Opinion ID: 206346
Heading Depth: 2
Heading Rank: 4

Heading: occupation tax claim

Text: The Apartments next allege that the stormwater drainage fee is an unlawful occupation tax under the Texas state constitution. Under Texas law, an occupation tax is “a form of excise tax imposed upon a person for the privilege of carrying on a business, trade or occupation.”2 Conlen Grain & Mercantile, Inc. v. Texas Grain Sorghum Producers Bd., 519 S.W.2d 620, 624 (Tex. 1975). The Texas state constitution provides that an occupation tax imposed by a city cannot “exceed one half of the tax levied by the State for the same period on such profession or business.” T EX. C ONST. art. VIII, § 1(f). If the state has no tax for a particular occupation, or if the tax imposed by the city exceeds one half of the 2 The district court held that the stormwater drainage fee is not an occupation tax because the fee is not assessed on any particular profession or business, such as the business of owning or operating a multi-family apartment building. Rather, it is assessed on every property in the City, except those that are exempt. The district court further questioned whether a utility fee such as the stormwater drainage fee can ever be an occupation tax. See Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907 (Tex. Civ. App.—San Antonio 1962, writ dism’d) (holding that a charge for sewer services was a utility fee and not a tax because “a city may make a reasonable charge for the benefits received by those who use its sewers”). The Board urges us to affirm the district court on these bases. Because we conclude that the stormwater drainage fee does not meet the standard for an occupation tax under Texas law, we do not address the argument that a fee such as the one at issue here could never be an occupation tax. 9 Case: 10-50069 Document: 00511404545 Page: 10 Date Filed: 03/09/2011 No. 10-50069 state’s tax, the city’s tax is unconstitutional. Id.; City of Houston v. Harris Cnty. Outdoor Adver. Ass’n, 879 S.W.2d 322, 326 (Tex. Civ. App.—Houston 1994, writ denied). It is undisputed that the state does not assess a stormwater drainage fee to property owners. Therefore, if the stormwater drainage charge is a tax, rather than a fee, it is unconstitutional. We start with the presumption that the stormwater drainage fee assessed by the Board is valid, and the burden is on the Apartments, as the parties attacking the fee, to demonstrate that it is invalid.3 Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907 (Tex. Civ. App.—San Antonio 1962, writ dism’d); see also City of Fort Worth v. Gulf Refining Co., 83 S.W.2d 610, 618 (Tex. 1935) (holding that an annual fee for filling stations “is under the law prima facie valid, and unless its unreasonableness has been made to appear it must be sustained”). To determine whether a fee is in reality an occupation tax, Texas courts consider “whether the primary purpose of the exaction, when the statute or ordinance is considered as a whole, is for regulation or for raising revenue.” City of Houston, 879 S.W.2d at 326. “Revenue,” as used by Texas courts, “means the amount of money which is excessive and more than reasonably necessary to cover the cost of regulation.” Producers Ass’n of San Antonio v. City of San Antonio, 326 S.W.2d 222, 224 (Tex. Civ. App.—San Antonio 1959, writ ref’d n.r.e.); see also Tex. Boll Weevil Eradication Found., Inc. v. Lewellen, 952 S.W.2d 454, 461 (Tex. 1997) (“The critical issue is whether the assessment is intended to raise revenue in excess of that reasonably needed for regulation.”). Whether 3 We note that the Apartments do not attack the validity of the Drainage Act or the validity of the City’s ordinance creating the stormwater drainage utility and delegating its operation to the Board. Furthermore, the Apartments do not contend that the schedule of drainage fees established by the Board does not comply with Drainage Act’s requirements that drainage fees be “nondiscriminatory, equitable, and reasonable.” Tex. Local Gov’t Code Ann. § 552.047(a). We therefore express no opinion on these subjects, and we address only the question whether the drainage fees at issue are unlawful occupation taxes. 10 Case: 10-50069 Document: 00511404545 Page: 11 Date Filed: 03/09/2011 No. 10-50069 a fee is reasonably necessary to cover the cost of regulation is a question of fact. City of Houston, 879 S.W.2d at 326. The Texas cases addressing this issue have generally distinguished between license or regulatory fees and occupation taxes. The stormwater drainage fees at issue in this case do not fit neatly into the category of a license or regulatory fee, but the cases involving challenges to these sorts of fees are instructive and neither party has suggested that the provision of stormwater drainage services is not within the police or regulatory power of the City. See Lewellen, 952 S.W.2d at 462. (“The abatement of nuisances is within the regulatory power of the State.”). In Lowenberg v. City of Dallas, 261 S.W.3d 54 (Tex. 2008) (per curiam), the court held that the fee charged annually to commercial buildings was an occupation tax because “the revenue generated greatly exceeded any regulatory cost” to collect fire prevention information on the buildings and incorporate the information into a database. Id. at 58. Similarly, in City of Houston, the court held that a permit fee charged to billboard operators was an unconstitutional occupation tax because a detailed accounting study confirmed that the fee generated revenue that exceeded the cost to regulate the billboard operators. 879 S.W.2d at 329–30. On the other hand, in Producers Association, the court upheld a dairy inspection fee because the fee generated only approximately $30,000 in revenue when the annual inspection costs were over $38,000. 326 S.W.2d at 224. Here, the Board submitted evidence that the reasonable cost to provide stormwater drainage services to the City is approximately $17 million per year. The Apartments have provided no evidence to suggest that this amount is unreasonable or that it does not represent the Board’s actual cost to provide the City with stormwater drainage services. On the contrary, the Apartments appear to agree that the annual cost to provide stormwater drainage services to the City as a whole is approximately $17 million. Because the Apartments 11 Case: 10-50069 Document: 00511404545 Page: 12 Date Filed: 03/09/2011 No. 10-50069 provided no evidence that the Board collects more than $17 million per year from the stormwater drainage fee, we conclude that the fee is not an unlawful occupation tax. Nonetheless, the Apartments argue that the drainage charge is not reasonably related to the provision of stormwater drainage services to their properties. See City of Houston, 879 S.W.2d at 326–27 (noting that a license or regulatory fee “must bear some reasonable relationship to the legitimate object of the licensing ordinance” (emphasis omitted)). The Apartments suggest that we ought to examine their fees on an individual basis to determine whether the amount paid directly benefits each individual payor. While Texas courts do require that the amount of the fee be related to the level of regulatory or licensing services received by the payors, they do not require perfect correspondence between the fee charged and the service received. See id. at 329–32; see also Producers Ass’n, 326 S.W.2d at 224 (examining the total revenue generated by the inspection fee, rather than each producer’s individual fee, to determine whether the fee was an unlawful occupation tax). Even were we to examine the drainage fee with such precision, the Apartments have not provided any facts from which a fact-finder could conclude that the amount they are charged exceeds the Board’s cost to provide stormwater drainage service to their properties. See City of Houston, 879 S.W.2d at 326 (“Before such legislation will be declared void, the unreasonable and oppressive nature of the exaction must be clearly apparent from the record.”). The Apartments simply assert that the actual cost to provide stormwater drainage services to their properties must be lower than what they are being charged because certain properties in the City, including those owned by school districts, religious organizations, social-service agencies, and state and federal agencies, pay a reduced fee or no fee at all. The Apartments argue that the fees they pay are thus being used to subsidize the provision of services to these so-called 12 Case: 10-50069 Document: 00511404545 Page: 13 Date Filed: 03/09/2011 No. 10-50069 “socially-favored properties.” However, the fact that the Board has classified properties and charged different rates to the properties in the City does not, by itself, automatically lead to the conclusion that the fees charged to the Apartments’ properties are unrelated to the services they receive. The Apartments provided no evidence regarding the amount they allege is used to subsidize the provision of services to other properties; nor have they provided any evidence regarding the amount that they allege they may have overpaid. The Apartments’ remaining theories that the drainage fees are unrelated to the provision of stormwater drainage services are afflicted with the same lack of evidence necessary to create a genuine factual issue. See Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (“[T]he nonmoving party must come forward with specific facts showing there is a genuine issue for trial.” (emphasis and internal quotation marks omitted)). First, the Apartments claim that the drainage fee is unrelated to stormwater drainage services because ten percent of the fees collected are allocated to various “Green Projects,” including the acquisition of “open spaces, greenways, arroyo and wilderness areas in their natural state,” but the Apartments have provided no evidence that the acquisition of open space is unrelated to stormwater management. Second, the Apartments claim that certain of their properties are assessed a drainage fee even though the properties present little risk of creating stormwater runoff that would burden the drainage system because the properties have their own drainage ponds. The Board provides a twenty-five percent credit to certain properties with drainage ponds, and it has set up a system whereby property owners can apply for complete exemption. However, the Apartments do not contend that any of their properties place no burden on the drainage system, or that they applied for and were denied an exemption for any of their properties. Finally, the Apartments take issue with the Board’s adjustment to the drainage fee for its expected revenue realization rate (the amount billed to all properties 13 Case: 10-50069 Document: 00511404545 Page: 14 Date Filed: 03/09/2011 No. 10-50069 vis-à-vis the expected collection amount). The Board used a seventy-five percent revenue realization rate for non-residential properties and a ninety-eight percent revenue realization rate for residential properties. The Apartments do not contest the factual basis for the adjustment—i.e., that the Board will not collect every dollar billed—they simply claim that this adjustment for non-residential properties was unreasonable without providing any evidence that the Board should have used a different realization rate or none at all. The stormwater drainage fee charged by the Board does not produce revenue in excess of the cost necessary to provide stormwater drainage services to the City. In addition, the Apartments have provided no evidence from which we, or a reasonable jury, could conclude that the drainage fees charged to the Apartments are not reasonably related to the stormwater drainage services provided. Therefore, we hold that the drainage fees are not unconstitutional occupation taxes under Texas law.