Setting Fees: How to and Why

Presentation given by Deron Hicks and Bill ty Ross

February 2011

 

Taxes vs. Fees

  1. Taxes
    • Can be arbitrary
    • No required connection between payment and services received
  2. Fees
    • Direct connection required between payment and services received
    • Rational Nexus

 

Legal Considerations

“The distinction between a tax and a license is not one of names but of substance. A tax is primarily intended to produce revenue, while a license is primarily intended for regulation under the police power.”

Cotton States Mutual Ins. Co. v. DeKalb County, 251 Ga. 309, 509 S.E. 2d 386, 387 (1983).

 

The authority of a county or municipality to raise funds for use as general revenue is limited to the taxation authority granted to that county or municipality either by the Constitution of the State of Georgia or by the Georgia General Assembly. Georgia law, however, recognizes several methods by which revenue may be generated by a county or municipality for non-general fund revenue purposes, to include . . .

  1. A county or municipality may charge a fee for a special privilege or a service rendered; and
  2. A regulatory fee or license fee may be imposed under the police power as a means or an aid in regulating a particular occupation or activity

 

There are, however, limitations to this authority.

 

A Tale of Two Cases

Home Builders Association of Savannah, Inc. v. Chatham County, Supreme Court of Georgia (2003)

and

Monticello, Ltd. V. City of Atlanta, Court of Appeals of Georgia (1998)

 

Home Builders Association of Savannah, Inc. v. Chatham County:

HBA sued the county and alleged that certain fees related to building and development exceeded the true cost of the services provided and were not rationally related to the cost of the services.

 

O.C.G.A. § 48-13-9, cited by the court, provides, in part:

A local government is authorized to require business or a practitioner of a profession or occupation to pay a

regulatory fee only if the local government customarily performs investigation or inspection of such businesses or practitioners of said profession or occupation as protection of the public health, safety, welfare or in the course of enforcing a state or local building, health, or safety code, but no local government is authorized to use regulatory fees a means of raising revenue for general purposes; provided that the amount of the regulatory fee shall approximate the reasonable cost of the actual regulatory activity performed by the local government.

 

Monticello, Ltd. V. City of Atlanta:

Apartment owner challenged authority of city to impose fees upon unoccupied apartment units.

 

Relevant text from decision:

“[A] municipality cannot impose a fee for services that have not been provided. An assessment levied in excess of the benefit provided arbitrarily deprives a person of his property. “

 

Basis for a Fee

  • Cost to provide service
  • Reasonable relation—”rational nexus”
  • Service is actually provided

 

Basis for a Fee

cost to provide service / measurement of service being provided

 

Basis for a Fee

annual cost to operate building permit department / square feet of building space permitted annually

 

Basis for a Fee

annual cost to operate inspections department / square feet inspected annually

 

Possible Building Permit or Plan Review Fee Costs

  • Personnel cost
    • Wages
    • Insurance
    • Health care
    • Retirement
    • Training
  • Cost of fixtures (office equipment and furniture)
  • Utilities
  • Value of building space

 

Possible Inspection Fee Costs

  • Personnel cost
    • Wages
    • Insurance
    • Health care
    • Retirement
    • Training
  • Cost of fixtures (office equipment and furniture)
  • Cost of vehicle
  • Utilities
  • Value of building space

 

How Can I Be Sure?

  • Rational nexus
    • Is the fee equal to or less than on the real cost to provide the service?
  • Use of fee
    • Is the fee used to meet department costs? In other words, is the money being spent?