Kansas Court of Appeals rules Mission Transportation fee (driveway tax) is illegal; would remove $800,000 in city funding

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The controversial Mission Transportation Utility Fee (TUF) often referred to as the ‘driveway tax’ by its critics, was ruled illegal by the Kansas Court of Appeals today.

Ironically, the Mission City Council just Wednesday evening discussed the possibility of beginning to reduce the TUF and replace it will a mill levy. The TUF is worth approximately $800,000 per year in the Mission budget with that money being dedicated to street projects.

Mission City Administrator Laura Smith and Mayor Steve Schowengerdt said Thursday that the city had not made a decision about appealing the ruling. The city will need to review the court opinion and the city’s options with counsel, they indicated. The city had earlier asked that the appeal be heard by the Kansas Supreme Court, but that was denied. The city could appeal Thursday’s ruling to the supreme court.

If the decision stands, it will likely force the city to raise the property tax rates to continue to fund street maintenance. “I’m glad it came right now before we got all the way through the budget,” Schowengerdt said.

The council Wednesday looked at predictions of how much a shift from TUF funding to property tax would mean to homeowners and businesses. In general, businesses will see a break in the combined charges while single-family homeowners will see an increase. Single-family homes are charged a flat $72 per year in TUF fees, while the business assessment is based on a formula tied to how many trips they potentially generate. That type of assessment in theory distributes the burden of street maintenance to the entities creating more vehicle traffic.

One of Schowengerdt’s platform points when he ran for mayor in 2014 was the repeal of the TUF. Some other council members have been against the tax as well. However, Thursday Schowengerdt said that he had preferred to make a gradual transfer from TUF assessments to a property tax or sales tax to generate the money needed for street maintenance. “We still need to fix our streets,” Schowengerdt said.

“I actually have been worried about this,” the mayor said. The mill is a “more straight-forward” kind of tax, he said. Schowengerdt said that several years ago he had suggested sales tax for street maintenance, but now the sales tax is getting high. The sales tax, he said, would apply to people coming from outside the city and not just Mission residents.

A Johnson County judge ruled in November 2013 that the TUF was a tax, not a fee as the city had contended, but that it also was not an excise tax and therefore not illegal. That opinion contradicted a non-binding opinion issued by Kansas Attorney General Derek Schmidt that the TUF was an excise tax barred by Kansas law.

The court case was brought by a number of Mission businesses and individuals who challenged the validity of the TUF, which was enacted by the city in 2010. After the Johnson County ruling those plaintiffs appealed.

Tin today’s ruling, the court said that the TUF is a prohibited excise tax. “Under Kansas law, a tax is a forced contribution to raise revenues for the maintenance of governmental services offered to the general public. Because this fee is a forced payment by all improved landowners which is used for the governmental service of providing for public streets and bridges, used by all, we hold Mission’s transportation user fee is a tax.”

On the second point, the court ruled it was not a permitted excise tax : “The term excise tax has come to mean and include practically any tax which is not an ad valorem tax imposed on the value of the article or thing taxed. The parties to this lawsuit agree that the fee here is not based on the value of the article or thing taxed and none of the five exceptions to the statutory ban on excise taxes apply to this case. Therefore, we hold that Mission’s transportation user fee is a prohibited excise tax. “

The TUF is the primary source of street maintenance funding for Mission. The transportation fund budget had anticipated $775,000 from the TUF in 2016. A separate quarter-cent sales tax generates about $550,000 and is used to pay bonds that were issued for the Johnson Drive and Martway projects.

Without the TUF, city estimates show, the property tax would need to be increased by nearly seven mills to generate the same amount of money.

A chart shown Wednesday night predicted a 32 percent increase in the total TUF and mill levy charge for a $250,000 home if the TUF was replaced with property tax. That number was produced by adding current city mill assessments and the TUF fees together. That home would see an increased cost of $129.25 per year.

In the same scenario, a home valued at $125,000 would see a 12 percent increase in total cost or $28.63 per year. On the other hand, businesses could see a significant break in their total charges. With the TUF eliminated, the Johnson County offices get a 100 percent cost reduction as would the AT&T utility offices. That eliminates a $16,601 charge to Johnson County and a $5,850 charge to AT&T.

A gas station would see a drop of 71 percent – worth about $9,600 per year – and big box retail would see a 50 percent reduction estimated at $33,292. A grocery store would see assessments drop 45 percent or about $23,000. An apartment complex with 120 units could see a 10 percent reduction, worth about $1,300.

The court ruling is embedded below.

https://dfv6pkw99pxmo.cloudfront.net/wp-content/uploads/2015/07/111521.pdf