When is A Fee a Tax? MN Supreme Court Case Could Impact Franchise Fees

The MN Supreme Court is expected to rule this summer on the question: When is a “Fee” really a “Tax”? And also perhaps weigh-in on: What is a “fair” fee structure, when levied on a tax-exempt organization? The decision may have far-reaching impacts on municipal Franchise Fees as recently implemented in Bloomington, as well as the longer-standing ones in most MN cities including Edina, Eden Prairie and Minnetonka.  And it is likely to trigger a need for legislative action as cities continue to seek ways to fund city services while attempting to avoid double-digit percentage property tax increases.

The Nonprofit Leadership Forum on June 6 at Hamline University was a multiple-viewpoint discussion of the issues raised by the court case. The case was initiated when one of St. Paul’s oldest churches, First Baptist, decided to question the city’s $16,000 annual “Street Right of Way” assessed fee which had increased over 5 years to become the 2nd largest line item on the church budget. The city uses those fees, charged to every property based on linear street footage, to pay for snow plowing and 10 other “essential” street & boulevard maintenance services. The size of the fee is especially startling when compared with the $5000 fee paid by the 25-story UBS tower in Town Square, and is also more than the fee paid by the State Capitol.

The 35 attendees of the forum included those from a wide range of nonprofit organizations of all sizes (charitable, educational, healthcare, churches), as well as government policy makers from city & state, lawyers, interested citizens, and university students and faculty.

The case is unusual because it’s seldom that a fee is so large that it’s worth the court costs & time for anyone to seek relief.  Fees avoid taxpayer protections provided for in the state’s constitution and statutes. This case touches on a group of entities that are explicitly protected in the state Constitution, the tax-exempt nonprofits.  It also raises questions of good policy, since the power to tax is essential to government.  And yet St. Paul is faced with the dilemma of having many large tax-exempt nonprofits and government buildings on property within the city limits. 

Panelists:

Susie Brown, public policy director, Minnesota Council of Nonprofits

John (Jack) Hoeschler, attorney

Peter Nelson, vice president and senior policy fellow, Center for the American Experiment

Dave Thune, recently retired Ward2 city council member, City of St Paul

 

Peter Nelson’s article on the case is HERE 

A video recording of the MN Supreme Court Oral Arguments for the case is here

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