Opinion ID: 2460291
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Heading: By requiring the CWC to turn over fees it assessed against its members for capital improvement projects and services for the benefit of Las Vegas Valley sewer service users, A.B. 6, section 18 imposes an unconstitutional local and special tax against the CWC in violation of Nevada Constitution Article 4, Section 20

Text: The Legislature is not permitted to pass local or special laws [f]or the assessment and collection of taxes for state, county, and township purposes. Nev. Const. art. 4, § 20. An exaction of money for the purpose of generating revenue is a tax. Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 929 P.2d 253, 256 (1996); State v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); see also Hawaii Insurers Council v. Lingle, 120 Hawai'i 51, 201 P.3d 564 (2008); 71 Am. Jur.2d State and Local Taxation § 13 (2001) (explaining that a charge is a tax if its purpose is to raise revenue). While a tax is compulsory and it entitles the taxpayer to receive nothing except the governmental rights enjoyed by all citizens, a user fee is optional and applies to a specific charge for the use of publicly provided services. See U.S. v. City of Huntington, W.Va., 999 F.2d 71, 74 (4th Cir.1993) (explaining that [u]ser fees are payments given in return for a government-provided benefit; while taxes are `enforced contribution[s] for the support of government' (alteration in original) (quoting United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551 (1931))); City of Gary, Ind. v. Indiana Bell Tel., 732 N.E.2d 149, 156 (Ind.2000). Other courts, in addressing the issue of whether an exaction amounts to a tax, have explained that the nature of the tax or charge that a law imposes is not determined by the label given to it but by its operating incidence. State v. Medeiros, 89 Hawai'i 361, 973 P.2d 736, 741 (1999) (internal quotation omitted) (citing City of Huntington v. Bacon, 196 W.Va. 457, 473 S.E.2d 743, 752 (1996) (`It is a well-nigh universal principle that courts will determine and classify taxation on the basis of realities, rather than what the tax is called in the taxing statute or ordinance.' (quoting Hukle v. City of Huntington, 134 W.Va. 249, 58 S.E.2d 780, 783 (1950))); Emerson College v. City of Boston, 391 Mass. 415, 462 N.E.2d 1098, 1105 (1984) (explaining that ultimately, the nature of a monetary exaction must be determined by its operation rather than its specially descriptive phrase (internal quotation omitted))). Thus, to distinguish between a fee and a tax, the Hawaii Supreme Court in Medeiros adopted a modified version of the test articulated by the Massachusetts Supreme Judicial Court in Emerson College, which analyzes whether the charge (1) applies to the direct beneficiary of a particular service, (2) is allocated directly to defraying the costs of providing the service, and (3) is reasonably proportionate to the benefit received. Medeiros, 973 P.2d at 742. If those criteria fit the charge, it is a fee. Id. at 742-45. Here, the amounts collected by the CWC members through assessments were directed at capital improvement projects (mainly the SCOP) and sewer services. As the district court concluded in its summary judgment, such fees are user fees. [8] Applying the Medeiros test, the fees were to be applied for the benefit of members who provided sewer services, they were allocated to defray capital improvement project and sewer service costs, and they were proportionate to the benefits included in the CWC's capital improvement plan (in particular, the SCOP, which the district court estimated would cost $850 million to construct) that was in effect when A.B. 6 was enacted and when the district court rendered its decision. Id., 973 P.2d at 742. This court has not addressed whether user fees collected for capital improvement projects and sewer services are transformed into a tax through a subsequent law directing their transfer into the State's general fund, but it has addressed the issue of whether an ordinance exacting a fee from subdivision contractors for purposes of supporting county school capital improvements was properly characterized as a regulatory measure or a tax. Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1459, 929 P.2d 253, 257 (1996). In that case, looking at the ordinance's true purpose to determine whether it was regulatory or revenue-raising, the court reasoned that the ordinance that implemented the fair share cost (FSC) program was being utilized to benefit the entire county rather than the new subdivision against which the fee was assessed. Id. It then concluded that any regulatory features of the FSC are incidental to its true purposeto raise revenue to finance construction benefitting the County at large and not simply the subdivision at issue. Id. Since the FSC was clothed with the indicia of a tax rather than a regulatory measure, this court held that the FSC program was an impermissible tax. [9] Id. at 1459, 929 P.2d at 257-58. In so doing, this court explained that `when it appears from the Act itself that revenue is its main objective, and the amount of the tax supports that theory, the enactment is a revenue measure.' Id. at 1457, 229 P.2d at 256 (quoting Eastern Diversified v. Montgomery County, 319 Md. 45, 570 A.2d 850, 854 (1990)). Applying that reasoning to this case, the purpose of A.B. 6, section 18 is to help correct the state's revenue shortfall. Revenue-raising acts are defined as taxes. Id. Although the State distinguishes Douglas County Contractors on the basis that the ordinance in that case involved the collection of regulatory fees, and argues that this case involves reasonable utility fees, the holding in Douglas County Contractors rests on the exaction's true purpose. A.B. 6, section 18 takes the revenue obtained from user fees collected by the CWC members from business and residents within their respective jurisdictions with the intention of applying those fees to unrestricted statewide general fund uses. Such a broad-range-intended use is of weight in indicating that the charge is a tax. Emerson College, 462 N.E.2d at 1106 (internal quotation omitted). [S]tatutory earmarking of proceeds for [purposes other than what they were assessed] is more consistent with a revenue raising purpose than with an intent to recover . . . expenditures related to the CWC's conferred functions. Id. Applying that reasoning here, A.B. 6, section 18's mandate directing the CWC to transfer money to the State's general fund for statewide-unrestricted-general use is an impermissible local and special tax. Id.; see La Franca, 282 U.S. at 572, 51 S.Ct. 278 (defining taxes as the enforced contribution to provide for the support of government). The State, in arguing that A.B. 6, section 18 is not an impermissible tax under Nevada Constitution Article 4, Section 20, relies in part on Barber v. Ritter, in which the Colorado Supreme Court upheld statutes requiring money to be transferred from state special cash funds that were financed by user fees, surcharges, and special assessments into the state's general fund. 196 P.3d 238 (Colo. 2008). We are not persuaded, however, that the reasoning in Barber applies to this case for two reasons. First, the challenge against the statute requiring the money transfer in this matter is based on the Nevada Constitution's prohibition against local and special laws under Article 4, Sections 20 and 21, and the plaintiffs/appellants in Barber challenged the statutes at issue in that case under the Colorado Taxpayer's Bill of Rights (TABOR), an amendment to the Colorado Constitution passed in 1992 by citizen initiative that was aimed at limiting government spending without taxpayer approval. See Colo. Const, art. X, § 20 (1992); Barber, 196 P.3d 238. Thus, the court in Barber did not analyze the statutes' constitutionality under any local and special law prohibitions. Second, unlike this case, the court in Barber held that it was permissible under TABOR to require the money retained in state special funds to be transferred to the state's general fund, reasoning that the transfers did not amount to a tax subject to TABOR's voter approval requirement because the transfer of fees from state cash funds to the state's general fund did not alter their essential character as fees. Id. at 242, 249. Barber, therefore, does not provide any authority for the proposition that funds held by a specific political subdivision within a specific locality may be transferred to the state's general fund for the benefit of the entire state and still comport with Nevada's constitutional proscriptions on local and special laws. Our conclusion that A.B. 6, section 18 constitutes an impermissible tax is consistent with the reasoning from other jurisdictions that have addressed similar situations. For example, in Hawaii Insurers Council v. Lingle , the Hawaii Supreme Court determined that a statute requiring the Hawaii Insurance Council to transfer funds collected as regulatory fees to the state's general fund was an unlawful attempt to transform $3.5 million of legitimate assessments into a general tax. 120 Hawai'i 51, 201 P.3d 564, 583 (2008). In that case, the court rejected the state's contention that a user or regulatory fee, if initially assessed as such, can be transferred to a general fund when the same assessment would have been invalid had it been assessed initially with the express understanding that the funds would be transferred to the general fund. Id. at 582. Here, while the fees were collected as user fees, when the Legislature later enacted A.B. 6, section 18, requiring that the collected fees be transferred to the State's general fund for unrestricted general use, they were transformed into a local and special tax, which is prohibited under Article 4, Section 20 of the Nevada Constitution. Although the State attempts to distinguish Lingle on the basis that the transfer of regulatory fees is not at issue here, the point in Lingle that is relevant in this matter is that fees assessed as legitimate fees can be transformed into impermissible taxes if they are later transferred to the State's general fund. 201 P.3d at 582. This is true because they would no longer bear any relationship to the purpose for which they were assessed once mixed into the general fund. See id. (emphasizing the revenue's ultimate use in determining whether a fee amounts to a tax by asking whether it provides a general benefit to the public, of a sort often financed by a general tax); see also Health Services Medical Corp. v. Chassin, 175 Misc.2d 621, 668 N.Y.S.2d 1006, 1009-10 (Sup.Ct.1998) (declaring a statute to be an unconstitutional tax because it directed a portion of payments made by health maintenance organizations to hospitals for inpatient care to be deposited in the state's general fund). Accordingly, looking at A.B. 6, section 18's true purpose, which is to raise the State's revenue base through an assessment against one political subdivision of the state that operates in only a specific locality in the state, we conclude that section 18 is an impermissible local and special tax under Article 4, Section 20 of the Nevada Constitution. See Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 1459, 929 P.2d 253, 256, 257 (1996); State v. Boyd, 27 Nev. 249, 74 P. 654 (1903).