LITTLE ROCK, Ark. (Legal Newsline) - The Arkansas Supreme Court on Thursday ruled that a stormwater utility fee, tacked onto city residents' water bills, is not an illegal tax.
The Court, in its nine-page decision, affirmed a Garland County Circuit Court's decision upholding a Hot Springs city ordinance.
The ordinance, adopted in January 2008, established a stormwater utility fund and imposed a fee on utility accounts within the city's corporate limits.
The ordinance fixed a fee of $6 per month for commercial and industrial accounts and $3 per month for residential accounts.
Appellants Roberta Morningstar and Doyle Shirley, on behalf of other taxpayers, asserted that the circuit court's decision upholding the ordinance was "erroneous" because the fee is contrary to state code, constitutes an illegal exaction and because it constitutes a tax, which required voter approval.
The Court found no error. Justice Karen R. Baker authored the ruling.
In order to bring an illegal exaction claim based on an illegal tax, the exaction must be a tax and not a fee, Baker said.
The appellants argued that the fee is a tax rather than a fee.
The difference, according to the Court: "Government imposes a tax for general revenue purposes, but a fee is imposed in the government's exercise of its police powers."
Taxing power is usually exercised to provide funding for public services at large, while police power is usually exercised to cover the cost of administering a regulatory scheme or providing a service, it further explained.
The Court upheld the circuit court's finding that the fee was not intended as a means of paying for already existing services.
However, the appellants argued that the revenue generated by the fee exceeded the operating costs of the fund.
But the Court rejected the assertion that because a utility fee generates a surplus in a utility fund, the exaction must be a tax.
"The city's expert testified that the fee was reasonable in light of the fees other cities in the region charge for similar stormwater services, and the trial court relied on his testimony," Baker wrote for the Court.
The city, the Court said, properly segregated the fund for use only for the purposes for which it was created.
"While the scope of the services may have exceeded the requirements of the mandate, that fact alone is not determinative, as the scope of the services is still within the purposes of the authorizing legislation," the Court wrote.
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