The Kansas Supreme Court on Friday ruled that the city of Mission’s transportation utility fee met the definition of an illegal excise tax, setting up a potentially confusing series of questions about whether and how the city will need to repay the approximately $4 million in fee funds collected between 2010 and 2015.
The transportation utility fee, more commonly known as the “driveway tax,” was adopted in 2010 as a way to establish a dedicated revenue source for street repair and maintenance. Single-family homes were assessed a flat annual fee of $72. For businesses, the fee was assessed based on the amount of amount of traffic a property generated. In March 2012, the Heartland Apartment Association and others sued Mission, claiming that the transportation utility fee represented a excise tax that is illegal under Kansas law.
A Johnson County District Court judge sided with the city in the case in November 2013, but that ruling was overturned by the Kansas Court of Appeals in July 2015. The city then petitioned the Supreme Court to review the appellate court’s decision. The court heard oral arguments in the case last fall.
In the ruling Friday (you can see the full ruling here), the justices cite previous cases that have helped establish the definition of a tax as “a forced contribution to pay for the government’s general services, that is, services that benefit the members of the public at large, regardless of whether any particular person has paid the tax,” as well as a “fee.”
“A fee…is not a revenue measure. It is assessed against those who gain the exclusive benefit of the service or, if a regulatory fee, those who are the subject of the regulation. In other words, an exaction is a fee when the benefits are not enjoyed by the public at large,” reads the ruling. “…Applying the law reviewed above, we have no hesitation in classifying the TUF as a tax. It is levied against the owners of all developed property in Mission. Although the revenue generated from the tax is earmarked for maintenance of city streets, the TUF is still a general revenue measure, i.e., it is not for specific improvements nor does it compensate Mission for the costs of administering a special service.”
The Supreme Court remanded the case to the district “for the entry of summary judgment in favor of the moving plaintiffs on the issue of whether the TUF is a prohibited excise tax and for any other proceedings the district judge deems necessary to full resolution of the parties’ claims.”
Mission city officials said they could not yet comment on the ruling because they have yet to receive any orders from the district court.
“The City has not received any official correspondence from the District Court since the ruling was released last Friday,” said City Administrator Laura Smith. “Since this is still a matter of on-going litigation, we are not in a position to comment on any potential response at this time.”
Repealing the “driveway tax” was at the core of Mayor Steve Schowengerdt’s platform when he ran for office in 2014, though once in office he lobbied for a gradual shift away from the fee toward a property tax increase. The city in 2015 approved a 2016 budget that replaced the fee with a 7-mill property tax increase.
While it was in place, the transportation utility fee generated approximately $800,000 per year in revenue for the city for a total estimated around $4 million.