When is a “fee” not a tax? When the Mullarkey Court says so…

In a little-noticed ruling issued November 3rd, 2008 (yes, great time to avoid attention, don’t you think?) the Mullarkey Majority on the Colorado Supreme Court quietly handed down an extremely far-reaching decision designed to permanently end-run TABOR and undermine the Colorado Constitution.  Like most people, I missed the significance of this case (Barber vs. Ritter) both at the time (my attention, like most Americans, was focused elsewhere) and even after launching Clear The Bench Colorado.

However, recent expressions of citizens outrage in response to massive increases in vehicle registration fees and exorbitantly punitive late fees – all part of the so-called FASTER bill (SB 108) passed by the Colorado Legislature and signed into law by Governor Bill Ritter, who continues to defend the increased fees – have turned the spotlight on the issue of fees vs. taxes.

Fees vs. Taxes – what’s the difference?

A fee is a charge for use of a service or amenity – the amount of which is related to the cost of providing that service or amenity.  Thus, licensing fees for hunting and fishing help fund game wardens, forestry service personnel, equipment, and property, etc. while fees for visiting state parks similarly help provide for personnel, property, upkeep, and the like.  The key feature of fees is that the user of a given good or service pays, and the funds collected are related to the purpose of providing the good or service.

A tax, on the other hand, while it may be applied to a particular good or service or more generally to the population at large, is collected to raise general purpose revenues.  Taxes collected may be unrelated, or completely disproportionate, to expenditures.  Thus, taxes on sales of goods (alcohol, clothing, etc.) or services (restaurants, dry cleaning, etc.) are not necessarily related to the cost of providing, regulating (e.g. health & safety inspections) or protecting (police, fire, courts, etc.) the goods or services taxed.  Government can spend tax revenues on anything it wants.  That’s why taxes go into the “General Fund” and expenditures are allocated by the legislative budgetary process.

Back in the days when the Colorado Supreme Court apparently still believed in upholding the law instead of engaging in creative exercises of convoluted argumentation to circumvent it (Mullarkey apparently had yet to hit her stride), decisions reflected these definitions and principles.  The 1989 Bloom v. City of Fort Collins decision (mangled almost beyond recognition in the Barber v. Ritter ruling) was clear:

A fee is distinct from a tax in that, “[u]nlike a tax, a special fee is not designed to raise revenues to defray the general expenses of government, but rather is a charge imposed upon persons or property for the purpose of defraying the cost of a particular governmental service.”

Morphing Taxes into Fees – the Mullarkey/Ritter shell game

Governor Ritter, the Colorado Legislature, and the Mullarkey Majority find the requirement to first ask before raising taxes (as required by TABOR) to be rather tiring – and restricting their power to accomplish their goals with your money.  What to do, what to do?  Simple – creatively define their way out of the restrictions; impose fees, instead of raising taxes – no need to ask the voters first; then just transfer the collected revenue (the ol’ shell game) into the general fund, so as to avoid those pesky restrictions on spending the money only on the “particular governmental service” for which the fee was collected.

But these semantic shenanigans can’t be legal, right? That’s what the plaintiffs in the Barber v. Ritter case thought – and they had good legal precedent (Bloom v. City of Fort Collins) on their side, too.  However, they failed to reckon with the logic-bending and creative writing skills of the Mullarkey Court.

Starting with Bloom‘s premise that a fee “might be subject to invalidation as a tax” when the “principal purpose” is to raise general revenues, the Mullarkey Majority went on to declare that to find “principal purpose” and legislative intent, “we look to the language of the enabling statute for its expression.”

If the language discloses that the primary purpose for the charge is to finance a particular service utilized by those who must pay the charge, then the charge is a “fee.” On the other hand, if the language states that a primary purpose for the charge is to raise revenues for general governmental spending, then it is a tax. Moreover, the fact that a fee incidentally or indirectly raises revenue does not alter its essential character as a fee, transforming it into a tax. (Barber, p. 26)

Ergo, as long as legislators remember to say that a “fee” is for a particular purpose when drafting legislation, it makes no difference if in practice the “fee” is collected and spent for purposes entirely unrelated to the enabling statute.  Legislators can now avoid the dreaded “ask first” TABOR restrictions on taxes by simply calling it a fee and remembering to specify a particular purpose – say, “restore crumbling bridges” – one can always shift the collected revenues to one’s pet project later.

So what’s the bottom line? Well, the good news is that thanks to the Mullarkey Majority on the Colorado Supreme Court, you probably won’t see the Colorado Legislature increase taxes much next year – as long as they haven’t completely killed TABOR, they would have to ask your permission first (well, in theory, anyway).  The bad news is that thanks to the Mullarkey Court, they won’t have to raise taxes – they’ll just increase or add new “fees” instead.  Now doesn’t that make you feel better?

Of course, if you’d rather not suffer an increase in either fees or taxes – at least not without being asked specifically first, as is your right under the Colorado Constitution – you have one last chance to DO something about it.  Ditch the Mullarkey Majority – vote “NO” on unjust justices before they can tax you again in 2010!  Let’s Clear The Bench, Colorado!