Is fee a permit charge or a tax?
By Ben Solis
Gongwer News Service
A plumbing supply company asked the Michigan Supreme Court on Wednesday to overturn a Court of Appeals’ decision that held a fire inspection permit fee for businesses in Detroit was not a tax in violation of the Headlee Amendment.
Justices heard oral arguments in Midwest Valve & Fitting Company v. Detroit (MSC Docket No. 165726) during an afternoon session of its November case call.
The lawsuit involves the city’s imposition of annual charges on owners of commercial property and multiunit residential property within the city’s limits. The plaintiff, an owner who paid the charges, claimed they are taxes in violation of the Headlee Amendment. The city, however, said they were permit fees. The trial court granted partial summary disposition to the city on the Headlee claim but dismissed the plaintiff’s remaining claims.
The plumbing supply company appealed, but the Court of Appeals affirmed the trial court in a published opinion. The high court was asked to address whether the challenged annual charges violate Headlee, the Prohibited Taxes by Cities and Villages Act or both.
Greg Hanley, representing Midwest Valve & Fitting Company, clarified that the lawsuit started because the company got billed every year for a city fire safety inspection that it did not receive for years on end.
Once the lawsuit was filed, Hanley said the city averred that the fees were for inspections but also to fund direct and indirect costs of Detroit’s entire fire inspection program.
Hanely told the justices when the company demonstrated that it was billed for 57,000 inspections that never occurred, the city began referring to the charges as permit fees.
“At the end of the day, we took the position that it doesn’t matter. If you want to call them permit fees, you want to call them inspection fees, it’s the nature of the fee that matters,” Hanley said. “These charges are much different, and they simply can’t survive scrutiny as permit fees. Long before the Headlee Amendment, this court recognized that license and permit fees could be abused by municipalities because of a disparate bargaining power. You go to the government, and you want the right to do something, the government says you have to pay for that right, and that right can be abused.”
Hanley argued that by claiming the fees were charged so the business could operate was just a crafty way of getting around Headlee with an impermissible tax.
Answering a question from Justice Brian Zahra, who said this case represented the kind of disputes that ultimately led to the passing of Headlee, Hanley stated that there was no dispute the funds collected from the fees fund Detroit’s fire marshal and the division, including the training of arson investigators, inspection activity, and the entire operational budget of the fire prevention program.
Although Hanley said the city did not use the funding each year in a discretionary fashion, which would be a clear violation of Headlee, the fact that it was funding the entire program and not just individualized fire inspection activity for the company made the fees a tax.
“The question is not whether they’re using it for the fire inspection program. The point is that the fire inspection provides no particular benefit to the people who pay the fee and don’t get an inspection,” he said. “They’re funding a general governmental obligation. Fire prevention is about as core a public function as you can have.”
Justice Megan Cavanagh posited whether these larger businesses in the city presented different fire risks than single-family or residential properties. She said it appears that even though the company paid for inspections but didn’t get them, others in the area may have and there was a shared benefit of fire prevention, and that was a clear benefit as a payer of the permit fee.
Hanley said the important point to take away from her reasoning was that the plumbing supply company was benefiting in no way different than the public.
“That’s the whole point,” he said. “If the public benefits and are getting that particular benefit, then it’s a tax.”
Eric Gaabo, representing the city of Detroit, said the plaintiff had wrongly characterized fees at issue as a core fire prevention and protection service, in which he cited former Justice Stephen Markman’s dissent when he was a member of the Court of Appeals, that these types of core services should be paid for by taxes and not fees.
Gaabo said the court in question did not adopt that reasoning when it issued its decision in the case, but more importantly, the case didn’t involve core fire services.
“Core fire services are firefighters. They are fire trucks, fire stations, fire hydrants. They’re responding to accidents, disasters, emergencies, EMS services,” Gaabo said. “These are the core fire protection services that are provided by every community everywhere, and they’re provided to all citizens in those communities. These are funded by taxes, and they’re funded by taxes in the city as well, because none of these functions, none of them, are paid for with the fees at issue in this case.”
Gaabo said that the city’s fire budget bears out that evidence, noting that the record of Fiscal Year 2017, which became an exhibit in the lawsuit, shows the fees in question amounted to 2.5 percent of the total budget and only went to the fire prevention unit. The other 97.5 percent paid for those core services he mentioned, like actual firefighters.
“It is not devoted to this specialized program that was enacted just to assist this specific subset of companies. I think it’s also helpful to consider what would happen if plaintiff did not pay the fee,” Gaabo said. “If the plaintiff didn’t pay this fee and had a fire, what would happen is, the fire department would send out its firefighters from its fire stations in its fire trucks and put the fire out using fire equipment all paid for by taxes.”
Chief Justice Elizabeth Clement asked what the company would not receive if it decided to stop paying the fee. Gaabo said they wouldn’t be able to hold their occupancy or use the property for a particular purpose, again likening it to a license or permit.
Zahra, who said he had concerns about the Court of Appeals’ decision in the case and signaled his leaning to overturn the ruling, said they might not get inspected, either.
“It appears to reason that the imposition of this fee is not a tax because it’s paid in exchange for a permit to do business,” Zahra said. “That can’t possibly be the way around Headlee, right? ‘If you get a permit to do business in our state, it’s not a tax.’ Is that the rule of Headlee?”
Gaabo said no, to which Zahra thanked him for agreeing with him that the scenario presented was not the rule of Headlee, which he further noted was the basis of the appellate court’s ruling.
Gaabo said Zahra was misreading the ruling.
“That’s not correct. You have authority to use your property for a specific purpose, but there may be other requirements you need to follow, as well, before you can actually do business,” Gaabo said. “Some of these entities have to get a license. This is not one of them. In fact, the vast majority of these entities out there don’t have to get a license and don’t pay a license fee.”
Zahra said that didn’t provide him any more comfort regarding the appellate court’s holding.
Gongwer News Service
A plumbing supply company asked the Michigan Supreme Court on Wednesday to overturn a Court of Appeals’ decision that held a fire inspection permit fee for businesses in Detroit was not a tax in violation of the Headlee Amendment.
Justices heard oral arguments in Midwest Valve & Fitting Company v. Detroit (MSC Docket No. 165726) during an afternoon session of its November case call.
The lawsuit involves the city’s imposition of annual charges on owners of commercial property and multiunit residential property within the city’s limits. The plaintiff, an owner who paid the charges, claimed they are taxes in violation of the Headlee Amendment. The city, however, said they were permit fees. The trial court granted partial summary disposition to the city on the Headlee claim but dismissed the plaintiff’s remaining claims.
The plumbing supply company appealed, but the Court of Appeals affirmed the trial court in a published opinion. The high court was asked to address whether the challenged annual charges violate Headlee, the Prohibited Taxes by Cities and Villages Act or both.
Greg Hanley, representing Midwest Valve & Fitting Company, clarified that the lawsuit started because the company got billed every year for a city fire safety inspection that it did not receive for years on end.
Once the lawsuit was filed, Hanley said the city averred that the fees were for inspections but also to fund direct and indirect costs of Detroit’s entire fire inspection program.
Hanely told the justices when the company demonstrated that it was billed for 57,000 inspections that never occurred, the city began referring to the charges as permit fees.
“At the end of the day, we took the position that it doesn’t matter. If you want to call them permit fees, you want to call them inspection fees, it’s the nature of the fee that matters,” Hanley said. “These charges are much different, and they simply can’t survive scrutiny as permit fees. Long before the Headlee Amendment, this court recognized that license and permit fees could be abused by municipalities because of a disparate bargaining power. You go to the government, and you want the right to do something, the government says you have to pay for that right, and that right can be abused.”
Hanley argued that by claiming the fees were charged so the business could operate was just a crafty way of getting around Headlee with an impermissible tax.
Answering a question from Justice Brian Zahra, who said this case represented the kind of disputes that ultimately led to the passing of Headlee, Hanley stated that there was no dispute the funds collected from the fees fund Detroit’s fire marshal and the division, including the training of arson investigators, inspection activity, and the entire operational budget of the fire prevention program.
Although Hanley said the city did not use the funding each year in a discretionary fashion, which would be a clear violation of Headlee, the fact that it was funding the entire program and not just individualized fire inspection activity for the company made the fees a tax.
“The question is not whether they’re using it for the fire inspection program. The point is that the fire inspection provides no particular benefit to the people who pay the fee and don’t get an inspection,” he said. “They’re funding a general governmental obligation. Fire prevention is about as core a public function as you can have.”
Justice Megan Cavanagh posited whether these larger businesses in the city presented different fire risks than single-family or residential properties. She said it appears that even though the company paid for inspections but didn’t get them, others in the area may have and there was a shared benefit of fire prevention, and that was a clear benefit as a payer of the permit fee.
Hanley said the important point to take away from her reasoning was that the plumbing supply company was benefiting in no way different than the public.
“That’s the whole point,” he said. “If the public benefits and are getting that particular benefit, then it’s a tax.”
Eric Gaabo, representing the city of Detroit, said the plaintiff had wrongly characterized fees at issue as a core fire prevention and protection service, in which he cited former Justice Stephen Markman’s dissent when he was a member of the Court of Appeals, that these types of core services should be paid for by taxes and not fees.
Gaabo said the court in question did not adopt that reasoning when it issued its decision in the case, but more importantly, the case didn’t involve core fire services.
“Core fire services are firefighters. They are fire trucks, fire stations, fire hydrants. They’re responding to accidents, disasters, emergencies, EMS services,” Gaabo said. “These are the core fire protection services that are provided by every community everywhere, and they’re provided to all citizens in those communities. These are funded by taxes, and they’re funded by taxes in the city as well, because none of these functions, none of them, are paid for with the fees at issue in this case.”
Gaabo said that the city’s fire budget bears out that evidence, noting that the record of Fiscal Year 2017, which became an exhibit in the lawsuit, shows the fees in question amounted to 2.5 percent of the total budget and only went to the fire prevention unit. The other 97.5 percent paid for those core services he mentioned, like actual firefighters.
“It is not devoted to this specialized program that was enacted just to assist this specific subset of companies. I think it’s also helpful to consider what would happen if plaintiff did not pay the fee,” Gaabo said. “If the plaintiff didn’t pay this fee and had a fire, what would happen is, the fire department would send out its firefighters from its fire stations in its fire trucks and put the fire out using fire equipment all paid for by taxes.”
Chief Justice Elizabeth Clement asked what the company would not receive if it decided to stop paying the fee. Gaabo said they wouldn’t be able to hold their occupancy or use the property for a particular purpose, again likening it to a license or permit.
Zahra, who said he had concerns about the Court of Appeals’ decision in the case and signaled his leaning to overturn the ruling, said they might not get inspected, either.
“It appears to reason that the imposition of this fee is not a tax because it’s paid in exchange for a permit to do business,” Zahra said. “That can’t possibly be the way around Headlee, right? ‘If you get a permit to do business in our state, it’s not a tax.’ Is that the rule of Headlee?”
Gaabo said no, to which Zahra thanked him for agreeing with him that the scenario presented was not the rule of Headlee, which he further noted was the basis of the appellate court’s ruling.
Gaabo said Zahra was misreading the ruling.
“That’s not correct. You have authority to use your property for a specific purpose, but there may be other requirements you need to follow, as well, before you can actually do business,” Gaabo said. “Some of these entities have to get a license. This is not one of them. In fact, the vast majority of these entities out there don’t have to get a license and don’t pay a license fee.”
Zahra said that didn’t provide him any more comfort regarding the appellate court’s holding.
––––––––––––––––––––
Subscribe to the Legal News!
http://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
