
Dep't, 458 U.S. 354 (1982) (tax on “gross-up” income of a retail corporation); Asarco Inc.
v. Idaho State Tax Comm'n, 458 U.S. 307 (1982) (corporate tax on non-domiciliary parent
corporation); Maryland v. Louisiana, 451 U.S. 725 (1981) (natural gas from federal
lands); Exxon Corp. v. Department of Revenue, 447 U.S. 207 (1980) (vertically integrated
oil companies); Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980) (wholesale
and retail marketing of oil products).
403. There were nine binding flat fee precedents. See Capitol Greyhound Lines v.
Brice, 339 U.S. 542 (1950) (basing highway user fee on fair market value of motor vehicles); Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495 (1947) (imposing flat highway user fee on motor carriers); Clark v. Paul Gray, Inc., 306 U.S. 583
(1939) (imposing flat highway user fee on certain motor vehicles); Dixie Ohio Express Co.
v. State Revenue Comm'n, 306 U.S. 72 (1939) (basing highway user fee on manufacturer's rated capacity); Morf v. Bingaman, 298 U.S. 407 (1936) (flat highway user fee
imposed on motor carriers); Hicklin v. Coney, 290 U.S. 169 (1933) (basing highway user
fee on carrying capacity); Clark v. Poor, 274 U.S. 554 (1927) (basing highway user fee on
carrying capacity); Kane v. New Jersey, 242 U.S. 160 (1916) (basing highway user fee on
horsepower); Hendrick v. Maryland, 235 U.S. 610 (1915) (basing highway user fee on
horsepower). There were also three additional, explicit approvals of prevailing flat fee
analysis. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 621–22 & n.12
(1981); Massachusetts v. United States, 435 U.S. 444, 463–69 (1978); EvansvilleVanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S. 707, 714–16 (1972).
There were at least two other tacit approvals of flat fees. See Complete Auto, 430 U.S. at
278 n.6; Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602, 607 n.4 (1951).
404. Scheiner's newly announced requirement that specifically dedicated highway
user fees must be proportional created a potential liability of nearly $1 billion to the
seven states that imposed highway user fees as a part of their highway taxation
schemes. The Commonwealth of Pennsylvania alone had a potential liability of $450
million. See Peter Kelley & Karl Blankenship, Decision Drives out Axle Tax, PATRIOT
(Harrisburg), June 24, 1987, at A1.
405. Cases upholding flat highway user fees had been cited with apparent approval
as recently as 1981. See Commonwealth Edison, 453 U.S. at 621–22; Massachusetts v.
United States, 435 U.S. at 463–64; Evansville-Vanderburgh Airport, 405 U.S. at 714–16.
1997]
Municipal Finance and User Fees
787
It will be no surprise if user fees, as a class, are specifically
targeted for constitutional scrutiny. The classification of an exaction
may be a distinction without a difference for Commerce Clause analysis. If relevant, the classification of an exaction as a user fee is
often enigmatic. As a prefatory matter, user fees and taxes do have
some very similar characteristics.
The distinction “is not always clear in practice where benefitbased financing ends and general taxation begins.”406 Commentators
have described the range of services and facilities provided by a local
government as a continuum of benefits that range from purely public to almost commercial.407 Categorizing the source of revenue for a
government-provided benefit is an extremely difficult determination.408 A United States House member appearing on a nationally
broadcast television program discussing legislation involving a user
fee stated, “[I]f a revenue plan `looks' or `quacks' like a tax, it is a
tax.”409
Charging for government-provided services mimics business
activity. When engaging in commercial activity, the local government acts in a proprietary capacity rather than a governmental
capacity. In effect, the local government charges “rent” for the use of
a facility.410 Goods or services are considered sold by the govern-
406. INFRASTRUCTURE, supra note 21, at 3. A broad definition of benefit-related
charges would include user fees, utility charges, special assessments, license fees and
taxes, and narrow based benefit taxes. See MANDELKER & NETSCH, supra note 72, at 291.
It is beyond the scope of this Article to provide a detailed description of the
determination of the character of an exaction. However, improved lighting in commercial
sections for merchants provided by a special assessment to pay its cost is a form of benefit capture. It is not a user charge because the individual pedestrians do not pay for
the privilege of having the path lit.
407. See INFRASTRUCTURE, supra note 21, at 3, 8.
408. See Richard C.E. Beck, Is Compromise of a Tax Liability Itself Taxable? A Problem of Circularity in the Logic of Taxation, 14 VA. TAX REV. 153, 174 (1994); Samuel D.
McVey, State Environmental Permit Fees Charged to Federal Facilities: Distinguishing
Legal User Fees from Illegal Taxes, 29 SANTA CLARA L. REV. 879, 885 (1989); Rebecca S.
Rudnick, State and Local Taxes on Nonprofit Organizations, 22 CAP. U. L. REV. 321,
342–51 (1993); Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 MICH. L. REV. 895, 903–07 (1992).
409. Michael Duffy, Hitting the Ground Running: Bush Dashes Around Washington,
but His First-Week Stumbles on Abortion and Taxes Point to a Rougher Road Ahead,
TIME, Feb. 6, 1989, at 30 (quoting Richard Darman).
410. See GELFAND & SALSICH, supra note 12, at 91. These “charges have been defined as `payments imposed on a benefit or quid pro quo principle provided the payee
acquiesces in the payment of the levy.'” Id.
788
Stetson Law Review
[Vol. XXVI
ment.411
The public-at-large should inure little benefit from user fee financed public operations. A close relationship between the
individual's payment and the receipt of direct benefits from the provision of public services is a feature of a user fee.412 An identifiable
individual benefactor of the government services or facilities resulting from payment is indicative of a user fee.413
User fees have been described as charges that have the distinctive characteristic of being voluntary payments based on “direct,
measurable consumption of publicly provided goods and services.”414
In fact, the marked difference between a user fee and a tax is often
the voluntary nature of a user fee415 and the compelling nature of a
tax. 4 1 6 Generally, individuals who do not use the ser
411. See id. at 90. Examples of utility charges and user fees include water, sewer
and electricity charges, garbage collection fees, and fees for recreational facilities such as
municipal golf courses and parks. See id. at 90–91. One author has stated:
If a taxpayer does receive specific goods or services in exchange for a governmental exaction, payment is generally not regarded as a “tax” at all, but rather
as a distinct charge such as a user fee or special assessment. . . .
It is in the nature of a general tax that the payor receives no exact quid
pro quo: revenue is pooled for general public purposes and it is impossible to
trace or value the benefits to any particular taxpayer.
Beck, supra note 408, at 174.
412. See generally DANIEL R. MANDELKER & DAWN CLARK NETSCH, STATE AND LOCAL
GOVERNMENT IN A FEDERAL SYSTEM 330–37 (4th ed. 1996). Because utility charges and
user fees are usually levied per unit, the total costs to users varies with the quantity of
goods and services consumed. In effect, user charges establish a direct link between the
expenditure and the revenue sides of the budget for specific governmental services. See
id.
413. Unlike user fees, general ad valorem property taxes are financial transfers to
government and not a bargained-for exchange of services; they principally serve revenue
needs. See id. at 262–66.
414. Id. at 331.
415. See GELFAND & SALSICH, supra note 12, at 91. Special assessments and development fees are occasionally characterized as compulsory user fees. See id.
416. See Beck, supra note 408, at 175. The Internal Revenue Service defines a tax
as follows:
[A]n enforced contribution, exacted pursuant to legislative authority in the exercise of taxing power, and imposed and collected for the purpose of raising revenue to be used for public or governmental purposes, and not as a payment for
some special privilege granted or service rendered. Taxes are, therefore, distinguishable from various other contributions and charges imposed for particular
purposes under particular powers or functions of the government. In view of
such distinctions, the question whether a particular contribution or charge is to
be regarded as a tax depends upon its real nature. If it is in the nature of a
tax, it is not material that it may be called by a different name; and, converse-
1997]
Municipal Finance and User Fees
789
vice or consume the output of the government programs financed by
user fees do not contribute to their funding.417
The label of an exaction is not controlling in defining its nature.418 The Supreme Court defines a tax as an involuntary collection of funds that does not necessarily relate to any benefit bestowed
by government on a taxpayer.419 The Court analyzed the constitutionality of a sovereign's attempt to tax another sovereign in Massachusetts v. United States.420 The Court sanctioned a user fee as
constitutionally imposed in such a transaction.421 The Court held the
user fees valid because “the charges [did] not discriminate against
[the fee payer], [were] based on a fair approximation of use of the
system, and [were] structured to produce revenues that [would] not
exceed the total cost to the [government] of the benefits to be supplied.”422
2. The Commerce Clause Challenge: Discrimination
Undoubtedly, one of the most potent weapons to challenge a
statute on a constitutional basis is the Commerce Clause. The clause
imposes “protective conditions on the privilege of engaging in an
activity that affects interstate commerce or utilizes the channels or
instrumentalities of such commerce.”423 Limitations to this rule,
ly, if it is not in the nature of a tax, it is not material that it may be so called.
Id. at 175 n.94 (quoting Rev. Rul. 57-345, 1957-2 C.B. 132, revoked on a factual basis by
Rev. Rul. 60-366, 1960-2 C.B. 63).
417. See National Cable Television Ass'n v. United States, 415 U.S. 336, 340–41
(1974).
418. See City of Detroit v. Murray Corp., 355 U.S. 489, 492 (1958). The differentiation between user fees and regulation is also difficult to discern. See Shaviro, supra note
408, at 903. Shaviro also observes that a regulation might also be called a tax “given its
form and the likely surreptitiousness of the regulatory motive.” Id. at 904; see also
Wolfe, supra note 401, at 161.
419. See National Cable, 415 U.S. at 340. Justice Marshall's dissent in National
Cable characterized the attempt to differentiate a tax and a fee as futile and unnecessary. Marshall would limit the inquiry to whether Congress authorized the exaction. See
id. at 352 (Marshall, J., dissenting).
BLACK'S LAW DICTIONARY 1457 (6th ed. 1990) defines “tax” as “public burdens . . . without reference to peculiar benefits to particular individuals or property.”
420. 435 U.S. 444 (1978).
421. See id. at 463.
422. Id. at 466–67. See supra notes 318–27 and accompanying text for a detailed
discussion of Massachusetts v. United States.
423. TRIBE, supra note 245, at 311. Tribe asserts that the Commerce Clause allows
Congress to “impose whatever conditions it wishes, so long as the conditions themselves
790
Stetson Law Review
[Vol. XXVI
however, have developed.424 Initially, the states had no power to tax
the privilege of doing interstate business because it is a privilege
granted by the federal government. Ultimately, states were permitted under certain conditions to tax activities within their borders if
the federal government failed to provide a specific legislative privilege.425
Future activity of the United States Supreme Court will focus
on discrimination. This is not a new trend.426 A challenge to a levy's
validity under the Commerce Clause will likely be most successful
when discrimination is alleged.
With few exceptions, user fees have been reviewed by the United States Supreme Court in the context of highway user fees. However, other similar exactions have been struck down by the Court.
Many license, franchise, and privilege taxes were invalidated as
imposed on a business conducting exclusively interstate commence.427 In Railway Express Agency v. Virginia,428 the Court held
violate no independent constitutional prohibition, on the privilege of producing for, serving customers in, or otherwise `sitting astride the channels of' interstate commerce.” Id.
at 312.
The purpose of privileges preserved in both state constitutions and the Fourteenth Amendment is to provide equal treatment for every individual without favoring or
discriminating against one side or another. See Shaffer v. Carter, 252 U.S. 37, 55, 57
(1920).
424. This element was clarified by the Supreme Court in 1943. See Penn Dairies,
Inc. v. Milk Control Comm'n, 318 U.S. 261 (1943) (holding if the express intent to exclude a state regulation is not present, a state may impose burdens on the entity without de facto invalidity). The Court concluded a legislative requirement the privilege of
interstate commerce is necessary to preclude too large a class. See id. at 275.
425. This federal immunity cannot be infringed upon by the state. See Mayo v.
United States, 319 U.S. 441, 445–46 (1943). The ruling in New York ex rel. Rogers v.
Graves, 299 U.S. 401, 407–08 (1937), caused a widespread reaction. The Court held that
activities of interstate commerce are exempt from state control. Consequently, revenue
received by employees should be exempt. The decision was reversed in Graves v. New
York, 306 U.S. 466, 486 (1939), which held a privilege could not be made to exempt
federal employee salaries.
426. These arguments began as early as Welton v. Missouri, 91 U.S. 275, 279 (1876).
The recent trend of cases argue several bases of violations, one of which is invariably
discrimination. See, e.g., Fulton Corp. v. Faulkner, 116 S. Ct. 848 (1996); McKesson v.
Division of Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990); Maryland v. Louisiana,
451 U.S. 725 (1981).
427. See, e.g., Western Union Tel. Co. v. Kansas ex rel. Coleman, 216 U.S. 1 (1910);
Atlantic & Pac. Tel. Co. v. City of Philadelphia, 190 U.S. 160 (1903); Leloup v. Port of
Mobile, 127 U.S. 640 (1888); Robbins v. Shelby County Taxing Dist., 120 U.S. 489 (1887).
Facially discriminatory taxes imposed solely on merchants or products from outof-state were always held invalid. See, e.g., Walling v. Michigan, 116 U.S. 446 (1886);
1997]
Municipal Finance and User Fees
791
that the State could not require license, privilege, or occupation
taxes for “local incidents such as gathering up or putting down interstate commodities as an integral part of their interstate movement.”429
The Commerce Clause prohibits state taxes which expressly
favor in-state over out-of-state operations.430 Facially discriminatory
statutes have been uniformly ruled unconstitutional.431 A stock
transfer tax was at issue in Boston Stock Exchange v. State Tax
Commission.432 Reduced rates were provided for certain stock transfers effected through the New York Stock Exchange. The statute
was discriminatory because its purpose was to favor local commercial interests over out-of-state business interests.433 The Court held:
The obvious effect of the tax is to extend a financial advantage to
sales on the New York exchanges at the expense of the regional exchanges. Rather than “compensating” New York for a supposed
competitive disadvantage resulting from [a former statute], the
amendment forecloses tax-neutral decisions and creates both an
advantage for the exchanges in New York and a discriminatory
burden on commerce to its sister States.434
Webber v. Virginia, 103 U.S. 344 (1881); Cook v. Pennsylvania, 97 U.S. 566 (1878);
Welton v. Missouri, 91 U.S. 275 (1876).
428. 347 U.S. 359 (1954).
429. Id. at 368. The privilege cannot extend so far as to destroy the state's ability to
conduct necessary powers. See Flint v. Stone Tracy Co., 220 U.S. 107, 350–51 (1911); see
also Railroad Co. v. Peniston, 85 U.S. (18 Wall.) 5, 13 (1873).
430. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 282 (1977); Welton v.
Missouri, 91 U.S. 275, 280 (1876).
431. Facially discriminatory statutes were struck down in Oregon Waste Systems,
Inc. v. Environmental Quality, 511 U.S. 93 (1994); Chemical Waste Management, Inc. v.
Hunt, 504 U.S. 334 (1992); and New Energy Co. v. Limbach, 486 U.S. 269 (1988).
Classification based on residency or location of activity is generally invalid. See
Chalker v. Birmingham & N.W. Ry., 249 U.S. 522, 527 (1919). Chalker overturned a
Tennessee privilege tax that was four times higher for taxpayers whose main office was
outside the state. See id. at 526. The classification, based upon the location of a
taxpayer's main office, was “arbitrary and unreasonable.” Id. at 527.
432. 429 U.S. 318 (1977).
433. See id. at 331; see also West Point Wholesale Grocery Co. v. City of Opelika,
354 U.S. 390, 391–92 (1957) (holding invalid a state law taxing all foreign wholesalers,
but taxing resident wholesalers only after a certain level of sales had been met); Nippert
v. City of Richmond, 327 U.S. 416, 432 (1946); Best & Co. v. Maxwell, 311 U.S. 454,
455–56 (1940).
434. Boston Stock Exch., 429 U.S. at 331.
792
Stetson Law Review
[Vol. XXVI
A facially discriminatory state tax is constitutional if local commerce is subject to a tax on a “substantially equivalent event.”435
Fulton Corp. v. Faulkner436 assessed the constitutionality of North
Carolina's intangibles tax on corporate stock owned by state residents.437 The primary issue was the compensatory tax doctrine. The
purported companion tax was adjudged not to be complementary.438
Defenses to discriminatory taxes are strictly construed. Even if the
discrimination is negligible, the court will evaluate claims of
discrimination strictly. Regardless of the scale of the discrimination,
the Commerce Clause does not condone it. A determination must be
made whether the state's measure “regulates evenhandedly with
only `incidental' effects on interstate commerce, or discriminates
against interstate commerce.”439
A tax, discriminatory in operation or effect, 440 is equally unconstitutional. Evaluating the practical effect of the statute in operation
is required.441 A state tax is discriminatory if it taxes a transaction
or incident more heavily when it crosses state lines than when it
occurs entirely within the state.442 In Bacchus Imports, Ltd. v.
435. Armco Inc. v. Hardesty, 467 U.S. 638, 643 (1984) (quoting Maryland v. Louisiana, 451 U.S. 712, 759 (1981)); see also Henneford v. Silas Mason Co., 300 U.S. 577,
582–83 (1937); Hinson v. Lott, 75 U.S. (8 Wall.) 148, 152–53 (1868).
The Court has defined a compensatory tax as one that is “designed simply to
make interstate commerce bear a burden already borne by intrastate commerce.” Associated Indus. v. Lohman, 511 U.S. 641, 647 (1994). The taxes must serve a “complementary function” to one another. See Minneapolis Star & Tribune Co. v. Minnesota Comm'r
of Revenue, 460 U.S. 575, 582 (1983); see also Walter Hellerstein, Complementary Taxes
as a Defense to Unconstitutional State Tax Discrimination, 39 TAX LAW. 405, 409–19
(1986).
436. 116 S. Ct. 848 (1996).
437. See id. at 852.
438. See id. at 856. In Associated Industries v. Lohman, 511 U.S. 641 (1994), a Missouri statewide use tax was struck down. It did not complement a local sales tax where
the aggregate use tax could, in some instances, exceed the local tax. The taxes were not
complementary because the burden imposed on intrastate and interstate was not even.
See id. at 648–49.
439. Fulton Corp., 116 S. Ct. at 854 (quoting Oregon Waste Sys., Inc. v. Department
of Envtl. Quality, 511 U.S. 93, 99 (1994)).
440. The Commerce Clause prohibits as “unconstitutionally discriminatory . . . state
taxes non-discriminatory on their faces, which without sufficient justification, impose
economic burdens on interstate enterprises which are not in fact imposed on local competitors.” TRIBE, supra note 143, at 356.
441. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1976).
442. See Guy v. Baltimore, 100 U.S. 434, 439 (1879).
1997]
Municipal Finance and User Fees
793
Dias,443 the Court rejected the imposition of a Hawaiian excise tax
on the wholesale sale of alcoholic beverages that exempted some
locally produced alcoholic beverages.444 The State of Hawaii defended the statute by asserting that no actual competition between the
wholesalers existed, and the intention of the statute was to promote
a struggling Hawaiian industry.445 The Court rejected these arguments as irrelevant for Commerce Clause purposes.446
The Commerce Clause focuses on economics. Successful challenges of a statute as violative of Commerce Clause principles must
focus on economic realities. Proving a claim of discrimination requires an economic analysis of the operation of the statute. The task
to prove discrimination is not an easy one. What seems to be a blatant case of discrimination may be sustained. In Alaska v. Arctic
Maid,447 a tax on predominantly exported frozen fish was sustained,
even though fresh fish, which remained predominantly in-state, was
not similarly taxed.448
A statutory scheme which, when viewed in its entirety, operates
to handicap a nonresident is unconstitutional.449 Maryland v. Louisiana,450 struck down Louisiana's First-Use Tax on natural gas.451
There were no exemptions or credits in the First-Use Tax statute.
However, these features were located elsewhere in the state's tax
code, and insulated local industry from the tax. The operation of the
443. 468 U.S. 263 (1984).
444. See id. at 273.
445. See id. at 268, 273.
446. See id. at 269, 273.
447. 366 U.S. 199 (1961).
448. See id. at 204.
449. A tax on the privilege of doing business as a drummer was invalidated because
“the tax on drummers operates greatly to their disadvantage in comparison with the
merchants and manufacturers of [the taxing jurisdiction.]” Robbins v. Shelby Taxing
Dist., 120 U.S. 489, 498 (1887).
Vendors' licenses taxes are valid, however, if imposed upon vendors who bring
their goods into the state directly for sale from their wagons. See Wagner v. City of
Covington, 251 U.S. 95 (1919); Baccus v. Louisiana, 232 U.S. 334 (1914); Kehrer v. Stewart, 197 U.S. 60 (1905); American Steel & Wire Co. v. Speed, 192 U.S. 500 (1904); Emert
v. Missouri, 156 U.S. 296 (1895); Machine Co. v. Gage, 100 U.S. 676 (1879).
Another type of discrimination is subjecting nonresidents to higher tax rates
than local business. See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389
(1952).
450. 451 U.S. 725 (1981).
451. See id. at 760.
794
Stetson Law Review
[Vol. XXVI
Louisiana statutes was found to discriminate in effect.452 Similarly,
in Westinghouse Electric Corp. v. Tully,453 a credit was found to be
violative of the Commerce Clause as discriminatory because it
“provid[ed] a direct commercial advantage to local business.”454 The
credit encouraged DISC-related activity within the state, “foreclos[ed] `tax-neutral decisions and . . . create[d] . . . an advantage'
for firms operating in New York by placing a `discriminatory burden
on commerce to its sister States.'”455 A combination of a tax and subsidy scheme may effectively operate in a discriminatory manner.456
Some of the most difficult questions of discrimination arise
where the state taxes both interstate commerce and some amount of
intrastate commerce.457 Taxes and exactions that discriminate
against interstate commerce, even when composed in part of taxes
on intrastate commerce, are unconstitutional.458
While the defense, in litigation involving charges of discrimination on interstate commerce, may still assert that an exaction is im-
452. See id. at 756.
453. 466 U.S. 388 (1984).
454. See id. at 403 (quoting Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318,
329 (1977) (internal quotations and citation omitted)).
455. Id. at 406 (quoting Boston Stock Exch., 429 U.S. at 331) (DISC is an abbreviation for Domestic International Sales Corporation); see also R.J. Reynolds Tobacco Co. v.
New York Dep't of Fin., 643 N.Y.S.2d 865, 875 (N.Y. Sup. Ct. 1995) (holding discriminatory a statute forbidding the use of accelerated depreciation for out-of-state property).
456. In West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994), a facially neutral
statute was declared discriminatory in effect. All milk dealers were taxed by the state of
Massachusetts but revenue from the tax passed into a fund which subsidized only instate dairy farmers. See id. at 188. The refunding of the tax paid by in-state dairy farmers through the state subsidy system had the same effect as a discriminatory tax law.
See id. at 194.
457. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 194 (1824), clarified that commerce did
not extend to internal workings “which [are] carried on between man and man in a
State, or between different parts of the same State, and which does not extend to or
affect other States.”
The concept allowing for the difficulty in separating intrastate and interstate
activity is similar in theory to the unitary tax principle found in state income taxation.
The states use apportionment to divide income from a unitary business. A unitary business is one displaying “(1) functional integration; (2) centralization of management; and
(3) economies of scale.” See Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768,
781 (1992). A “flow of value” links the business operation into one whole. See Barclays
Bank PLC v. Franchise Tax Bd., 512 U.S. 298, 311 n.10 (1994).
In property taxation, this concept is likewise valid. See Norfolk & Western Ry. v.
Missouri State Tax Comm'n, 390 U.S. 317, 320 (1968); Pullman Co. v. Richardson, 261
U.S. 330, 338 (1923).
458. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 77 (1963).
1997]
Municipal Finance and User Fees
795
posed on solely in-state commerce, the possibility of success of such
an argument is nil.459 The attachment of interstate commerce to a
“local or intrastate activity” does not insulate the tax statute from
Commerce Clause protection.460
If the Commerce Clause is used to invalidate user fees, the challenge will most likely be based on discrimination. The cases examined above illustrate the Supreme Court's interpretation of the term
“discrimination.” It is far from precise. Most authorities agree:
While the notion of discrimination against outsiders or interstate
commerce seems easy to grasp intuitively, it has proved slippery in
practice. Some dismiss it as “shibboleth,” while even the more hopeful concede that it is “not self-defining” and can appear “delusively
simple.” Essentially, discrimination is a specific form of locational
nonneutrality, founded on comparing two groups–the persons inside and the persons outside the taxing jurisdiction or, alternatively, the commerce originating inside and the commerce originating outside.461
Local government tax policy naturally attempts to shift the burden
of a tax to outsiders.462 The development of the theory of the nega
459. It will be assumed that the trade constitutes interstate commerce:
Appellant seeks to demonstrate that the transportation it provides from the
railhead to the dealers is part of a movement in interstate commerce. Appellee
argues that appellant's transportation is intrastate business, but further argues
that even if the activity is part of interstate commerce, the tax is not unconstitutional . . . . The Mississippi courts, in upholding the tax, assumed that the
transportation is in interstate commerce. For present purposes, we make the
same assumption.
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 276 n.4 (1977).
460. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615 (1981).
While attacking the tax on a privilege operating partially interstate and partially
intrastate will likely fail, if the transaction is characterized as a sale of a service, the
taxable event may be assignable to one taxing jurisdiction. An unapportioned sales tax
on all tickets sold within the state did not violate the Commerce Clause regardless of
where the trip began or ended. See Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 115
S. Ct. 1331, 1340–43 (1995).
461. DANIEL SHAVIRO, FEDERALISM IN TAXATION: THE CASE FOR GREATER UNIFORMITY
42 (1993) (citations omitted).
462. The consequence of enacting an unconstitutional statute is recognized but is a
risk undertaken:
One might think that the states would refrain from imposing such burdens,
given the general social gains from locational neutrality, the self-defeating nature of competition to impose greater burdens on others than others impose on
oneself, and the capacity of threats of retaliation to enforce cooperation. Unfor-
796
Stetson Law Review
[Vol. XXVI
tive Commerce Clause is attributed to the shifting of burdens across
state lines.463 The Supreme Court has barred taxing statutes as
discriminatory on the political representation argument.464
Despite the vagueness which surrounds discrimination, local
governments must anticipate Commerce Clause challenges to their
user fee statutes. When litigation reveals a weakness in a tax statute, which ultimately is labeled infirm, the weakness is often the
base of the tax, called its measure.465 A tax's measure directly influences where the burden of the tax falls.466 But the party that bears
the burden of a tax is often difficult to identify. The burden of a tax
is the result of an aggregate of tax attributes.467 “The task of mea-
tunately, however, while these considerations powerfully constrain state and
local tax behavior and have created significant areas of cooperation, their force
is incomplete.
Id. at 72.
463. See id. at 71.
464. See TRIBE, supra note 245, at 410; see also Williams v. Vermont, 472 U.S. 14,
27 (1985) (holding that a statute providing individuals who bought cars outside of Vermont before becoming residents of that state were denied credit for taxes paid violates
the equal protection of the law).
465. A commentator has stated: “The measure of a tax is the yardstick or base to
which the tax rate is applied. Measures of taxes vary widely.” HELLERSTEIN &
HELLERSTEIN, supra note 304, at 31-32. The predominant types in use are:
(1) The Value of Property: Property taxes, Death taxes (estate and inheritance),
Capital stock taxes; (2) Income or Receipts: Gross receipts taxes, Gross income
Taxes, Net income taxes; (3) Selling Price: Sales and use taxes; (4) Fixed or
Flat sums: Four or five cents a package on cigarettes, six cents per gallon of
gasoline, etc.; License taxes, Stock issue and transfer taxes; (5) Miscellaneous
Measures: Weight of car in auto license tax, Face amount of bond in bond issue
tax, Amount of authorized capital in corporate organization tax.
Id.
466. This concept has been studied extensively:
The base of a personal tax system specifies what material benefits are relevant
in determining each taxpayer's taxable capacity. A traditional starting point in
formulating the base of the personal income tax has been the Haig/Simons
income definition . . . . According to that definition, taxable income would equal
the sum of the taxpayer's consumption during the taxable period plus the increase (or minus the decrease) in the taxpayer's net worth during that period.
A personal consumption tax, in contrast, would exclude from the tax base any
increase in a taxpayer's savings and would include in the base any decrease in
savings. Both bases would tax consumption financed out of current income and
neither base would tax previously acquired wealth not currently consumed.
MICHAEL J. MCINTYRE ET AL., READINGS IN FEDERAL TAXATION 1 (2d ed. 1983).
467. See id. “A tax system's measure of taxable capacity depends not only upon its
base but also upon its taxable period rules and its taxable person rules. The relationships among these complementary rules have only begun to be explored by tax commentators.” Id.
1997]
Municipal Finance and User Fees
797
suring the `burden' of existing taxation, quite aside from that of
forecasting effects of changes, bristles with complications.”468
If the Supreme Court determines that a statute favors local
interests over out-of-state interests, it is invalidated. The process by
which the Supreme Court ascertains who bears the burden of a tax
is clouded. It is difficult, almost nearly impossible, to judge a
statute's actual effect or incidence on the distribution of the tax
burden.469 Cases which have direct relevance to user fees illustrate
the controversy:
Are Courts institutionally capable of examining the rate or level of
a state tax to decide whether it is reasonable? Commonwealth Edison says no in the context of a coal severance tax, while American
Trucking Associations v. Scheiner says yes in the context of a flat
tax on truckers' use of in-state highways.470
In Commonwealth Edison Co. v. Montana,471 the Court upheld a
state severance tax on all coal extracted from the state's land where
the tax liability greatly impacted coal exported from the state.472 The
tax was also imposed on the small amount of coal which remained in
the state.473 “[T]he decisive issue turn[ed] on the operating incidence
of the tax.”474
When a tax is assessed in proportion to a taxpayer's activities or
presence in a State, the taxpayer is shouldering its fair share of
468. MARK CARTER MILLS & GEORGE W. STARR, READINGS IN PUBLIC FINANCE AND
TAXATION 325 (1932) (citing Robert Murray Haig, The Problem of Measuring the Tax
Burden, in REPORT OF THE NEW YORK STATE TAX COMMISSION FOR THE REVISION OF THE
TAX LAWS 92-100 (1932)). The difficulties begin with such problems as:
First, there exist insufficient data regarding the economic status of each of the
several groups into which it may be desirable to divide the population of the
state . . . ; [s]econd[ ], not enough is known about the shifting and the economic effects of taxes . . . ; [t]hird, how shall the population be grouped to compare
tax burdens?
Id. at 326–27.
469. See id. “It is impossible to give a complete description of the distribution of the
tax burden among individuals.” Id. at 325.
470. SHAVIRO, supra note 461, at 51 (citations omitted).
471. 453 U.S. 609 (1981).
472. See id. at 636.
473. See id. at 612.
474. Id. at 625 (quoting General Motors Corp. v. Washington, 377 U.S. 436, 440–41
(1964)).
798
Stetson Law Review
[Vol. XXVI
supporting the State's provision of “police and fire protection, the
benefit of a trained work force, and the `advantages of a civilized
society.'”475
To satisfy the fourth requirement of the Complete Auto test, the
Court held that the measure of the tax must bear a relationship to
the taxpayer's activity or presence.476 To establish a reasonable relationship, a tax must be proportional.477 Is proportionality the talisman? Proportionality itself is not. If the measure of the tax is incorrectly chosen, its burden, when computed in economic terms, may be
misplaced:
Consider the coal severance tax in Commonwealth Edison. While
directly borne by consumers (predominately from out of state), its
real incidence, even in the short term, cannot be determined without examining such factors as “the degree of geographic concentration, the mobility of various factors of industry, cartelization by
taxing states, international competition or price-umbrella effects,
natural substitutability, government regulation, the prevalence of
long term contracts, the importance of transportation costs and the
way in which such costs are determined, unionization, and market
structure as well as the more mundane attributes of long-and
short-run elasticities of supply and demand.”478
The Court in Commonwealth Edison concluded the tax was
“assessed under a formula that relate[d] the tax liability to the value
of the coal producers' activities within the State.”479 The coal extracted was a correct measure of the activity. As the passage above
475. Id. at 627 (quoting Exxon Corp. v. Wisconsin Dep't of Revenue, 447 U.S. 207,
228 (1980) (internal quotations omitted)).
476. See id. at 626. “Because it is measured as a percentage of the value of the coal
taken, the Montana tax is in `proper proportion' to the appellants' activities within the
State and, therefore, to their `consequent enjoyment of the opportunities and protection
which the State has afforded' in connection with those activities.” Id. (quoting General
Motors Corp. v. Washington, 377 U.S. 436, 441 (1964)); see also Nippert v. City of Richmond, 327 U.S. 416, 427 (1946).
477. RANDOM HOUSE DICTIONARY OF ENGLISH LANGUAGE 1153 (1967) defines proportional as: “(1.) comparative relation between things or magnitude as size, quantity, number, etc.; (2.) proper relation between thing or party.”
478. SHAVIRO, supra note 461, at 73–74 (citation omitted). The Author concludes
that “[i]n-state producers or landowners may bear most or all of the real tax burden.” Id.
at 74.
479. 453 U.S. at 629.
1997]
Municipal Finance and User Fees
799
recounts, coal extracted is not necessarily the best measure of the
tax, but it does sound logical. Proportionality may be the requirement needed to satisfy the fourth prong of the Complete Auto test,
but it does not insure the lack of discrimination.
American Trucking Ass'ns v. Scheiner480 is an example of the
Supreme Court's “can-do approach to measurement.”481 The Supreme Court made a definitive conclusion that mileage was the correct measure for fees for the use of Pennsylvania highways. The
state's facially neutral user fee was held to be discriminatory
against interstate commerce. The Court struck down the Pennsylvania axle tax because it accepted the appellant's argument that outof-state truckers bore a proportionately greater share of the tax
burden.482
Due to the out-of-staters' more limited presence in the state, the
axle tax was determined to be both discriminatory in effect and not
fairly related.483 Pennsylvania's effective tax rate in terms of costper-mile traveled was higher for a truck registered outside of Pennsylvania. This conclusion could only be reached if the proper base
was mileage and specific economic studies of the distribution of the
burden of the tax were not required.484
An economic analysis would take into consideration many more
factors to determine the incidence of a tax. For example, the Evansville Airport facilities are frequented by non-passengers. Many of
the publicly-provided facilities are fully developed commercial properties attracting large segments of the public for many reasons.
Business passengers inure more tangible financial benefit from the
480. 483 U.S. 266 (1987).
481. SHAVIRO, supra note 461, at 52.
482. Scheiner, 483 U.S. at 286.
483. See id. at 286–87.
484. Professionals have recognized that the weight of a vehicle is a direct cause of
damage to highways:
The paper begins by noting that there is a widely perceived fiscal problem associated with the nation's roads and bridges, and that current “user fees” on
trucking bear little relationship to the costs actually imposed by the vehicle. It
turns out that the actual costs imposed by trucks depend critically on axle loadings, and that there is a standard measure, called the ESAL (equivalent singleaxle load) that can be used to calculate the cost imposed per vehicle-mile, by a
truck.
Paul N. Courant, Comment to Kenneth A. Small & Clifford Winston, Welfare Effects of
Marginal-Cost Taxation of Motor Freight Transportation, in STUDIES IN STATE AND LOCAL
PUBLIC FINANCE 113, 128–29 (Harvey S. Rosen ed., 1986).
800
Stetson Law Review
[Vol. XXVI
use of travel and airport facilities. But many business passengers
use premises which are privately maintained within the airport
complex. After additional factors are analyzed, should the measure
of the fee be plane embarkment?
Every user fee has the potential of being invalidated as unconstitutional if the effective rate is higher on an out-of-state resident
who uses public facilities less than the in-state counterpart. Facially, the decisions in Commonwealth Edison and Scheiner do not seem
skewed. Certainly a coal severance tax measured on coal extracted
seems rational. Moreover, a natural base for a fee for the use of
highways seems to be the number of miles traveled. These holdings
seem to be psychologically logical.
In other cases, more credible evidence has been required.485 The
statute declared unconstitutional in Oregon Waste Systems, Inc. v.
Department of Environmental Quality486 was facially discriminatory.487 The statute charged a $2.25 per ton surcharge on the disposal of out-of-state waste. The disposal of waste generated in-state
cost 85¢. The State attempted to defend the statute by asserting
that it was justified because of the cost incurred in disposing of
waste. The State did not fulfill its burden of proving the actual cost
borne in disposing of out-of-state waste.488
In Fulton Corp. v. Faulkner,489 the Court held that the apportionment requirement of the Complete Auto analysis requires that:
“[T]he tax on interstate commerce [must] be shown roughly to approximate — but not to exceed — the amount of the tax on intrastate commerce.”490 The Court continued that the judiciary “as insti-
485. In Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123
(1931), the Supreme Court determined that the method of accounting used by the State
of North Carolina resulted in taxation of the company out of proportion to its business
transactions in the state. The taxpayer had evidence of the sources of the profits pertaining to its buying, manufacturing, and selling operations. See id. at 127. A 250% error
in apportionment by the State was unacceptable. See id. at 135. There is some question
of whether the evidence was actually introduced in the case. See id. The taxpayer made
an offer of proof which was rejected. See id. at 130.
In Butler Bros. v. McColgan, 315 U.S. 501, 511 (1942), the taxpayer failed to
prove its case utilizing separate accounting.
486. 511 U.S. 93 (1994).
487. See generally Steve Yarbrough, Compensatory Fee or Protectionist Tax: Oregon's
Surcharge on Out-of-State Waste, 34 NAT'L RESOURCES J. 497 (1994).
488. Oregon Waste Sys., 511 U.S. at 102–05.
489. 116 S. Ct. 848 (1996).
490. Id. at 856 (quoting Oregon Waste Sys., 511 U.S. at 103).
1997]
Municipal Finance and User Fees
801
tutions are poorly equipped to evaluate with precision the relative
burdens of various methods of taxation. The complexities of factual
economic proof always present a certain potential for error, and
courts have little familiarity with the process of evaluating the relative economic burden of taxes.”491
A determination must be made whether the statute under attack “will in its practical operation work discrimination against
interstate commerce.”492 To determine where the burden of a tax
impacts is a daunting task:
[I]t must be apparent that those who conceive of the tax system as
something which can be measured, evaluated, approved, or condemned by reference to a single simple formula may be justly accused of superficiality. The results of existing practice and the probable effects of a suggested course of action can be approximately
determined only by painstaking study and analysis.493
If the Supreme Court views the statute as favoring local interests over out-of-state, it will invalidate the tax on the basis of discrimination. Some burden on interstate commerce is apparently
permitted, but the Court eventually draws a line. The demarcation
line is very synthetic. Its artificiality makes the attack of discrimination an ever-present threat. When ascertainment of where a tax
burden falls is determined, a measure may become more or less objectionable.
Requiring a specific and detailed economic analysis of a tax
burden is not possible or justified. The line of decisions relating to
discriminatory state taxes have confused the concepts more than
clarified them. The objective is no more than what it was in 1915:
In view of the many decisions of this court there can be no serious
doubt that where a state at its own expense furnishes special facilities for the use of those engaged in commerce, interstate as well as
domestic, it may exact compensation therefor. The amount of the
charges and the method of collection are primarily for determination by the state itself; and so long as they are reasonable and are
491. Id. at 859 (quoting Minneapolis Star & Tribune Co. v. Minnesota Comm'r of
Revenue, 460 U.S. 575, 589–90 (1983) (footnote omitted)).
492. Best & Co. v. Maxwell, 311 U.S. 454, 456 (1940).
493. MILLS & STARR, supra note 468, at 337.
802
Stetson Law Review
[Vol. XXVI
fixed according to some uniform, fair and practical standard, they
constitute no burden on interstate commerce.494
V. CONCLUSION
User fees are a basic component of fiscal schemes of local governments. They represent a charge for the use of public facilities
which must be built and maintained. A local government is entitled
to fair reimbursement for providing the facilities.
Prior to the 1980s, the United States Supreme Court differentiated user fees and applied a unique standard to assess their constitutional limits within the context of the Commerce Clause. The
Court recognized that public facilities had to be built and maintained, regardless of the amount of use. This acknowledgement was
critical to its early holdings. User fees were considered a payment
for the use of a privilege. The extent of use of the public facility was
an individual choice.
Funds generated by a statute for these public facilities are segregated and subject to separate accounting. For Commerce Clause
purposes, “special revenue” funds are subject to a test articulated in
Evansville-Vanderburgh Airport. The Court imposed three conditions. The fee could not discriminate; the fee must be a fair approximation of use; and the fees collected could not be excessive in comparison to the benefit conferred.495 Litigation in early 1900s focused
on the total revenue generated, which is not permitted to exceed the
total expense of the public facility. Since the fee is compensatory, it
cannot be excessive or manifestly disproportionate.
Although it is now arguable that the subject of user taxes may
be constitutionally indistinguishable from travelling salesmen, the
decisions in Best & Co., Robbins, and Nippert clearly evidence a
historical difference. Discriminatory taxes were invalidated in these
cases under the different principles applied to taxes generating general revenue funds.
Complete Auto discarded the formalistic criterion of “privilege”
in favor of a realistic economic analysis of the tax effect of general
494. Hendrick v. Maryland, 235 U.S. 610, 623–24 (1915).
495. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.
707, 717–20 (1972).
1997]
Municipal Finance and User Fees
803
revenue fees. Under the Complete Auto test, all state taxes burdening interstate commerce must pass a four-prong test designed to
assess “the practical effect of the tax.” Whether this clear evolution
in the law regarding general revenue taxes pronounced in Complete
Auto also applies to special revenue funds is unclear. The continued
force of the separate line of cases that addresses user fees as special
revenue funds is now uncertain.
The Supreme Court also significantly narrowed the parameters
of these standards in Commonwealth Edison and Scheiner. The
Court made it clear that it would not endorse a tax on a “privilege”
wholly unrelated in its measure to the extent the taxpayer actually
uses the privilege. This “consistent and rational method of inquiry”496 requires both that a tax not discriminate against interstate
commerce and that “the measure of the tax must be reasonably related to the extent of the [taxpayer's] contact” with the taxing
state.497 “[W]hen the measure of a tax bears no relationship to the
taxpayers' presence or activities in a State, . . . the State is imposing
an undue burden on interstate commerce.”498
The Supreme Court decisions in Commonwealth Edison and
Scheiner may also support the supposition that the special revenue
and the general revenue tests merged. Do the standards in Evansville-Vanderburgh Airport still apply to special revenue funds or are
the statutes merely subject to an additional excessiveness test under
the Complete Auto test? The potential impact of this reversal of precedent on the separate tests for special revenue and general revenue
exactions is unknown. The overlapping or merging of special and
general revenue tax standards pose the most likely stage for further
growth of applicable principles by the United States Supreme Court.
Caution should be exercised by legislative bodies of local governments when drafting user fees until post-Scheiner case law becomes
sufficiently developed. A disproportionate burden falling upon interstate commerce is no longer constitutionally acceptable for special
revenue fees statutes. There is the concern that the taxpayer suffers
discrimination at the hands of a government in which it has no
voice. These fees are “in . . . practical operation . . . capable of use”
496. Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615 (1981) (quoting Mobil
Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 443 (1980)).
497. Id. at 626 (emphasis added).
498. Id. at 629.
804
Stetson Law Review
[Vol. XXVI
by the State to place the (nonresident) at a disadvantage in competition with the resident.499 A constitutional objection to the statute
should be factually supported with as much economic detail as possible to accurately and clearly prove discrimination.
Determining the financial impact of a fee or tax is difficult. Recent holdings by the United States Supreme Court seem superficial.
Discrimination cases are an assemblage of confusion. “[T]he
antidiscrimination standard has an almost excruciating unclarity
and inconsistency in practice, due partly to the Court's mistakes and
erratic behavior in interpreting it, but more fundamentally to the
standard's built-in difficulties.”500
Local governments are not required to devise perfect formulae
to ensure the lack of discrimination.501 Very refined methods of collecting revenue would impose genuine administrative burdens.502
Precisely calculated user fees naturally increase administrative
costs, and, consequently, the amount of revenue needed to operate a
facility. While the base of the tax need not be perfect; it must possess a close relationship to the burden of taxation. To be fair in
application, the burden of the fee should vary substantially with
use.
Economic information should be used by the local government to
choose not only the appropriate rate for the tax, but the appropriate
base for the tax as well. The base of the fee must be formulated in a
fashion which does not promote discrimination. Ideally, marginal
costing should be utilized.503 Correspondingly, cost subsidization is
avoided. Some average costing is unavoidable, but the determination
should take consumption into consideration in some manner. The
base should weigh as many subjective factors as possible.504 These
499. McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 56 (1940).
500. Shaviro, supra note 408, at 935; see also SHAVIRO, supra note 461, at 48.
501. See United States v. Sperry Corp., 493 U.S. 52, 60 (1989).
502. These requirements are a burden to the user as well. Administrative and compliance requirements are “a drag on interstate trade almost as debilitating as the border
restrictions our federal system was originally designed to prevent.” SHAVIRO, supra note
461, at 75 (citation omitted).
503. See Clayton P. Gillette & Thomas D. Hopkins, Federal User Fees: A Legal and
Economic Analysis, 67 B.U. L. REV. 795, 805–06 (1987). But see Terrance J. Schroepfer,
Fee-Based Incentives and the Efficient Use of Spectrum, 44 FED. COMM. L.J. 411, 420–23
(1992).
504. See Skinner v. Mid-America Pipeline Co., 490 U.S. 212, 214 (1989) (citing
Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, §
7005(a)(1), entitled “Pipeline Safety User Fees”).
1997]
Municipal Finance and User Fees
805
components will vary with the nature of the facility, but often include the time of use, location, season of the year, and demand conditions. There are also very technical engineering and scientific elements which contribute to the shifting of a tax burden. These intricate factors and the intangible value of the facility to the individual
user are often uncertain and cost prohibitive to determine.
In theory, the constitutional challenges to user fees are now
infinite. “The principal focus . . . must be the practical operation of
the statute, since the validity of state laws must be judged chiefly in
terms of their probable effects.”505 The “economic realities” of the
challenged fee will determine its constitutional fate.
User fees as a source of alternative or supplemental financing
have always been subject to constitutional limitations. User fee
scrutiny recently underwent a metamorphosis in order to insure the
preservation of Commerce Clause protection. Clarification of a Commerce Clause test for user fees is forthcoming. Its impact on a local
government's fiscal scheme will be substantial. Growth following
this metamorphosis could produce a butterfly or a beast. The result
is difficult to foresee. Local governments should be cautious in
drafting and evaluating the constitutionality of user fees and be
forever wary of the “silver bullet.”506
505. Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 37 (1980).
506. See NAGEL ET AL., supra note *, § 3.11.