HEARTLAND APARTMENT ASSOCIATION, INC., et al., Appellants/Cross-appellees,
CITY OF MISSION, KANSAS, Appellee/Cross-appellant
Appeal from Johnson District Court; JAMES F. VANO, judge.
1. The distinction between a fee and a tax does not depend upon its label, but rather on the nature and function of the charge. A tax is a forced contribution to raise revenue for the maintenance of governmental services offered to the general public. In contrast, a fee is paid in exchange for a special service, benefit, or privilege not automatically conferred upon the general public. A fee is not a revenue measure, but a means of compensating the government for the cost of offering and regulating the special service, benefit, or privilege. Payment of a fee is voluntary--an individual can avoid the charge by choosing not to take advantage of the service, benefit, or privilege offered.
2. The Home Rule Amendment of the Kansas Constitution grants cities the power to determine their local affairs and government through the levying of taxes, excises, fees, charges, and other exactions.
3. The powers and authority granted to cities under the Home Rule Amendment shall be liberally construed for the purpose of giving to cities the largest measure of self-government.
4. When courts examine the legality of an ordinance created by an exercise of home rule authority, the ordinance is entitled to a presumption of validity and should not be stricken unless its infringement upon a statute is clear beyond substantial doubt.
5. The legislature, by enacting tax laws that apply uniformly, can preempt cities and counties from enacting and enforcing certain taxes such as excise taxes.
6. Under K.S.A. 12-194, cities cannot levy or impose an excise tax or a tax in the nature of an excise tax.
7. When the legislature revises an existing law, the court presumes that the legislature intended to change the law as it existed prior to the amendment.
8. Courts generally presume that the legislature acts with full knowledge of existing law.
Mary Jo Shaney, James C. Bowers, Jr., and Daniel P. Goldberg, of White Goss, a Professional Corporation, of Kansas City, Missouri, for appellants/cross-appellees.
Thomas V. Murray, and Mark A. Samsel, of Lathrop & Gage LLP, of Overland Park, for appellee/cross-appellant.
Athena E. Andaya, deputy attorney general, for amicus curiae Office of Kansas Attorney General.
John A. Donley, of Devine and Donley, LLC, of Topeka, for amicus curiae National Federal of Independent Business Small Business Legal Center.
Lucas Bell, for amicus curiae Kansas Association of Realtors.
Before MALONE, C.J., HILL and BUSER, JJ.
In this era, when all cities and towns thirst for revenue to provide basic governmental services, we must decide if a transportation user fee, enacted by the City of Mission, is a tax, and if so, decide if it is an excise tax not permitted by the Kansas Legislature. We offer our perspective on the two issues that arise in this litigation.
Is this a tax?
Annually, Mission, Kansas collects a transportation user fee on all improved real estate, using it for public street maintenance. If an owner fails to pay, the city imposes late fees, interest, and attaches a lien on the real estate. Under Kansas law, a tax is a forced contribution to raise revenues for the maintenance of governmental services offered to the general public. Because this fee is a forced payment by all improved land-owners which is used for the governmental service of providing for public streets and bridges, used by all, we hold Mission's transportation user fee is a tax.
Is this an excise tax barred by law?
The Kansas Legislature has prohibited cities from imposing all excise taxes with five exceptions. The term excise tax has come to mean and include practically any tax which is not an ad valorem tax imposed on the value of the article or thing taxed. The parties to this lawsuit agree that the fee here is not based on the value of the article or thing taxed and none of the five exceptions to the statutory ban on excise taxes apply to this case. Therefore, we hold that Mission's transportation user fee is a prohibited excise tax.
The case history provides the context for our decision.
Because the City Council decided that it lacked sufficient general fund revenues needed for the adequate maintenance of city streets, the City of Mission, in 2010, created a transportation user fee in Ordinance No. 1332 to raise revenue for its transportation fund. The ordinance is found in Chapter 145 of Mission's municipal code. The City uses the money from the fund for various transportation system needs such as surfacing and resurfacing of streets, curb and gutter repair, bridge repair, trail maintenance, and bicycle lane repair and maintenance.
The City imposed the fee on the owners of all developed property within the City. The council based the fee on what it calls the direct and indirect use of the City's transportation system. The fee exacts payment for what the City perceives to be the benefits that developed properties derive from the use of public streets, bicycle lanes, and sidewalks. According to the fee's administration manual, the fee is calculated by estimating the average number of vehicle trips each property within the City generates and then assessing a fee based on the trip intensity--that is, the type and size of the use. In other words, the more trips generated by a certain property, the higher the fee assessment. Only real property exempt from all property or ad valorem taxes under K.S.A. 79-201, such as churches, are exempt from paying the fee. Heartland Apartment Association, Inc., the Building Owners Association, and others, cannot opt out of this fee.
The City looks at three factors to determine how much to tax.
To calculate the amount owed to the City, the City Administrator looks at three factors:
(1) the use of the developed property, including the amount of traffic generated by the property;
(2) for nonresidential uses, the developed square footage of the property; and
(3) a traffic generation factor for each use category of the developed property.
After determining the use category for the property, the Administrator uses a trip generation manual published by the Institute of Transportation Administrators to determine the corresponding vehicle trip generation figures. The Administrator then estimates the number of trips annually related to the property. After that, the Administrator assigns this estimate of annual trips to a customer group. There are three groups: (1) single-family resident; (2) multi-family resident; or (3) nonresidential use.
The fee is then billed to each landowner and collected with the annual Johnson County ad valorem property taxes. Under the enactment, the City can charge late fees for unpaid amounts and place a lien on the real estate for any unpaid amounts. In 2010 and 2011, the various plaintiffs paid their yearly fee assessments in amounts ranging from a flat fee of $72 for single-family homes to $16,159.87 for commercial property.
Two landowner associations and others take legal action against the fee.
Heartland Apartment Association, Inc., a nonprofit association whose members own or operate multi-family retail housing in Kansas, the Building Owners and Managers Association of Metropolitan Kansas City, a nonprofit association of commercial building owners and managers, and some individuals, filed a lawsuit challenging the legality of the City's transportation utility fee. They brought their suit in five counts: declaratory judgment, injunction, recovery of amounts paid, due process, and equal protection. The district court decided the matter on motions for summary judgment.
The court entered judgment in favor of the City on all five counts. Basically, it concluded that while the transportation user fee is a tax that was lawfully adopted through an ordinary ordinance under the City's powers of home rule found in Article 12, § 5 of the Kansas Constitution, it is not an excise tax prohibited under K.S.A. 12-194.
Heartland appeals, contending the fee is an illegal excise tax. The City cross-appeals the district court's ruling that the fee is a tax. The City maintains it is just a fee. The parties agree that there are no ...