Opinion ID: 2600175
Heading Depth: 1
Heading Rank: 5

Heading: Water Department Fees

Text: BOTA sustained the Revenue Department's assessment of six categories of water department fees as follows: (1) turn on/turn off fees  $3,315; (2) account origination fees  $11,580; (3) lawn connect fees  $372; (4) plant equity fees  $8,078; (5) fees in lieu of special assessments  $1,434; and (6) priority service charges  $733. These fees were described by the City's director of the water and sewer departments, David Warren. The turn on/turn off fees are for the actual physical service of going to a location and physically turning on the curb stop that allows the flow of water from the City's water system through the meter and into the residence or business. This fee covers part of the cost of the personnel, the vehicle, and the equipment involved in carrying out that service. Lawn connect fees are essentially a turn on and turn off fee for a lawn meter or a lawn irrigation account. Priority service charges were established for customers who want a turn on or turn off at a certain time. The account origination fee is a charge to a new customer for setting up a new account, and the physical aspect of originating that account occurs at city hall. The plant equity fee is a contribution of capital from a new customer to recover part of the cost of the backbone facilities, which includes the water treatment plant, major transmission lines, and development of sources of supply. Oftentimes this fee is paid by a builder or developer in cases of new development, and the furnishing of water usually occurs after title has passed to the next builder or homeowner. The fee in lieu of specials is also a capital recovery fee that relates to facilities such as the sewer main or water distribution line that are immediately adjacent to the property being served. If a person lives in a benefit district, the person would pay special assessments that directly pay for the facilities that are serving the property. If an owner of adjacent property that is not included in the benefit district wanted to connect to the existing line, this owner would have to make payments in lieu of special assessment to represent an equal share in the cost of that plan that has already been paid by others. Hernandez indicated that this fee could be passed on to the home buyer by being embedded in the lot price or the home price, or billed directly by the water department or the developer. Warren testified that the turn on/turn off fees, the account origination fees, and the lawn connect fees are not included in the gross receipts from the sale of water, that water is not furnished with the payment of these fees, that the fees show up as a separate fee on the customer's bill, and that the payment of the fee does not pass title to any personal property. However, the fees are all reflected on one bill, and if the customer fails to pay the fee(s), the water department will forfeit the customer's deposit and eventually disconnect the customer's water supply. The plant equity fee and the fee in lieu of special assessment are one time fees paid to obtain water. The plant equity fee is usually paid by a builder or developer at the time it makes an application to connect a new development to the City's infrastructure. If the developer did not pay the plant equity fees, the City would either not provide a water hookup or disconnect the water supply. BOTA concluded that these fees were taxable gross receipts: 53. Sales tax is imposed on the gross receipts from the sale or furnishing of water. K.S.A. 79-3603(c). In other words, sales tax is imposed on the total selling price or total cost to a consumer for the sale or furnishing of water. Ordinary words are to be given their ordinary meaning. Director of Taxation v. Kansas Crude Oil Reclaiming Co., 236 Kan. 450, 455, 691 P.2d 1303 (1984). The Board is not persuaded by the Taxpayer's argument that the occurrence of actual, simultaneous, and physical delivery of water is required for the fees to be included in the gross receipts from the sale or furnishing of water. 54. The Kansas Court of Appeals in Newton Country Club adopted the `mandatory-voluntary test' and found that mandatory gratuities were subject to sales tax pursuant to K.S.A. 79-3603(d) which assessed `the gross receipts from the sale of meals or drinks.' (Emphasis added.) The mandatory gratuities were for the benefit of the employees of the taxpayer for their services rendered, not for the actual meals or drinks. The Board finds that the charges and fees at issue in this matter are similarly required to be paid in order to receive water from the Taxpayer. If a customer does not pay these fees, the Taxpayer will eventually discontinue service. In this situation, the Board finds that the consumer or account holder is required to pay these fees in order to establish or main its water service, and thus, these fees are taxable pursuant to K.S.A. 79-3603(c), and amendments thereto. 55. Like the franchise fees in Atchison Cablevision, the subject fees should be part of the rate structure of the water department or could be a separate charge. Merely by making these fees separate charges on the itemized bill, the Board finds that the Taxpayer has not removed these fees from the total cost to its consumers. 56. Further, the Board is not persuaded by the Taxpayer's argument that in many cases persons and entities, such as developers and builders, pay these fees, but never intend to purchase water for the location where the fees were charged. The Board does not believe that a unity of the payor of the fees to establish water service and the ultimate consumer of the water is required. The Board concludes that the Department's assessment is sustained.