MUNICIPAL FINANCE AND THE COMMERCE CLAUSE: ARE USER … · the Commerce Clause is still the...

* WALTER NAGEL ET AL., LEADING UNITED STATES SUPREME COURT STATE TAX

CASES: OFFICIAL SYLLABI, NOTES, AND INDICES § 3.11 (1995) (indicating thatthe Commerce Clause is still the “silver bullet” of state taxation constitutionalchallenges).

** Associate Professor of Law, Widener University School of Law; J.D. 1976,Dickinson School of Law; LL.M. (Taxation) 1979, New York University School of Law;Chief Deputy Attorney General, Commonwealth of Pennsylvania, Tax and Finance Sec-tion 1986–1989, Charitable Trusts and Organizations Section 1984–1986; Deputy Attor-ney General, Commonwealth of Pennsylvania, Tax Litigation 1982–1984. This Article isdedicated to the memory of the person who most inspired me and taught me that noth-ing is impossible: my father, Robert E. Wolfe. Michael Butler made substantial contribu-tion to the Article in its later stages. Lisa Nelson provided research assistance. StephenReed, Mayor of the City of Harrisburg, read a draft of the Article. I also wish to thankSandy Graeff, Paula Heider, and Shannon Whitson for their production assistance.

ARTICLES

MUNICIPAL FINANCE AND THE COMMERCECLAUSE: ARE USER FEES THE NEXT TARGETOF THE “SILVER BULLET”?*

Suellen M. Wolfe**

TABLE OF CONTENTS

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728II. MUNICIPAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731

A. Policy of Municipal Finance . . . . . . . . . . . . . . . . . . . . . 733B. Financing Local Government

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736C. The Economics of User Fees . . . . . . . . . . . . . . . . . . . . . 741

III. CONSTITUTIONAL ISSUES PERTAINING TOLOCAL TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745A. Review of Major Constitutional Issues . . . . . . . . . . . . . 745B. Judicial Review of User Fees in Florida . . . . . . . . . . . . 751

728 Stetson Law Review [Vol. XXVI

IV. COMMERCE CLAUSE ISSUES . . . . . . . . . . . . . . . . . . . . . 757A. Broadening the Scope of Interstate Commerce . . . . . . 757

B. Erosion of the Immunity Doctrine:The Fabrication of Discrimination . . . . . . . . . . . . . . . . 760

C. History of Flat User Fees . . . . . . . . . . . . . . . . . . . . . . . 7651. Special Revenue Statutes — Taxing the

Privilege of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7652. General Revenue Statutes — Taxing the Use . . . . 7733. Application of Discrimination Concepts to

Special Revenue User Fees — the ScheinerOpinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781

D. Constitutional Defects of User Fees . . . . . . . . . . . . . . . 7851. Distinguishing Taxes and User Fees . . . . . . . . . . . 7852. The Commerce Clause Challenge:

Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800

I. INTRODUCTION

User fees are an integral part of local government finance. Astheir utilization becomes more widespread and sophisticated, thesefees will be prey to constitutional challenges. This Article concludesthat user fees are vulnerable to charges of discrimination resultingin invalidation under Commerce Clause principles. Discrimination isthe “silver bullet” that the challenger to a fiscal statute has in itsarsenal. If the user is able to establish a record demonstrating thatthe burden of the exaction favors in-state interests, its litigationshould be successful. The conclusion instructs the governing body ofmunicipal governments to choose the measure of the user fee withcare, utilizing as much economical information as is available. Thetax incidence should fall proportionately to the expenses a user gen-erates. Taxing statutes which do not take into consideration a vari-ety of factors to influence their burdens surely will be targets of dis-crimination as the term becomes more clearly defined.

Local governments must be more aggressive in raising revenue.The increasing federal debt causes a decline in federal funding ofstate and local governments' operations. The nation's physical infra-structure is crumbling. There is a constant effort to mobilize alllevels of government to achieve adequate levels of financing for ser-

1997] Municipal Finance and User Fees 729

1. See Robert H. Freilich et al., Federalism in Transition: The Emergence of NewState and Local Strategies in the Face of the Vanishing Tenth Amendment, 20 URB. LAW.863, 876 (1988).

vices and economic growth. Utilization of impact user fees, leasing,tax incentives, and joint public-private development has increased.1

This “economic federalism” has also precipitated a growth in usercharge financing.

Litigation involving state tax issues is widely publicized. Con-stitutional principles applicable to state tax law apply to municipaltaxing ordinances. Historically, user fees have been differentiatedfrom taxes. Separate categorization was the basis for two lines ofdiscrimination opinions rendered by the United States SupremeCourt. Recent rulings by the Court suggest that the difference be-tween user fees and taxes may be a distinction without a difference.

A general understanding of the nature of a user fee is essentialto understanding how a challenge to its constitutionality could suc-ceed. The first part of this Article provides a brief background ofmunicipal finance. It explains the growth in popularity of user fees.Part II, section A, introduces highway user fees as a recognizableexample. It explains how political policy dictates the adoption ofunique municipal fiscal schemes. Financing through user fees hasvery attractive attributes, but it has flaws as well. Public facilitiesshould be financed, at least in part, by users. When the individualuser is assessed his or her expense and pays directly for it, theappropriateness of the charge is much more apparent to him or herthan the payment of a tax for general governmental purposes.

Part II, section B, provides a basic description of the financialschemes of a local government. The financial structure of a localgovernment is extremely sophisticated. Although generalizationsmay be made, local taxes and fees are a complex of legal principles,accounting concepts, the scope of services and facilities which a gov-ernment offers, and general revenue requirements of the local gov-ernment. Section C briefly examines the rudiments of the economicsof user fees. The study of the economic influence of user fees is criti-cal to accurately establish an appropriate base for a fee, and to bur-den those who use the facility in proportion to their use.

In addition to the Commerce Clause issues, local financial ordi-nances engender litigation of other constitutional issues. Part IIIexamines additional constitutional limitations on user fees. Section


A highlights equal protection, due process, and uniformity issues ofuser fee litigation. Although these holdings have not undergonerecent radical change, it is likely that these issues will be coupledwith Commerce Clause objections. The southeastern states of theUnited States have enacted the largest number of user fees. MajorFlorida user fee cases are reviewed in section B revealing the typicalgenre of state level litigation of user fee issues.

The Commerce Clause is the focus of Part IV. While a tax en-acted by a local government appears to be a distinctly local event, itsimpact on interstate commerce is no less than that of a state tax.The illusion of an intra-state character to local government opera-tions provided fertile ground for early autonomy of local governmentfiscal schemes. Nutrients for growth in the range of interstate com-merce abound simultaneously with the demise of the interstate com-merce immunity doctrine. Section A reflects the slowly closing dooron local government fiscal independence caused by broadening of theconcept of interstate commerce.

Section B of Part IV traces interstate commerce's loss of immu-nity from state taxation. Taxes imposed on interstate commerceimmediately became subject to the vast and powerful protectionafforded by the Commerce Clause. The privilege doctrine was dis-credited and eliminated from Commerce Clause analysis engender-ing growth in taxes imposed on interstate commerce. Increased chal-lenges to state taxes, primarily allegations of discrimination, re-sulted.

Section C of Part IV profiles the history of litigation heard bythe United States Supreme Court involving user fees. Most user feecases before the Court involve highway user taxes. A user fee,whether it is a highway user fee or of a more parochial nature, issubject to the same constitutional limitations. The principles ex-tracted from the highway user fee series of cases provide insight intoconstitutional limitations on user fees generally.

In a series of cases decided between 1935 and 1950, the UnitedStates Supreme Court upheld flat user taxes for highway use, de-spite allegations that such fees violated the Commerce Clause. Thesheer magnitude of the highway system and its cost has made thesefees attention-worthy. Evansville-Vanderburgh Airport Authority


2. 405 U.S. 707 (1972).3. See id. at 714–20.4. 430 U.S. 274 (1977).5. See id. at 287–89.6. See American Trucking Ass'ns v. Scheiner, 483 U.S. 266, 292 (1987).

District v. Delta Airlines2 articulated requirements for user feeswhich were subject to distinctive limitations as special revenuefunds.3 The criteria differed from the test eventually articulated inComplete Auto Transit, Inc. v. Brady4 applicable to general revenuetaxes.5

The line of firmly established user fee opinions was disenfran-chised in a 1987 Supreme Court opinion which generally held asfollows: the precedents upholding flat taxes can no longer supportthe broad proposition that every flat tax for the privilege of using astate's highways must be upheld, even if it has a clearly discrimina-tory effect on commerce by reason of that commerce's interstatecharacter.6

The final section of Part IV probes inherent weaknesses of userfees which make them susceptible to Commerce Clause challenges.The inquiry begins with a seemingly simple inquiry: Is the charge auser fee or a tax? That determination may no longer be relevant ifthe Evansville-Vanderburgh Airport test is no longer viable. Regard-less, the probe into user fees will continue. User fee litigation willhighlight discrimination. Part V reviews some of the SupremeCourt's discrimination opinions. Their vague instructions andholdings, lacking extensive factual proof as to the distribution of thetax burden, provide little guidance to those attempting to ascertainthe line which demarcates discrimination.

The conclusion of this Article suggests that local governmentspay particular attention to the measure of the user fee. The correctchoice can assist in defending a discrimination charge. As the dustfrom recent litigation settles, local governments will be in a muchbetter position to judge the constitutionality of their user fee sys-tems. However, until that time, all user fees are in jeopardy.

II. MUNICIPAL FINANCE


7. See Ashton v. Cameron County Water Improvement Dist. No. One, 298 U.S.513, 529–30 (1936).

8. See RICHARD A. MUSGRAVE & PEGGY B. MUSGRAVE, PUBLIC FINANCE IN THEORY

AND PRACTICE 28 (5th ed. 1989).9. See Ashton, 298 U.S. at 529–30.

10. For instance, progressive tax rates may be prohibited.11. See, e.g., CAL. CONST. art. XIII, § 1. See generally ADVISORY COMMISSION ON

INTERGOVERNMENTAL AFFAIRS, THE TAXPAYERS SPEAK: PROPOSITION 13 AND INTERGOVERN-MENTAL RELATIONS 4 (1978).

12. See M. DAVID GELFAND & PETER W. SALSICH, JR., STATE AND LOCAL TAXATION

AND FINANCE IN A NUTSHELL 81 (1985).13. See id. at 90.14. See id.15. See id. Water supply and waste disposal are two services often provided by

private commercial business.

The fiscal powers of local governmental entities depend uponstate enabling acts because such entities lack inherent sovereignpower.7 Their fiscal authority is further constrained by federal limi-tations on taxing powers within our federal system.8

Thus, a legislative authorization must exist before a local entitymay impose upon taxpayers a financial burden, whether or not it islabeled a tax.9 However, the public clamor which greets any newtaxpayer burden does not accurately determine whether the actioninfringes upon constitutional limitations.

State constitutional provisions for local fiscal affairs are diversein content and complexity. Some constitutions prohibit the use ofcertain tax features.10 A constitution may limit the tax revenuegrowth to an increase provided by some factor such as the percent-age growth of the value of real property.11 In addition, constitutionsoften contain specific debt limitations.

Throughout the 1970s and 1980s, while the public demandedmore public services,12 local government budgets were being limited.The obvious response was an increase in charges for public servic-es.13 Some previously free services became privatized.14 Contractingwith private firms to deliver the service for a fee relieved the localgovernment of not only financial burdens, but also administrativeheadaches.15 The government was enabled to provide new servicesas well.

Funding sources, including some overlapping ones, have nowmultiplied for local governments. Charges may be made for publictransportation and health care services. Fees may be charged forimportant but less essential services such as parks and recreation.


16. Developers may have development agreements compelling contribution of land,construction of public facilities, or providing the public with certain services. Developersmay also be charged impact fees, linkage fees, user fees, and tolls. See generally 16 EU-GENE MCQUILLIN, THE LAW OF MUNICIPAL CORPORATIONS § 44.94 (3d ed. 1994).

17. STEPHEN G. UTZ, TAX POLICY: AN INTRODUCTION AND SURVEY OF THE PRINCIPAL

DEBATE 215 (1993).18. LAWRENCE E. CHERMAK, THE LAW OF REVENUE BONDS 59–62 (1954).19. See ALAN A. ALTSHULER ET AL., REGULATION FOR REVENUE: THE POLITICAL

ECONOMY OF LAND USE EXACTIONS 3 (1993).

Fees may also be imposed as a condition of developmental approv-al.16 Tax policy decisions now require a purposeful choice between ageneral tax or a user assessment.

Beyond characterization, the equity of charging the public for aservice must be addressed. The type of service involved, the methodof structuring the public charge, and the administration to providethe public with necessary and fringe benefits vary widely. Theseelements make the charge susceptible to constitutional challenge.

A. Policy of Municipal Finance

Politics and financial necessity require local governments toseek alternate and supplemental sources of revenue. So, it is not asurprise that systems of municipal finance have increased in com-plexity. There is no longer a typical local tax structure which wasthe result of “political custom rather than a constitutional or legis-lative arrangement of national local taxes.”17

Methods of financing government services include “GeneralObligation Bonds, . . . Special Assessment Bonds, . . . Purchase Sub-ject to a Mortgage, . . . Bonds Payable from Special Property Tax, . . .Lease With Option to Purchase, . . . Conditional Sales Contract, . . .and Revenue Bonds.”18 Local governments impose in-kind exactions,as well.19

Financial and tax policy matters often create great disagree-ments in the general public over the value of social programs. How-ever, a member of the public generally knows exactly how much heor she is required to contribute to the public coffers. Politicians,cognizant of the public's frame of mind, recognize that voters, notfavoring pure taxes, prefer other methods of financing.

User fees might be more acceptable today, for example, for ahuge project such as repairing and replacing a city's or county'sinfrastructure. It is such seemingly “free” public facilities which are


20. See id. at 3–4.21. See ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS, FINANCING PUB-

LIC PHYSICAL INFRASTRUCTURE 22 (1984) [hereinafter INFRASTRUCTURE].22. See id.23. See id.24. See id. When facilities are congested, user fees should be structured to encour-

age users to make more efficient and less costly use. See id.25. See id.26. See id.27. See id.28. See ALTSHULER ET AL., supra note 19, at 115.29. See INFRASTRUCTURE, supra note 21, at 23.30. User fees are justifiable when benefits are direct so that there will be no “loss

of external benefits”; prices have elasticity to aid in resource allocation and eliminateexcessive utilization; fees do not cause inequities to lower income groups; and the cost ofcollection is reasonable. See ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS,LOCAL REVENUE DIVERSIFICATION — USER CHARGES 25 (1987) [hereinafter LOCAL REVE-NUE DIVERSIFICATION].

Use of charges is questionable when: loss of external benefits may be significant;the demand is perfectly elastic, causing resource allocation to be insensitive to the pric-ing system; equity standards require all income groups to obtain the services; and collec-

paid for, ultimately, by the public. More mundane facilities could befinanced in this manner, as well.

User charge financing provides many advantages. General taxrevenue must be allocated by the local government's governing body,while user charges limit the need for allocation. Revenue fromcharges is directed primarily to the public facility or service20 result-ing in improvements in public planning and budgeting decisions.21

With careful planning and projection, user fees enable the local gov-ernment to provide large scale and expensive public facilities.22 Usercharges provide a funding incentive for the proper maintenance ofthose facilities which should have a long, useful life.23 In addition,user fees provide financial discipline for providers and users.24

The public itself has an element of control in a user fee system.25

Members of the public decide whether or not the service is worththeir individual fees. They also makes more subtle decisions. Duringheavy use times, a facility may charge a higher fee.26 Individualsmust decide whether they will assume the additional cost by inde-pendently determining when it is best for them to use the facility.27

Widespread use of user fees may seem economically efficient.28

In reality, however, user fees may not be practically structured.29

Policy considerations provide a limitation on a government's imposi-tion of user fees.30 The poor cannot afford to pay the fee to receive


tion costs are high and alternative usage schemes can be implemented. See id.31. Another problem with the fees is that they are “unbundling.” As more local ex-

penditures are funded by charging the benefactor, tax-financed activities directed to theneeds of the poor are reduced. See id. at 40–41.

32. See id. at 25.33. See generally LOCAL REVENUE DIVERSIFICATION, supra note 30, at 25–26.34. See I.R.C. § 164 (1994).35. An amendment to the Internal Revenue Code reducing deductibility of state

and local government taxes would increase reliance on user fees.36. See I.R.C. § 130 (1994); see also I.R.C. § 148 (1994).37. See South Carolina v. Baker, 485 U.S. 505, 525 (1988) (stating that the purpose

of tax immunity is not to give a financial advantage to a government); see also I.R.C.§ 265 (1994) (regarding deductibility of expenses and interest on tax-exempt related in-come); cf. I.R.C. § 163(f) (1994) (regarding denial of interest deductibility on non-regis-tered bonds).

the service. Therefore, its use is not available to them.31 Some mem-bers of society believe public facilities and services should be equallyavailable to all citizens.32 Social policy considerations may character-ize user fees as unfair to the poor of the society.

Policy urges that only nonessential services should be subject touser fees. Withholding a service must not subject the citizen to seri-ous harm or other significant consequences; otherwise the user fee,as a source of revenue, is inappropriate.33

Although local tax policy enjoys virtual autonomy from thefederal government, provisions of the Internal Revenue Code influ-ence the desirability of types of local government financing. Since1913, state and local taxes have been deductible from federal incometax.34 The taxpayer, as an individual, is not the benefactor of thepayment. Because no person directly benefits, the tax payment isnot considered income to the government. User fees are not deduct-ible for federal income tax purposes because they do not yield gen-eral benefits to the community at large, but only to the individualmaking the payment. Obviously, payments that qualify for federaltax deduction are attractive. Federal deductibility is essentially agrant-in-aid to state and local governments.35

Interest received from state and local government bonds is notincluded in gross income. Section 148 of the Internal Revenue Codepermits local governments to borrow at an effectively lower interestrate than other debtors.36 As a result, the overall cost of state andlocal public services is reduced.37 Subsidization for state and localgovernment debt financing is subject to criticism. The alternatives,revenue sharing or direct subsidies, may be more politically cor-


38. See I.R.C. § 103 (1994) (regarding exclusion from gross income of state andlocal government bond interest).

39. See INFRASTRUCTURE, supra note 21, at 6.40. See ALTSHULER ET AL., supra note 19, at 118.41. See MUSGRAVE & MUSGRAVE, supra note 8, at 169. The state system is used as

a base for federal support. It also provides for grants to local governments. See id.42. User fees and debt-financing are examples. See JOSEPH A. PECHMAN, WHO PAID

THE TAXES, 1966–85, at 59 (1985).43. Extraordinary sources of revenue include receipts from loans, bond issues, trust

funds, or bequests. See CHERMAK, supra note 18, at 59.44. See MUSGRAVE & MUSGRAVE, supra note 8, at 212; see also LOCAL REVENUE

DIVERSIFICATION, supra note 30, at 5.45. See Gelpoke v. City of Dubuque, 68 U.S. 175, 206 (1 Wall.) (1863).46. See Cole v. City of La Grange, 113 U.S. 1, 6 (1884); City of Ottawa v. Carey,

108 U.S. 110, 122–23 (1883); City of Parkersburg v. Brown, 106 U.S. 487, 501 (1883);

rect.38

User fees are not exclusive to local government financing. Cur-rently, the national highway infrastructure, built in the 1950s, is ingrave need of rehabilitation and replacement.39 The financing of theinterstate highways is primarily based on taxing the user. The reve-nue for highway improvement is generated from federal excise taxeson motor fuel.40 The proceeds are then deposited in a special fund,the highway trust. At the state level, the tremendous costs associ-ated with highway construction are absorbed, in part, through regis-tration and other motor vehicle fees.41 Local government taxationpays the remaining, comparatively small, cost.

As a result of the huge amount and the various contributorsgenerating highway user fees, constitutional issues often center onthis subject. In fact, it has been the significant changes in constitu-tional law, particularly the Commerce Clause, applied to highwayuser fees, which have generated the subject of this Article.

B. Financing Local Government Operations

Through a combination of the different methods,42 revenue forgovernment operations is generated by taxes, charges, and borrow-ing.43 Taxes are compelled payments; charges and borrowing arevoluntary transactions.44 Neither taxes nor charges require repay-ment. Borrowing, on the other hand, requires the government'spromise to repay a sum certain on a future date,45 while paying in-terest on the outstanding principal during the term of the obligation.

Municipal funds must be used for public purposes,46 according


Dodge v. Mission Township, 107 F. 827, 829 (8th Cir. 1901).47. See Town of Hackleburg v. Northwest Ala. Gas Dist., 170 So. 2d 792, 793 (Ala.

1964); State ex rel. Bennett v. Glynn, 224 A.2d 711, 714–15 (Conn. 1966); Village ofLombard v. Illinois Bell Tel. Co., 90 N.E.2d 105, 108–09 (Ill. 1950); Carter CarburetorCorp. v. City of St. Louis, 203 S.W.2d 438, 443–44 (Mo. 1947); In re 1966 Earned IncomeTax Ordinance, 222 A.2d 499, 501 (Pa. Super. Ct. 1966); Chesapeake & Potomac Tel. Co.v. City of Morgantown, 105 S.E.2d 260, 275 (W. Va. 1958); Walker v. City ofMorgantown, 71 S.E.2d 60, 63 (W. Va. 1952); cf. Taylor v. McFadden, 50 N.W. 1070,1071 (Iowa 1892) (stating that the charter or statute establishing municipal corporationslimits their powers); Oconto City Water-Supply Co. v. City of Oconto, 80 N.W. 1113,1115 (Wis. 1899) (expressing doubt that a city could contract with a private corporationto provide water).

The delegation to local government by the state legislature of part of a power isconstitutional. See English v. School Dist., 55 A.2d 803, 807 (Pa. 1947); see alsoRadiofone, Inc. v. City of New Orleans, 616 So. 2d 1243, 1246 (La. 1993); City of Hum-ble v. Metropolitan Transit Auth., 636 S.W.2d 484, 494 (Tex. App. 1982).

48. See Ashton v. Cameron County Water Improvement Dist. No. One, 298 U.S.513, 529–30 (1936).

49. Other funds of local government are capital projects, debt service, expend-able trust, nonexpendable trust, pension trust, and agency. See LEON E. HAY & JOHN

H. ENGSTROM, ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT

ORGANIZATIONS 5–6 (1987).50. See Marr v. Southern Cal. Gas Co., 245 P. 178, 182 (Cal. 1926); Pure Milk

Producers & Distribs. Ass'ns v. Morton, 125 S.W.2d 216, 219 (Ky. Ct. App. 1939).A local government's general fund is the “entity that accounts for all the assets

and resources used for financing the general administration of the unit and the tradi-tional services provided to the people.” LEON E. HAY, ACCOUNTING FOR GOVERNMENTAL

AND NONPROFIT ENTITIES 36 (8th ed. 1989).51. See State ex rel. Clark v. Bailey, 44 P.2d 740, 747 (Mont. 1935). A governing

document may designate a specific purpose for charge on the public. See Marr, 245 P. at181.

52. See Marr, 245 P. at 182; Pure Milk Producers, 125 S.W.2d at 219.53. The special assessment is becoming increasingly important. The special assess-

ment is a mandatory fee levied on property to pay for specific investments suchas sidewalks and street paving that will be of benefit to the property owner. See J. RICH-

to a constitution, statute, or charter, which created the authority forcollection and disbursement of the funds.47 The governing documentalso provides limits on local officials' powers and privileges withrespect to funds.48

Funds will be designated by purpose, such as general, special, orenterprise.49 Most taxes, license fees, and other revenues are depos-ited in the general fund.50 The general fund is an asset of the localgovernment, expendable, after appropriate approval, for expenses ofoperating the government for the benefit of the public at large.51

Obligations constituting legal expenses of the local government arepayable from a general fund.52

A local government also imposes fees for specific purposes.53


ARD ARONSON & JOHN L. HILLEY, FINANCING STATE AND LOCAL GOVERNMENTS 155 (4thed. 1986).

54. See, e.g., Clark, 44 P.2d at 746. Special revenue funds “account for the proceedsof specific revenue sources (other than expendable trusts or for major capital projects)that are legally restricted to expenditures for specified purposes.” HAY, supra note 50, at13.

55. See Clark, 44 P.2d at 746.56. See Meriwether v. Garrett, 102 U.S. 472, 502 (1880); Getz v. City of Harvey,

118 F.2d 817, 822 (7th Cir. 1941); Hart v. City of New Orleans, 12 F. 292 (C.C.E.D. La.1882); GEORGE T. BOGERT, TRUSTS §§ 95, 99 (6th ed. 1987).

57. See Commissioners of Woburn Cemetery v. Treasurer of Woburn, 64 N.E.2d627, 629 (Mass. 1946); BOGERT, supra note 56, § 100.

58. See Smith v. Boise City, 18 F. Supp. 385 (D. Iowa 1937); BOGERT, supra note56, §§ 142–143.

59. See Cole v. City of La Grange, 113 U.S. 1 (1885); City of Ottawa v. Carey, 108U.S. 110 (1883); City of Parkersburg v. Brown, 106 U.S. 487 (1883).

60. See Johnson City v. Weeks, 180 S.W. 327 (Tenn. 1915); see also City of Chatta-nooga v. Marion County, 315 S.W.2d 407, 409 (Tenn. 1958) (following Johnson City).

61. Impact taxes are imposed as conditions to granting land use approval for con-struction of new residential or promotional development. Examples are water fees or feesfor the use of a municipal golf course. Proprietary funds consist of enterprise funds. SeeGELFAND & SALSICH, supra note 12, at 95–96.

62. See ROBERT S. AMDURSKY & CLAYTON P. GILLETTE, MUNICIPAL DEBT FINANCE

LAW 8 (1992).63. See id. at 10. Even though debt was incurred in the construction of a facility,

its expansion and improvement may also be paid for, in part, by user fees. See id. at10–11.

Revenues generated by a special levy are deposited in specialfunds.54 Legally, a special revenue fund may be viewed as similar toa trust fund.55 Thus, they may not be diverted.56 Special funds mustbe segregated; commingling is prohibited.57 An action in equity maybe brought to prevent a diversion of the fund or to demand an ac-counting.58

There is no legislative authority that would enable a local gov-ernment to engage in an enterprise that is regarded as a privatefunction.59 However, functions that primarily serve a public purpose,while possessing identical private characteristics, would be lawful.60

A local government, which provides a proprietary service, derivesrevenues that generally constitute enterprise funds.61 In effect, thelocal government is equated with a commercial provider of the ser-vice.62

Construction activities of government also require specific legis-lative authority. Building a new municipal facility and improving anexisting one63 provide the clearest examples of property owned by


64. See Ohio Power Co. v. Craig, 197 N.E. 820, 821 (Ohio Ct. App. 1935) (holdingthat in the absence of statutory authority, funds derived from revenue-producing enter-prises cannot be diverted). But cf. People ex rel. Chicago Title & Trust Co. v. Village ofGlencoe, 23 N.E.2d 697, 699 (Ill. 1939) (holding that revenues from municipality-ownedutility belongs to the municipality; they are available for use for any governmental pur-pose).

In City of Wichita Falls v. Kemp Public Library, 593 S.W.2d 834, 836–37 (Tex.Civ. App. 1980), a city was permitted to deposit excess revenue from a specific librarytax into the general fund rather than for the exclusive use of the library. A donor madea gift conditional on the requirement that the library be run independently of the city.See id. at 836–37. But the city provided continued financial support for the library. Seeid.

65. See South Tex. Pub. Serv. Co. v. Jahn, 7 S.W.2d 942, 945 (Tex. Civ. App.1928).

66. A fee for residential, agricultural, commercial, or industrial use may differ foran identical facility. See GELFAND & SALSICH, supra note 12, at 93.

67. See INFRASTRUCTURE, supra note 21, at 22–23.68. “The burden of proof is on the complaining party.” GELFAND & SALSICH, supra

note 12, at 95.69. Id. at 92.70. See id. at 94. Surplus revenues generally may be used for any other general

governmental purpose. The amount of revenue generated by the charge and available forallocation to the general fund purposes may reflect an unfair and unreasonable fee. See

the public.64 Construction financing for this property may be drawnfrom the general fund or be provided by incurring bond debt. Userfees are inappropriate for construction because they cannot providethe immediate cash needed to pay to complete project phases. How-ever, they are perfectly appropriate to cover the facility's operatingand repair costs. User fees may accumulate excesses or profits thatordinarily will be deposited into the general fund.65

The operation of a public facility financed through a user chargesystem is always unique.66 The actual charge to the benefactorshould reflect all direct expenses of operation including employeewages and the assumption of new administrative responsibilities.Local political and financial policies will also affect a public facility'sultimate cost to the local government.67 For instance, a desire to fis-cally discipline municipal officers will inevitably have such an im-pact.

Generally extended a presumption of validity,68 the amount of auser fee ought to bear a reasonable correlation to the expense of pro-viding the service. In addition, user fees must be “fair, reasonableand just, uniform and nondiscriminatory.”69 A fee's reasonablenessmay be established by comparing it to private enterprise fees, solong as the public facility's profits are not excessive.70


id. at 92–93.71. ARONSON & HILLEY, supra note 53, at 156; see also id. at 157 tbl.8–7 (relying

on materials by Robert Cline and published by the Advisory Commission on Intergovern-mental Relations). There were three important time periods when there was a resur-gence of user fees: in the late 1980s; from 1977 to 1983; and from 1983 to 1985. See id.at 156–59.

72. See DANIEL R. MANDELKER & DAWN CLARK NETSCH, STATE AND LOCAL GOVERN-MENT IN A FEDERAL SYSTEM 291 (3d ed. 1990).

73. ARONSON & HILLEY, supra note 53, at 156. The importance of user fees wasmotivated by tax expenditure limitations, including Proposition 13 in California andProposition 2 1/2 in Massachusetts. See Anthony T. Logalbo, Responding to Tax Limita-tion: Finding Alternative Revenues, GOVERNMENTAL FINANCE, Mar. 1982, at 13, 14.

74. UTZ, supra note 17, at 218; see also RONALD JOHN HY & WILLIAM L. WAUGH,STATE AND LOCAL TAX POLICIES 194 (1995).

75. See JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION ¶ 1.02(2d ed. 1993). Examples are fees placed on peddlers, auctioneers, saloon keepers, trades,slaves, horses, keepers of ferries, toll bridges, and turnpikes. See id.

76. “User charges are [still] relied on most heavily in the Southeast, Southwest,and Far West. The Northeast makes least use of this source of financing.” ARONSON &HILLEY, supra note 53, at 156 (relying on material by Robert Cline and published by theAdvisory Commission on Intergovernmental Relations); see also RICHARD T. ELY, TAXA-TION IN AMERICAN STATES AND CITIES 131 (1888); EDWIN R.A. SELIGMAN, ESSAYS IN TAXA-TION 16–17 (10th ed. 1925).

During the 1970s, local user fees were the “fastest-growingcomponent of local government revenues.”71 They increased 40%between the period of 1977 and 1983.72 The increase in the quantityand quality of local government services and a decrease in “inflationcreated assistance” generated greater local government dependenceon user charges.73

The designers of these diverse local tax systems sought to bur-den nonresidents with the bulk of the taxes or fees. By enticing pay-ments from nonresidents and those who benefit less from the ser-vices, the designers engaged in the practice known as “tax export-ing.”74

In the northeast portion of the United States, business enter-prises developed as the keystone of the local economy. Excise taxeswere avoided and property taxes were utilized to generate revenue.In the southern states, land constituted the greatest resource. As aresult, there was an early reliance on taxation of out-of-state opera-tions using license and privilege taxes.75 The popularity of the li-cense and privilege tax system developed in the early south and isstill apparent. The greatest concentration of states currently usinguser fees is still located in this region.76

The strategy to shift the burden of taxes to the nonresident


77. The Tenth Amendment provides: “[T]he powers not delegated to the UnitedStates by the Constitution nor prohibited by it to the States, are reserved to the Statesrespectively, or to the people.” U.S. CONST. amend. X. The Guarantee Clause provides:“The United States shall guarantee to every State in this Union a Republican Form ofGovernment . . . .” U.S. CONST. art. IV, § 4.

78. See Fry v. United States, 421 U.S. 542, 545–47 (1975); see also Freilich et al.,supra note 1, at 863; M. David Gelfand, Local Government in the American Federal Sys-tem: The Bicentennial as a Time of Crisis and Opportunity, 19 URB. LAW. 569 (1987);Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 MICH. L.REV. 895, 920–21 (1992); Symposium, Federalism in the Bicentennial Year of Our Consti-tution — A Comprehensive Analysis of Historical Perspectives, Current Issues and Cre-ative Solutions, 19 URB. LAW. 431 (1987).

79. See HELLERSTEIN & HELLERSTEIN, supra note 75, ¶ 4.12[1][a].80. See id. See infra notes 266–72 and accompanying text for more discussion on

the drummers.81. In education, it is difficult to identify the level of use, whereas identification of

other users is sometimes quite easy, as in the case of public water accessed by meters tothe water lines.

82. See INFRASTRUCTURE, supra note 21, at 24.

prompts constitutional issues within the structure of federalism.77

Because the United States Constitution establishes a federal systemof government in which sovereignty is shared between the nationand the states, the local government enjoys only partial freedom indeveloping its tax schemes.78

Federalism also subjects local government financing techniquesto limits provided in the federal constitution. For example, from1876 to 1946, the United States Supreme Court invalidated taxes onpersons (out-of-state drummers) having no established business inthe local jurisdiction.79 The Court held the taxes to be discriminatoryand against the Commerce Clause because these fee licenses boremore heavily on the transient vendor than those permanently es-tablished in the locality.80

C. The Economics of User Fees

Recognizing that individuals want to receive reasonable valuefor their payment, user charges seem fair because those consumingbenefits are bearing the expense. Although it may be possible toidentify consumers, sometimes it is impossible or impractical toidentify or charge them.81

This impossibility may be demonstrated on a “continuum” ofservices arranged according to necessity.82 A water supply is a ne-cessity; street lighting might be considered desirable; and a public


83. See id. For example, water consumption can be easily traced by metering,street lighting and public park use cannot.

84. See id.85. The standard could be a gallon of water utilized or miles driven per bus ride.86. See INFRASTRUCTURE, supra note 21, at 26–27.87. See id. at 24–25.88. See LOCAL REVENUE DIVERSIFICATION, supra note 30, at 25; see also ALAN A.

ALTSHULER & JOSE A. GÓMEZ-IBÁÑEZ, REGULATION OF REVENUE 119 (1993).89. ALTSHULER ET AL., supra note 19, at 137.90. Id.

park nonessential on the scale. Identifying the beneficial users ofthe street lighting and the park could be economically impractical, ifnot impossible.83 In such situations, another consumer or a non-userwould be charged the fee.84

If user fees could be assessed on actual consumption, the systemwould be virtually faultless.85 In actuality, a user charge system onlycrudely reflects benefit taxation.86 It is extremely difficult to chargeindividual consumers according to their level of patronage.87 Mostuser fees reflect the average cost of consuming a public facility orservice.

Actual attempts to identify the user produce an increase in theratio of administrative and compliance costs to all other costs.88 Tomaximize the efficiency of a user-fee system, a marginal costingmethod is used. The goal of marginal costing is for the consumer tocompletely pay the expense associated with his or her personal use.If the consumer pays more of the actual expense caused by his use,he contributes to other expenses of local government. This practiceviolates the principle of marginal cost pricing because it providescost subsidization.

Economists consider a levy “`use-efficient” if it requires “con-sumers to internalize the marginal cost impacts of their decisions.”89

The objective is to “bring supply and demand into balance at a levelthat accurately reflects users' willingness to pay.”90

Expenses of providing public services are created by many vari-ables. Some are not obvious. The length of use often strongly affectscost. Distance within a single jurisdiction may also have to be con-sidered because:

The cost of providing infrastructure services differs considerablyamong locations in any metropolitan area because of the diversifi-cation in topology, densities of existing development, and distances


91. Id. at 119.92. See id.93. Marginal cost is “the derivative of the total cost with respect to output”:

dC MC = dq = 1'(q)

JAMES M. HENDERSON & RICHARD E. QUANDT, MICROECONOMIC THEORY 55–56 (1958). Asto these components, dC is the total differential of the cost equation; dq is the totaldifferential of the product function; and 1'(q) is the quantity of output. See id.

94. An ancillary benefit to a user-fee system is a structure satisfying the greatestamount of demand with any fixed local capacity. Large scale capacity expansion projectscan be deferred. See ALTSHULER & GÓMEZ-IBÁÑEZ, supra note 88, at 137. See generallyLOCAL REVENUE DIVERSIFICATION supra note 30, at 26–29.

95. See ALTSHULER ET AL., supra note 19, at 117.96. See id. at 119.97. See id. at 118–19.98. See id. at 117.

from central infrastructure facilities or employment centers. Bycontrast, infrastructure user charges typically do not.91

A sophisticated user-charge system differentiates rates by mon-itoring the season, time of day, and demand conditions.92 Detailedcost records enable the local government to charge the consumer afee close to actual cost. Use of marginal cost pricing causes consum-ers to pay their own way and each additional increment of a fee isbased on a margin of additional use.93 The information derived fromsuch a system can also reduce peak demand without affecting peri-ods of low demand.94

However, as it is generally known that few local governmentskeep sufficiently detailed records for this complex analysis of facilityoperations, prototype marginal cost pricing cannot be implemented,so approximations must be used. The result is a setting of averagefees that are usually lower than marginal costs.95 The use of averag-ing eases administrative burdens and can be efficient if categoriza-tion or estimates reflecting location or time can be made.96

Another impediment to the use of marginal costing is a concernover burdening consumers and the desire to impose fiscal limita-tions on local management.97 Thus, governments often collect onlycurrent expenses from user fees.

User fees shift usage patterns because individuals paying feesattempt to reduce usage to economize.98 Household water usagesharply declines when a locality changes from general taxation to a


99. See id. at 137.100. See ALTSHULER ET AL., supra note 19, at 137.101. See id.102. See id.103. See INFRASTRUCTURE, supra note 21, at 25. Even if there are good records, dif-

ficulties arise. For example, aside from incidental expenses, the marginal cost of usingcrowded public tennis courts is related to congestion. Hardship is imposed on the would-be players. On the average, cost of congestion is estimated by asking people how muchthey would be willing to pay without a wait. Reserving time at peak hours is simplerthan imposing the theoretically precise users charge. See id.

104. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.105. See id. Motor fuel excises and license fees differ by the type of vehicle. Vehicle

type relates only superficially to benefits or damage costs.106. See id.; see also INFRASTRUCTURE, supra note 21, at 118.107. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.

meter system of charging.99 This shift in usage patterns assists inplanning and budgeting local government operations. In addition,unnecessary and expensive facilities can be identified.

A determination of the maximum user fee becomes necessarybecause of these concerns. This determination requires analysis ofnot only the costs of the facility, but also of the value the consumerplaces on it. Intangible elements must be examined. If the consumermakes a judgment that the financial expense, in combination withother personal factors, is worth payment of the fee, he will use thefacility.100 As a result, revenues collected and any profit generatedreflect how highly the public values a facility, how much benefit itprovides, and how willing consumers are to pay for it.

Water charges illustrate the imperfection of a user system. Wa-ter demand is largest in the summer. However, water charges sel-dom have seasonal variations.101 Also, water rates are constant fromlocation to location even though some areas are obviously more diffi-cult to access and maintain than others.102 Water use charges arefrequently inaccurate because the charge is the same regardless oflocation, time of day, or season.103

As another public facility service financed by a form of usercharge, the highway system reflects benefit taxation only in a crudeway.104 The charge for motor fuel is the same regardless of time ofday or location, but the marginal cost of providing for motorists var-ies tremendously.105 Variations of highway use include individualswho drive during peak and off-peak times.106 Increases in off-peakdriving entail little cost.107 Construction costs are higher in the cen-ter of an urban area than in the suburbs. Although fuel tax receipts


108. See id.109. See id.110. See id.111. See id.112. User fees covering highway costs apparently do not affect a motorist's decision

about how much or when to drive. See MUSGRAVE & MUSGRAVE, supra note 8, at 169.113. Very often that is resolved by having the facility operated through a franchise

agreement. Many factors affecting price are too sophisticated to be discussed in this arti-cle. For example, the facility must be constructed large enough to handle peak loads.“Smoothing out” use can prevent the need to add extra capacity, saving money in thelong run. At the time, those who value the convenience of using the facility at peaktimes may consider the fee charged to be worthwhile, particularly if non-peak patronageincurs a reduced fee or no fee at all. Individuals can decide for themselves when to usethe facility. See INFRASTRUCTURE, supra note 21, at 23.

114. See ALTSHULER & GÓMEZ-IBÁÑEZ, supra note 88, at 118.115. See ALTSHULER ET AL., supra note 19, at 118.116. See INFRASTRUCTURE, supra note 21, at 23.

are set to approximately cover highway construction and mainte-nance costs in urban areas, rush-hour and urban area motorists arenot charged their marginal costs.108 Drivers in off-peak periods andin rural locations, in turn, are overcharged.109

If a sophisticated toll charge system were operating, frequencyand costs of individual use would be reflected in the charge.110 Un-fortunately, the toll systems one observes currently are quite basic.Presently, direct toll receipts constitute an insignificant portion ofhighway revenue receipts.111 Usually the average cost of travel cate-gorized by class of motorists determines the fee.112

Proper fees should be continually revised to correspond tochanges in cost.113 Fees are often underpriced because they arebased on historical costs.114 Replacement costs are rarely consideredwhen local governments impose fees. If the debt originally incurredto finance the facility has been satisfied, capital charges are stillappropriate.115

Moreover, user charges should provide a source for the cost ofproper maintenance. The public, by refusing to patronize poorlymaintained facilities, forces fees to be reduced.116 User fees could en-courage local governments to maintain capital investments. Howev-er, before user fees are feasible, the exclusion of some members ofthe public from enjoyment of the facility or service must be accept-able. In addition, the necessary cost of administering the usercharge system must be considered to avoid operating deficits.


117. See Stockard v. Morgan, 185 U.S. 27, 37 (1902). A state has the power to taxindividuals and property within its jurisdiction. See id.

118. See Western & S. Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648,655–58 (1981) (addressing Privileges and Immunities, Commerce, and Equal ProtectionClauses).

119. Principles of the commerce, due process, equal protection, import/export, privi-leges and immunities, and supremacy clauses have been the generally recognized basisfor most challenges to taxing statutes.

The Privileges and Immunities Clause, which applies to individual citizens, pro-vides that “[t]he Citizens of each State shall be entitled to all Privileges and Immunitiesof Citizens in the several States.” U.S. CONST. art. IV, § 2.

Section One of the Fourteenth Amendment also contains a Privileges and Immu-nities Clause. U.S. CONST. amend. XIV, § 1. The test is whether (1) a privilege or immu-nity of a state citizenship is involved; and (2) whether in utilizing a balancing test todetermine whether the challenged discrimination against the privilege or immunity issubstantially justified. See NAGEL ET AL., supra note *, § 7.3. Most of the issues concern-ing privileges and immunities protected under the Fourteenth Amendment involve licens-ing of fees assessed against nonresidents. See id.

States are also specifically prohibited from imposing taxes on exports and im-ports. U.S. CONST. art. I, § 10, cl. 2.

There is a narrow proscription entitled the Duty of Tonnage which is imposed byArticle I, Section 10, Clause 3 of the United States Constitution. U.S. CONST. art. I,§ 10, cl. 3. It prohibits a state from taxing the tonnage of a vessel. See Clyde MalloryLines v. Alabama ex rel. State Docks Comm'r, 296 U.S. 261, 265–66 (1935).

120. The Supreme Court has repeatedly concluded that even a state tax so burden-

III. CONSTITUTIONAL ISSUES PERTAINING TOLOCAL TAXATION

A. Review of Major Constitutional Issues

Federal constitutional principles limit a local government's abil-ity to impose user fees. Taxation is a sovereign right reserved to thestate government.117 Still, there has been extensive litigation on thefederal constitutional limitations of state and local exactions. Thissection will address challenges to user fees alleging violations ofconstitutional principles.

Realistically, a taxpayer will most likely challenge a fiscal stat-ute as violative of several constitutional provisions.118 Constitutionalprovisions other than the Commerce Clause have been successfullyasserted to invalidate a financial ordinance.119 Typically, adjudica-tion focuses on equal protection and due process.

A tax imposed by a state on property, income, or activity withinits borders has few constitutional limitations. The Federal Constitu-tion limits neither the types of tax nor the exactions. It does notprovide a maximum rate of tax.120 The state is


some as to destroy business does not violate the Constitution. See Stewart Dry GoodsCo. v. Lewis, 294 U.S. 550, 562–63 (1935); Fox v. Standard Oil Co., 294 U.S. 87, 99–100(1935); A. Magnano Co. v. Hamilton, 292 U.S. 40, 45–47 (1934); Alaska Fish Salting &By-Products Co. v. Smith, 255 U.S. 44, 48–49 (1921).

121. Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940).122. See U.S. CONST. amend. XIV, § I, cl. 2. The Equal Protection Clause provides:

“No State shall . . . deny to any person within its jurisdiction the equal protection of thelaws.” Id.

123. See Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 400–02 (1928).124. See, e.g., Hillsborough Township v. Cromwell, 326 U.S. 620, 621 (1946).125. See generally Nordlinger v. Hahn, 505 U.S. 1 (1992); Allegheny Pittsburgh Coal

Co. v. County Comm'n, 488 U.S. 336 (1989). The Equal Protection Clause permits sepa-rate classification in taxation with different types of property. See generally CharlestonFed. Sav. & Loan Ass'n v. Alterson, 324 U.S. 182 (1945).

126. See generally Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356 (1973);White River Lumber Co. v. Arkansas, 279 U.S. 692 (1929).

127. See generally Williams v. Vermont, 472 U.S. 14 (1985); Metropolitan Life Ins. v.Ward, 470 U.S. 869 (1985); Western & S. Life Ins. Co. v. State Bd. of Equalization, 451U.S. 648 (1981); Wheeling Steel Corp. v. Glander, 337 U.S. 562 (1949).

128. See Nordlinger v. Hahn, 505 U.S. 1 (1992); Puget Sound Power & Light Co. v.City of Seattle, 291 U.S. 619 (1934); Holt v. City of Maumelle, 786 S.W.2d 581 (Ark.1990); City of Pittsburgh v. Commonwealth, 559 A.2d 513 (Pa. 1989); Mountain FuelSupply Co. v. Salt Lake City Corp., 752 P.2d 884 (Utah 1988).

free to pursue its own fiscal policies, unembarrassed by the Consti-tution, if by the practical operation of a tax the state has exerted itspower in relation to opportunities which it has given, to protectionwhich it has afforded, to benefits which it has conferred by the factof being an orderly civilized society.121

The Fourteenth Amendment to the United States Constitutionprovides for equal protection of the law.122 The tax scheme of thestate must have a rational relationship to a legitimate governmentalinterest. States are permitted to establish classes of taxpayers andprovide for a different method of taxation for each class. State classi-fication of taxpayers and their activities for purposes of applyingdifferent tax rates may be so arbitrary as to violate the Equal Pro-tection Clause.123 Taxpayers, therefore, typically challenge statutoryclassifications.124

Equal protection issues focus on property valuation,125 businesscompetition,126 or residency versus non-residency127 classification.Equal protection challenges may also involve discrimination that isunreasonable, arbitrary, or invidious.128 Although the Constitutiongives discretion to local governments to classify people, property,


129. See Northwestern Mut. Life Ins. Co. v. Wisconsin, 247 U.S. 132, 138–39 (1918);Fox Bakersfield Theatre Corp. v. City of Bakersfield, 222 P.2d 879, 883–84 (Cal. 1950);Jensen v. City of Denver, 806 P.2d 381, 384–85 (Colo. 1991) (en banc); Sandstrom v. Cityof Ft. Lauderdale, 133 So. 2d 755, 757 (Fla. 2d Dist. Ct. App. 1961); Panama City v. Hi-Octane Terminal Co., 121 So. 2d 197 (Fla. 1st Dist. Ct. App. 1960); City of Louisville v.Sebree, 214 S.W.2d 248 (Ky. 1948); Town of Morristown v. Woman's Club, 577 A.2d 1309(N.J. Super. Ct. App. Div. 1990), aff'd, 592 A.2d 216 (N.J. 1991).

130. See Town of St. Helena v. Butterworth, 244 P. 357, 358 (Cal. 1926) (holdingunconstitutional different taxes on wholesale merchants outside of town who deliver byvehicle and out-of-town wholesale merchants who deliver by other means); City of Cen-tral v. Axton, 410 P.2d 173, 181 (Colo. 1966) (en banc) (holding that different occupationtaxes on merchants, whose stock consists of more than 50% souvenirs manufacturedoutside of town, were discriminatory); O'Connell v. Kontojohn, 179 So. 802, 804 (Fla.1938) (holding different license taxes on bakeries inside and outside the city unconstitu-tional); cf. Continental Baking Co. v. Escondido, 69 P.2d 181, 183 (Cal. Dist. Ct. App.1937) (holding different taxes on merchants within the city and other merchants consti-tutional).

131. U.S. CONST. amend. XIV, § 1.132. 246 S.W.2d 622 (Tex. 1952).133. See id. at 627.134. See id. at 627–28.135. 318 S.W.2d 85 (Tex. Civ. App. 1958).136. See id. at 86.

and activity for tax purposes,129 categorization of persons or corpora-tions domiciled outside the local government's jurisdiction are classi-fied differently.130 The Equal Protection Clause prohibits discrimi-nation against nonresidents.131 Most courts have upheld differentrates for nonresident users as a separate class. This classificationhas been accepted as reasonable based on the distance from the ori-gins of services or cost of extending the service line. If residents andnonresidents are treated as one class, a rate differential based onnonresidency may be unreasonably discriminatory unless otherwisejustifiable and specifically authorized by statute.

In City of Texarkana v. Wiggins,132 the court struck down differ-ent tax rates imposed on nonresidents as arbitrary.133 The courtcould find no basis to justify the differential except the municipalboundary line. There was no obligation to compel the municipality toserve persons outside of a municipal boundary. If the municipalityprovides services beyond its boundaries, however, it may not dis-criminate against nonresidents without a reasonable basis for doingso.134

In Town of Terrell Hills v. City of San Antonio,135 the citycharged the nonresidents of Terrell Hills a higher rate for waterthan city residents.136 The court justified the higher fees because the


137. See id. at 88–89.138. 487 U.S. 450 (1988).139. See id. at 465; see also Alamo Rent-A-Car, Inc. v. Sarasota-Manatee Airport

Auth., 825 F.2d 367, 370–72 (11th Cir. 1987) (upholding user charges differentiated be-tween off-airport courtesy car rental vehicles and motel and hotel courtesy vehicles);Warrenville Plaza, Inc. v. Warren Township Sewerage Auth., 553 A.2d 874, 880–82 (N.J.Super. Ct. App. Div. 1989) (upholding assessment of sewage connection charges for com-mercial condominium development).

140. See Kadrmas, 487 U.S. at 453–54.141. See id. at 465.142. See id.; cf. Weber Basin Home Builders Ass'n v. Roy City, 487 P.2d 866 (Utah

1971). Building permits and licensing charges create similar issues. In Weber, the courtstruck down an increase in building permit fees on equal protection grounds because itwas passed to obtain additional revenues for the city general fund. See id. at 869. Theincrease fell unequally on new residents and could not be justified by allegations thatthe new residents increased the cost of city government. See id.

143. See U.S. CONST. amend. XIV, § 1. The Due Process Clause provides: “nor shallany State deprive any person of life, liberty, or property, without due process of law.” Id.Due process also grants to the taxpayer procedural rights, including the right of appeal.See LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 557–58 (1978).

144. 108 N.W. 557 (Wis. 1906).

cost of nonresident meter readings was substantially higher;standby water demand was greater outside of the city boundaries;rates outside the city were based on a high physical plant value; anda substantial charge for fire protection was necessary outside thecity.137

User charges with irrational classification rates run the risk ofviolating equal protection. In Kadrmas v. Dickinson Public School,138

the Supreme Court upheld a state statute permitting fees to becharged by local public school districts that were not reorganizedinto large systems.139 Bus transportation in reorganized school dis-tricts was free.140 The Court found a rational basis for the distinctionbetween reorganized and nonreorganized school districts.141 Thestated objective in encouraging school districts to reorganize was toalleviate concern about continued availability of transportation. TheCourt held that a nonreorganized school district board could vote tocharge persons whose children used the provided transportation.142

The Due Process Clause encompasses the territorial reach of thestates' taxing power.143 In Chicago & Northwestern Railway v.State,144 the court articulated the following test:

[T]here must be some appreciable relation between the municipali-ty exacting the tax and the person upon whom the burden is cast,either directly or by reference to the property taxed, from which


145. Id. at 589.146. See Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992); International Shoe

Co. v. Washington, 326 U.S. 310, 316–18 (1945).147. In tax law, this connection is labeled “nexus.” See Quill, 504 U.S. at 311 (citing

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977)).148. See id. at 306.149. See, e.g., Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444–45 (1940).150. The Due Process Clause protects an individual against a local tax “only if the

act be so arbitrary as to compel the conclusion that it does not involve the exertion ofthe taxing power, but constitutes, in substance and effect, the direct exertion of a differ-ent and forbidden power, as, for example, the confiscation of property.” A. Magnano Co.v. Hamilton, 292 U.S. 40, 44 (1934); see also City of St. Petersburg v. Florida CoastalTheatres, Inc., 43 So. 2d 525, 527–28 (Fla. 1949) (en banc); Oil Heat Inst. v. Town ofMukilteo, 498 P.2d 864, 866 (Wash. 1972) (en banc); cf. Lassen v. Caruso, 578 So. 2d940, 941–42 (La. Ct. App. 1991) (concluding the Due Process Clause was not violatedbecause the plaintiff was given the same opportunity as a neighbor, even though theopportunity was not exercised).

151. 525 P.2d 876 (N.M. 1974).152. See id. at 881–86.153. See id. at 886.154. See id. at 884.155. See id. (citing 5 EUGENE MCQUILLIN, THE LAW OF MUNICIPAL CORPORATIONS 64,

65 (2d ed. 1944)).

there can reasonably be seen reciprocal duties to accord benefits onthe one hand, and to respond therefor on the other.145

There are two requirements for a state statute to guarantee theprotection of due process of the individual.146 The two-pronged sub-stantive test requires (1) a minimal connection between the subjectof the tax and the taxing state;147 and (2) a rational relationship be-tween the amount of the tax and the activity or property taxed.148

The local government must provide the property or its owner suffi-cient services to justify the tax as reasonable and fair.149 Courtshave held an exaction amounting to a confiscatory tax unconstitu-tional150

A public rate established for water and sewer services that com-pared favorably with the rates of private utilities was upheld inApodaca v. Wilson.151 That opinion established a standard for userfees.152 The Apodaca court clearly held that the user fees involvedwere not taxes.153 The fees must be reasonable in amount, and notbe limited to a recovery of costs.154 A fair profit may be generated foruse by the general public.155 An unreasonable reliance on utilityrevenues for general government purposes may impose unfair bur-


156. See Apodaca, 525 P.2d at 883–84; see also Contractors & Builders Ass'n v. Cityof Dunedin, 329 So. 2d 314, 318 & n.5 (Fla. 1976) (stating sewer linkage fees as a condi-tion precedent to obtaining a permit are permissible only if the fees are used to meetthe cost of expansion).

Linkage fees are used as a condition to granting necessary development permitsunder local government division regulation ordinances. In City of Key West v. R.L.J.S.Corp., 537 So. 2d 641, 646–47 (Fla. 3d Dist. Ct. App. 1989), an assessment of impactfees on a condominium development was upheld even though a building permit had al-ready been issued and several units sold.

157. See Wisconsin v. J.C. Penney Co., 311 U.S. 435, 442, 444–45 (1940); Graves v.Elliott, 307 U.S. 383, 387 (1939) (Hughes, J., dissenting); Curry v. McCanless, 307 U.S.357, 367 (1939).

Tangible personal property is taxed where it is located. See Frick v. Pennsylva-nia, 268 U.S. 473, 492 (1925). See generally Boris I. Bittker, The Taxation of Out-of-StateTangible Property, 56 YALE L.J. 640 (1947).

158. See Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 772–73(1992); Quill Corp. v. North Dakota, 504 U.S. 298, 306–08 (1992); Norfolk & W. Ry. v.Missouri State Tax Comm'n, 390 U.S. 317, 323–25 (1968); J.C. Penney, 311 U.S. at444–45; Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S 123, 134(1931).

159. 453 U.S. 609 (1981).160. See id. at 629–33.161. Id. at 627–28 (footnotes and citations omitted).162. See id. at 612–14.163. See id. at 626–27.

dens on those paying user fees.156

Although the Due Process Clause does not prohibit double taxa-tion,157 the measure of a tax must rationally relate to the taxpayer'sactivity and presence in the state.158 Commonwealth Edison Co. v.Montana159 examined Montana's Coal Severance Act. The Courtdetermined that federal policy intended to encourage the use of coaldid not preempt the Act.160 The rate of taxation is:

essentially a matter for legislative and not judicial resolution . . .[and] in essence, appellants ask this Court to prescribe a test forthe validity of state taxes that would require state and federalcourts, as a matter of federal constitutional law, to calculate accept-able rates or levels of taxation of activities that are conceded to belegitimate subjects of taxation. This we decline to do.161

Commonwealth Edison Co. involved a levy on value, energycontent, and the method of extraction of coal.162 The Court consid-ered it crucial that the tax burden be measured by the amounts ofcoal extracted.163 This insures that no distinction exists between in-


164. See Commonwealth Edison, 453 U.S. at 619.165. See, e.g., PA. CONST. art. VIII, § 1. These uniformity requirements may apply

only to certain types of taxes. See, e.g., ARIZ. CONST. art. IX, § 1; COLO. CONST. art. X,§ 3; DEL. CONST. art. VIII, § 1; MICH. CONST. art. IX, § 3; MINN. CONST. art. X, § 1;N.D. CONST. art. X, § 5; OHIO CONST. art. XII, § 2; S.C. CONST. art. X, § 6; S.D. CONST.art. VI, § 17; VA. CONST. art. X, § 1; WASH. CONST. art. VII, § 1; WIS. CONST. art. VIII,§ 1; WYO. CONST. art. I, § 28.

166. See 508 Chestnut, Inc. v. City of St. Louis, 389 S.W.2d 823, 830 (Mo. 1965);Freeman v. City of Philadelphia, 116 A.2d 349, 353 (Pa. Super. Ct. 1955); Hill v. CityCouncil, 38 S.E. 11, 24 (S.C. 1901). Mathematical precision, though, is not required. SeeAlfred J. Sweet, Inc. v. City of Auburn, 180 A. 803, 805 (Me. 1935); Associated Indus. v.State Tax Comm'n, 722 S.W.2d 916, 919 (Mo. 1987) (en banc).

167. The property subject to the user fee was held by non-profit entities. SeeDEBORAH KOCH, THE UNION INSTITUTE, THE NONPROFIT POLICY AGENDA: RECOMMENDA-TIONS FOR STATE AND LOCAL ACTION 87, 93 (1992).

168. See id. at 93.169. See FLA. STAT. § 166.201 (1995), which provides in pertinent part: “A munici-

pality may raise, by taxation and licenses authorized by the constitution or general law,or by user charges or fees authorized by ordinance, amounts of money which are neces-sary . . . .” See also City of Jacksonville v. Jacksonville Maritime Ass'n, 492 So. 2d 770(Fla. 1st Dist. Ct. App. 1986). The court in Jacksonville addressed the validity of anordinance that “impose[d] `user fees' on certain vessels anchored in storage for morethan 48 hours on the St. Johns River and its tributaries within city limits.” Id. at 771.The stipulated facts stated that payment of the fee did not provide for a city service. Seeid. The court found the ordinance violated Article VII, Section 1 of the Florida Constitu-tion. See id. at 772. In addition, the court held that the user fee was neither an ad valo-rem tax nor issued pursuant to general law. See id.

state and out-of-state consumption.164

Some state constitutions require uniformity of laws.165 Theuniformity provision requires that all members of a particular classbe treated equally.166 The Governor of Wisconsin vetoed a bill passedby the legislature as violative of the Wisconsin Uniformity Clause.The bill required payment of a user fee on property exempt fromtaxation.167 The Wisconsin Attorney General determined that the feehad multiple infirmities because it applied only to exempt property;local governments could choose to impose it only on some categoriesof exempt property; and the fee, if legal, would reflect costs of ser-vices, such as fire and police protection, which do not inure directlyor exclusively to the benefit of exempt property.168

B. Judicial Review of User Fees in Florida

Municipal governments in Florida are expressly authorized toimpose user fees.169 The user fees, in turn, have affected the finan-cial resources of municipalities in Florida through a sharing of state


170. The State of Florida requires the actual amount of the user fee be disclosed.See Herrick v. Florida Dep't of Bus. Regulation, 595 So. 2d 148, 152–53 (Fla. 1st Dist.Ct. App. 1992).

171. See Advisory Opinion to the Attorney General re Tax Limitation v. Smith, 644So. 2d 486, 493–94 (Fla. 1994). In an advisory opinion to the Attorney General, theFlorida Supreme Court evaluated three proposed amendments to the Florida Constitu-tion: “Tax Limitation,” “Voter Approval of New Taxes,” and “Property Rights.” See id. at489. The relevant portion of the proposal for tax limitations provided a prohibition onthe “imposition of new State taxes or fees on or after November 8, 1994 by constitu-tional amendment unless approved by two-thirds of the voters voting in an election.” Id.at 491. The court held that the “initiative fails to meet the single-subject requirementbecause it combines taxes and fees.” Id. The court reasoned that “tax and user fee provi-sions may not be joined in a single initiative.” Id. (citing Fine v. Firestone, 448 So. 2d.984, 990–91 (Fla. 1984)). In addition, the court reemphasized that “when an amendment`changes more than one government function, it is clearly multi-subject.'” Id. at 490(quoting Evans v. Firestone, 457 So. 2d 1351, 1354 (Fla. 1984)).

172. See City of Palatka v. State, 440 So. 2d 1271, 1272 (Fla. 1983); County ofVolusia v. State, 417 So. 2d 968, 969 (Fla. 1982); State v. Miami Beach Redev. Agency,392 So. 2d 875, 885 (Fla. 1980).

173. 483 So. 2d 405 (Fla. 1985).174. See id. at 407 (finding that “[t]he [Daytona Beach user fee] ordinance restricted

the expenditure of the funds to payment of existing beach-related services, law enforce-ment, fire and rescue services, and public works, and provided that any excess would beused for future beach improvements”).

The County of St. Johns and City of St. Augustine Beach user-fee ordinances“provid[ed] for a fee of one dollar per motor vehicle for beach access during high useperiods.” Id.; see also City of New Smyrna Beach v. Board of Trustees of the InternalImprovement Trust Fund, 543 So. 2d 824 (Fla. 5th Dist. Ct. App. 1989) (upholding areasonable user fee for beach access as long as the fee was related to beach expenses).

175. Daytona Beach, 403 So. 2d at 408.

revenues with cities and counties.170 User fees are acknowledged tobe a separate and distinct function of government.171 Much of the lit-igation in Florida results from the source of funds used to dischargegeneral obligation debt.172

In City of Daytona Beach Shores v. State,173 the Florida SupremeCourt upheld a local user fee for motor vehicle beach access.174 Thecourt reasoned that although:

Florida's beach sovereignty lands must be accessible to the public,[this] does not prohibit local governments from imposing reasonableuser fees for motor vehicle beach access, so long as the revenue isexpended solely for the protection and welfare of the public usingthat particular beach, as well as for improvements that will en-hance the public's use of the sovereign property.175

As in other jurisdictions, the issue frequently arises regarding


176. An action against a Florida tax statute:[C]an only be maintained when the following conditions concur: (1) The taxmust be illegal and void and not merely irregular; (2) it must have been paidunder compulsion or the legal equivalent; (3) it must have been paid over bythe collecting officer and have been received to the use of the municipality; (4)the party must not have elected to proceed in any remedy he may have hadagainst the tax assessor or collector.

North Miami v. Seaway Corp., 9 So. 2d 705, 707 (Fla. 1942) (en banc).177. See Evans v. Firestone, 457 So. 2d 1351, 1357 (Fla. 1984); Fine v. Firestone,

448 So. 2d 984, 991 (Fla. 1984). In Florida, user fees are contrasted with impact fees.See, e.g., St. Johns County v. Northeast Fla. Builders Ass'n, 583 So. 2d 635, 640 (Fla.1991); see also Temp. Tech. Adv. Mem. No. 87 (AER)-198, 1987 Fla. Tax LEXIS 232 (Fla.Dep't Rev. Sept. 11, 1987) (distinguishing fees from optional user charges). In St. JohnsCounty, an impact fee was imposed on new residential construction to be used for newschool facilities. See 583 So. 2d at 637. The fee effectively became a user fee because theoperation of the statute was such that it was actually imposed only upon householdsthat had children in public schools. See id. at 640. The state constitution requires freeschools. See id. at 639 (citing FLA. CONST. art. IX, § 1). The actual recipient of the subsi-dized benefits, whether the school board or the county commission, was not determina-tive of the nature of the exaction. See id. at 641. That portion of the fee characterized asa user fee was severed to preserve the constitutionality of the statute. See id.

178. 455 So. 2d 317 (Fla. 1984).179. 405 U.S. 707 (1972).180. Delta Air Lines, 455 So. 2d at 323 (determining the exaction in the case was

not a true user fee); see also Harris v. Wilson, 656 So. 2d 512 (Fla. 1st Dist. Ct. App.1995). In Harris, the court distinguished user fees because individuals paid them on avoluntary basis. See id. at 514 n.3.

181. 650 So. 2d 1 (Fla. 1994).182. See id. at 3. The City of Port Orange Transportation Utility Ordinance provided

in pertinent part:[A] fee is imposed upon the owners and occupants of developed properties with-in the City. No fees are imposed on undeveloped property. Any unpaid fee be-comes a lien upon the property until such fee is paid. The costs to be defrayedby the fee are the City's expenses relating to the operation, maintenance, andimprovement of the local road system.

Id. at 2.In addition, City of Port Orange examined multiple issues including whether a

the determination of the character of an exaction.176 Florida courtshave defined user fee services as electric, water, gas, garbage collec-tion, and transportation services, where the user pays for the ser-vices he or she received.177 In Delta Air Lines, Inc. v. Department ofRevenue,178 the Florida Supreme Court relied on Evansville-Vanderburgh Airport Authority District v. Delta Air Lines, Inc.179 todetermine the nature of a “true `user fee' or user tax.”180

In State v. City of Port Orange,181 the court was required toascertain whether a transportation utility fee was a valid user fee ora tax.182 The court held that user fees have unique features dis


public body has the authority to issue the subject bonds, determining if the purpose ofthe obligation is legal, and ensuring that the authorization of the obligation complieswith the requirements of law. See id. at 2–4.

183. See id. at 3. The court specifically stated that:User fees are charges based upon the proprietary right of the governing bodypermitting the use of the instrumentality involved. Such fees share commontraits that distinguish them from taxes: they are charged in exchange for aparticular governmental service which benefits the party paying the fee in amanner not shared by other members of society, and they are paid by choice,in that the party paying the fee has the option of not utilizing the governmen-tal service and thereby avoiding the charge.

Id. (citations omitted). This concept of user fees was developed by the same court in Cityof Daytona Beach Shores v. State, 483 So. 2d 405, 408 (Fla. 1985).

184. See City of Port Orange, 650 So. 2d at 3.185. Id. at 4. The court further stated that the bond ordinance “[was] a tax which

must be authorized by general law.” Id. at 3.186. Id. at 4. This case is also significant because it raises the issue of discrimina-

tion. The court stated that the “capital gives old users a windfall at the expense of newusers,” which suggests that there is an element of discrimination. Id. This approach maybecome more relevant in the future.

187. See Jacksonville Port Auth. v. Alamo Rent-A-Car, Inc., 600 So. 2d 1159 (Fla.1st Dist. Ct. App. 1992). The fee in question “impos[ed] on nontenant rental car compa-nies a six percent gross receipts `user' or `privilege' fee for access by their vans to publicairport roads and terminal ramps.” Id. at 1160.

188. See id. at 1161.189. See id. at 1164–65.190. See id. at 1162 (citing State ex rel. Gulfstream Park Racing Ass'n v. Florida

State Racing Comm'n, 70 So. 2d 375, 379 (Fla. 1953)).

tinguishing them from taxes.183 In particular, the court stated thatuser fees are charged in exchange for a particular governmental ser-vice.184 The court determined the levy to be a tax because “it in-volved a[n] [in]voluntary choice to connect into an existing instru-mentality of the municipality.”185 The court reasoned that “the City'stransportation utility fee . . . convert[ed] the roads and the munici-pality into a toll road system, with only owners of developed prop-erty in the city required to pay the tolls.”186

The City of Jacksonville imposed an authorized user fee onnontenant rental car companies for access by their vans to publicairport roads and terminal airport ramps.187 Alamo Rent-A-Car, Inc.challenged the fee as an unlawful tax.188 The court upheld the exac-tion, defining it as a user fee.189 Previously, the Florida SupremeCourt had defined a tax as involuntary and not dependent or con-trollable by those upon whom it is imposed.190 In the instant case,Jacksonville Public Authority (JPA) was the proprietor of the airportsystem and the user fee was an incident of that proprietary sta-


191. See id. at 1164.192. Id. at 1164–65.193. See Jacksonville Port Auth., 600 So. 2d at 1162; see also Fine v. Firestone, 448

So. 2d 984, 986 (Fla. 1984) (holding that a statute violated the Florida Constitution'ssingle subject requirement).

194. Florida Dep't of Revenue v. Seminole Elec. Coop., Inc., 598 So. 2d 115, 118(Fla. 2d Dist. Ct. App. 1992) (quoting Commonwealth Edison Co. v. Montana, 453 U.S.609 (1981)).

195. See id.196. See generally LOCAL REVENUE DIVERSIFICATION, supra note 30, at 27–31.197. See Florida Dep't of Revenue, 598 So. 2d at 117–18.198. The case of Harris v. Wilson, 656 So. 2d 512 (Fla. 1st Dist. Ct. App. 1995),

should be reviewed when considering the author's position.199. 521 So. 2d 1064 (Fla. 1988).200. See id. at 1064.201. See id. at 1065.

tus.191 The court reasoned:

[Because] Alamo uses and benefits from all of the JPA's airportfacilities, and [because] the fee is charged to Alamo as a percentageof the revenues from customers it picks up at [the airport], and[because] Alamo pays the fee only if it uses and benefits from thefacilities the fee supports, the fee is based on the furnishing of aspecific benefit to Alamo and is thus not a tax but an authorizeduser fee under the Charter.192

As illustrated in Jacksonville Port Authority, Florida courtsdistinguish between general revenue taxes and user fees.193 A gen-eral revenue tax benefits the taxpayer for “the privileges of living inan organized society.”194 A user fee is imposed for a specific state fa-cility or service.195 Governments also impose user fees to cover cur-rent costs, to avoid burdening the user, to impose physical disciplineon authority managers, and to cover administrative costs.196

Considerations giving due regard to the provisions of the UnitedStates Constitution control in Florida.197 In the author's opinion, theFlorida cases facilitate bringing an action under Commerce Clauseprinciples. Thus, the Commerce Clause may impact user fees.198

In Day v. High Point Condominium Resorts, Ltd.,199 the FloridaSupreme Court analyzed a constitutional challenge to a statutewhich imposed ad valorem taxes on time-share property.200 Theplaintiffs asserted a violation of due process and equal protection.201

The court acknowledged the Legislature's great freedom to classify


202. See id. at 1066 (citing Eastern Air Lines, Inc. v. Department of Revenue, 455So. 2d 311, 314 (Fla. 1984)).

203. See id.204. See id. (citing Eastern Air Lines, 455 So. 2d at 314).205. 389 So. 2d 283 (Fla. 4th Dist. Ct. App. 1980).206. See id. at 284.207. Id. at 286.208. See id.209. Id. Florida law permits cities to charge higher rates to nonresident utility users

so long as they are reasonable and non-discriminatory. See id.210. 825 F.2d 367 (11th Cir. 1987).211. See id. at 368–69.212. Id. at 370. The off-airport rental companies had to pay “10% of all gross busi-

ness receipts derived from the rental of automobiles to passengers picked up at the Air-port,” payable monthly for the permit's duration. Id. at 369. The on-airport rental compa-nies had to pay a fixed rent in addition to a 10% “concession fee.” See id. at 370.

213. See id. at 372.214. See id. at 373–74.

taxpayers.202 The Legislature, however, must classify on a rationalbasis and not arbitrarily.203 A statute favoring a certain class may bevalid if founded upon reasonable distinction or a difference in statepolicy.204

In City of Pompano Beach v. Oltman,205 the court examined thecity's charge on nonresidents for the availability of city water, whichwas double the city residents' charge.206 The court held “a utility rateordinance is presumed valid, and the burden rests on those whoattack such rates to clearly demonstrate that such rates are arbi-trary, unreasonable, or discriminatory.”207 The court held that thenonresidents did not prove that the utility's rate of return was ex-cessive.208 The Florida Constitution entitles cities to make a reason-able profit from utility operations “and to use the proceeds thusderived for other valid municipal purposes.”209

In Alamo Rent-A-Car, Inc. v. Sarasota-Manatee Airport Authori-ty,210 Alamo challenged the Sarasota-Manatee Airport Authorityuser fees imposed upon off-airport rental cars.211 The case examinedwhether there was a “rational basis for assessing a flat fee for hoteland motel courtesy vehicles while charging the similarly situatedoff-airport car rental companies a substantial percentage of theirreceipts.”212 A second challenge was based on a violation of equalprotection.213 The court found no violation of any provision of theConstitution.214 The Authority had “tailored its entire schedule offees to account for differences in vehicle use and the differing bene-


215. Id. at 371.216. See North Am. Co. v. SEC, 327 U.S. 686, 700 (1946). Before the issue arises as

to whether a tax causes an undue burden, commerce must be involved. See Gibbons v.Ogden, 22 U.S. (9 Wheat.) 1, 189 (1824). Gibbons defined commerce as “traffic, but it issomething more: it is intercourse. It describes the commercial intercourse between na-tions, and parts of nations, in all its branches.” Id. at 189–90. The Court refused to ac-cept a more limited interpretation and rejected defining commerce as “traffic, to buyingand selling, or to the interchange of commodities,” because to do so would “restrict ageneral term, applicable to many objects, to one of its significations.” Id. at 189; see alsoGoldfarb v. Virginia State Bar, 421 U.S. 773, 785 (1975) (holding that a title examina-tion can constitute interstate commerce).

217. See, e.g., Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450,457–58 (1959).

218. See Nashville, Chattanooga & St. Louis Ry. v. Wallace, 288 U.S. 249, 265–66(1933); Champlain Realty Co. v. Town of Brattleboro, 260 U.S. 366, 376 (1922); Wagnerv. City of Covington, 251 U.S. 95, 103 (1919); American Mfg. Co. v. City of St. Louis,250 U.S. 459, 464 (1919); Diamond Match Co., v. Ontonagon, 188 U.S. 82, 93–96 (1903);Coe v. Town of Errol, 116 U.S. 517, 526 (1886); Von Hamm-Young Co. v. City of SanFrancisco, 178 P.2d 745, 747–48 (Cal. 1947).

219. See Coe, 116 U.S. at 525.220. See Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938)

fits realized by vehicles at the airport.”215

IV. COMMERCE CLAUSE ISSUES

A. Broadening the Scope of Interstate Commerce

At first blush, a user fee imposed on a service or facility fur-nished by a municipality may seem to be a distinctly local occur-rence. Because the protection provided by the Commerce Clauseinures exclusively to interstate commerce, the question arises: Areuser fees distinctly local or intrastate?216 Unfortunately, opinions ofthe United States Supreme Court delineating the scope of an activi-ty as local or interstate have become a “quagmire.”217 The potentialfor a Commerce Clause attack on state legislation, including munic-ipal fiscal ordinances, has increased as the concept of what consti-tutes interstate commerce has broadened.

It is impossible to identify the precise moment when interstatecommerce ends and intrastate commerce begins.218 Theoretically, theevent identifying the commencement of intrastate commerce is theend of the stream of interstate commerce.219 The Court has held thattaxes imposed on in-state mining, manufacturing, and publishingare imposed on intrastate commerce regardless of the fact that thegoods were intended for sale outside the state.220 In fact, the Court


(publishing); Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 178–79 (1923) (mining);American Mfg. Co. v. City of St. Louis, 250 U.S. 459, 464 (1919) (manufacturing).

221. 453 U.S. 609 (1981).222. See id. at 617.223. See Exxon Corp. v. Eagerton, 462 U.S. 176, 184–85 (1983) (exempting the sale

of oil and gas). Exxon cited a House Committee report that provided: “[S]ales for resale,or so-called wholesale sales, in interstate commerce (for example, sales by producingcompanies to distributing companies) . . . have been considered to be not local in charac-ter and, even in the absence of Congressional action, not subject to State regulation.” Id.(citing H.R. REP. NO. 75-709, at 1–2 (1937); S. REP. NO. 75-1162, at 2 (1937)). This viewof interstate commerce may be unique to the product involved — natural gas. See id.

224. See Minnesota v. Blasius, 290 U.S. 1, 8 (1933); Stafford v. Wallace, 258 U.S.495, 518–20 (1922); Swift & Co. v. United States, 196 U.S. 375, 388–89 (1905).

225. Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 39 (1980) (citing City of Philadel-phia v. New Jersey, 437 U.S. 617, 622–23 (1978)); see also Commonwealth Edison Co. v.Montana, 453 U.S. 609, 619 (1981). The dictum in Lewis may not be intended to meanthat the powers of Congress to regulate interstate commerce are coterminous with thelimitations imposed by the Commerce Clause on the powers of the states to tax inter-state commerce.

226. 477 U.S. 131 (1986).227. See id. at 151.228. Id. at 132 (footnote omitted).

in Commonwealth Edison Co. v. Montana221 rejected the argumentthat state severance taxes are protected from a Commerce Clauseattack based on the theory that Montana imposed the taxes on goodsprior to their entry into the stream of commerce.222

Cases pertaining to congressional regulation of interstate com-merce were initially distinguished from cases involving state stat-utes taxing interstate commerce.223 The Court did not consider regu-lation cases as precedent for state tax cases because the harm to beguarded against differed significantly.224 Subsequently, the Courtexpressed the view that “the same interstate attributes that estab-lish Congress' power to regulate commerce also support constitu-tional limitations on the powers of the States.”225

Recent United States Supreme Court opinions reviewing regu-lation of interstate commerce address the local nature of a transac-tion. In 1986, Maine v. Taylor226 held that prohibiting transportationof minnows into the state for sale did not violate the CommerceClause.227 Although Maine “prohibit[ed] the importation of livebaitfish, [the appellee] arranged to have 158,000 live golden shinersdelivered to him from outside the [s]tate.”228 The Supreme Courtreasoned that Maine's own bait supplies were intrastate products.Regulating the disposal of the minnows within the state served alegitimate local purpose that could not be served by available non-


229. See id. at 151–52. But see Hughes v. Oklahoma, 441 U.S. 322, 337–38 (1979)(invalidating a state statute that prohibited the transportation of minnows beyond stateboundaries).

230. 511 U.S. 383 (1994).231. See id. at 394.232. Id. at 393. Implicitly, even solid waste is part of interstate commerce.233. 115 S. Ct. 1331 (1995).234. See id. at 1334.235. See id. at 1345. The Court applied the four-prong test of Complete Auto Tran-

sit, Inc. v. Brady, 430 U.S. 274, 281 (1977) (discussed infra note 261). See Oklahoma TaxComm'n, 115 S. Ct. at 1337. In applying the second prong, the Court reiterated that aproperly apportioned tax must be both internally and externally consistent. See id. at1338. Internal consistency examines whether a tax's identical application by every statewould place interstate commerce at a disadvantage as compared with intrastate com-merce. See id.

236. See id. at 1345.237. See id.

discriminatory alternatives.229

Conversely, in C & A Carbone, Inc. v. Town of Clarkstown,230

the Court determined that a solid-waste disposal regulation violatedthe dormant Commerce Clause.231 The differentiation of streams ofcommerce in itself is not sufficient to justify discrimination. To sur-vive a challenge under the dormant Commerce Clause, a state mustmake “the clearest showing that the unobstructed flow of interstatecommerce itself is unable to solve the local problem.”232

To appreciate the potential for user fees being invalidated onCommerce Clause principles and the delay to date in initiation ofsuch an attack, it is necessary to examine the long and tenuous his-tory involving state taxes and Commerce Clause concepts. Principlesof state taxes, as a counterpart to municipal taxes, may provide aninference as to the application of Commerce Clause principles touser fees.

Limitation of traffic has been the issue in several transpor-tation-related tax cases. Oklahoma Tax Commission v. JeffersonLines, Inc.233 involved a sales tax on the gross price of interstate bustickets sold by a taxpayer in Oklahoma.234 The Court held that thestate sales tax on the full price of the ticket for travel from Oklaho-ma to another state did not violate Commerce Clause principles.235

The Court determined that the State of Oklahoma taxed only travelthat originated within the state, and the bus ticket business did notconstitute interstate commerce.236 The percentage of the business,however, was substantial.237 The Court distinguished the sale of a


238. See id.239. See Oklahoma Tax Comm'n, 115 S. Ct. at 1346.240. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 616 n.6 (1981).241. See id. at 615.242. See Complete Auto, 430 U.S. at 283–84. There is no apparent method to iden-

tify interstate commerce or the limitations imposed by the Complete Auto test. The casesseem to depend on the type of tax involved, the industry, the date of the decision, orsome intangible element which is impossible to articulate. See id. at 283–87.

243. See id. at 279–87.244. See Henry Wolf Biklé, The Silence of Congress, 41 HARV. L. REV. 200, 202–03

(1927–1928) (examining the implied will of Congress regarding the constitutional propri-ety of a particular exaction).

ticket from the actual travel.238 The purchaser and the particularbranch of business pertaining to ticket sales may reap benefits forthe state selling the ticket. The Court determined that selling theticket constituted intrastate commerce.239

At the time when broad tax-free immunity for interstate com-merce existed, the Court used refined nuances to differentiatestreams of commerce.240 When the Justices interpreted the Com-merce Clause as prohibiting the states from imposing any directtaxes on interstate commerce, the distinction between intrastateand interstate commerce became important.241 It is impossible toascertain a specific physical location where interstate commerceends and intrastate activities begin.242 The issue is now largely irrel-evant to the determination of whether provisions of the CommerceClause have been violated.243

Since 1924, the United States Supreme Court has taken veryfew opportunities to define interstate commerce. When it has un-dertaken the task of defining interstate commerce, its focus depend-ed on furthering the Court's economic desires and agenda.244 Al-though what constitutes interstate commerce may elude the Su-preme Court, it is clear that a local government may not discrimi-nate against interstate commerce in favor of local trade, but mayimpose no greater burden on interstate commerce than on local busi-ness.

B. Erosion of the Immunity Doctrine: The Fabrication ofDiscrimination

In contemporary application of the Commerce Clause, one of itsmost potent forms is “the imposition of protective conditions on the


245. LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 311 (2d ed. 1988). Profes-sor Tribe also asserts that the Commerce Clause could allow Congress to “impose what-ever conditions it wishes, so long as the conditions themselves violate no independentconstitutional prohibition, on the privilege of producing for, serving customers in, orotherwise `sitting astride the channels of,' interstate commerce.” Id. at 312 (citationomitted in original).

The purpose of privileges preserved in both state constitutions and the Four-teenth Amendment is to provide equal treatment for every individual without favoring ordiscriminating against one side or another. See Shaffer v. Carter, 252 U.S. 37, 53 (1920).

246. These limitations were clarified by the Supreme Court in 1939. The Court re-alized that without a legislative requirement the privilege of interstate commerce wouldbe applicable to too large a class. Penn Dairies, Inc. v. Milk Control Comm'n, 318 U.S.261, 278 (1943), held that if there is no express intent to exclude a state regulation, theState may impose burdens on the entity without the regulation necessarily being invalid.

247. BLACK'S LAW DICTIONARY 1197 (6th ed. 1990), defines privilege as:A particular and peculiar benefit or advantage enjoyed by a person, company,or class, beyond the common advantages of other citizens. An exceptional or ex-traordinary power or exemption. A peculiar right, advantage, exemption, power,franchise, or immunity held by a person or class, not generally possessed byothers.

Id. However, a privilege tax is defined as “[a] tax on the privilege of carrying on a busi-ness or occupation for which a license or franchise is required.” Id. at 1198.

248. See Robbins v. Taxing Dist., 120 U.S. 489, 497 (1887).249. See Mayo v. United States, 319 U.S. 441, 447–48 (1943). This creates a federal

immunity of sorts because the activities under the purview of the federal governmentcannot be infringed upon by the state. See id. at 448.

250. See Robbins, 120 U.S. at 497. Principles of state taxes, as a counterpart tomunicipal taxes, may provide an inference as to the application of Commerce Clauseprinciples to user fees. Cf. id. (discussing principles of state tax).

251. Henneford v. Silas Mason Co., 300 U.S. 577, 582 (1937); see also IndependentWarehouses, Inc. v. Scheele, 331 U.S. 70, 85 (1947) (holding that the Commerce Clauseis not violated by the business of storing goods for hire without payment of license fee);cf. International Harvester Co. v. Department of Treasury, 322 U.S. 340 (1944) (holding

privilege of engaging in an activity that affects interstate commerceor utilizes the channels or instrumentalities of such commerce.”245

This rule, however, does have its limitations.246 Initially, the stateshad no power to tax the privilege247 of doing interstate business be-cause it is a privilege granted by the federal government.248 Ulti-mately, the Court permitted a state to tax activities within its bor-ders if the federal government failed to provide a specific legislativeprivilege.249

Beginning in 1887, the United States Supreme Court held thatthe state has no power to tax interstate commerce.250 Goods in tran-sit cease being a part of interstate commerce when their movementends and they become “part of the common mass of property withinthe state.”251


that a state tax on interstate transactions within state borders did not violate the Com-merce Clause when the State treated local transactions in the same manner). In Interna-tional Harvester, the sale by a local merchant to an out-of-state purchaser who deliveredthe article for immediate transport outside the state was characterized as an interstatesale. See id. at 346–47. However, the sale was considered a taxable event in the state ofpurchase. Nexus was established in the verbal transaction “separate and distinct fromthe transportation or intercourse which is interstate commerce.” Id. at 346.

252. See, e.g., Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938).253. Id. The Supreme Court has declared that:[B]ecause there is a flow of interstate commerce which is subject to the regulat-ing power of the Congress, it does not necessarily follow that, in the absence ofa conflict with the exercise of that power, a state may not lay a nondiscrim-inatory tax upon property which, although connected with that flow as a gener-al course of business, has come to rest and has acquired a situs within thestate.

Minnesota v. Blasius, 290 U.S. 1, 8 (1933).254. See J.D. Adams Mfg. Co. v. Storen, 304 U.S. 307, 314 (1938); Western Live

Stock v. Bureau of Revenue, 303 U.S. 250, 256 (1938).255. See Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458

(1959). Language in this opinion was overruled by the Complete Auto holding that a taxmay be levied on the privilege to carry on business in interstate commerce as long ascertain conditions are satisfied. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,288–89 (1977).

The multiple tax doctrine also shifted the focus to whether the levy was properlyapportioned. See Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 661–64 (1948).

256. See Champlain Realty Co. v. Town of Brattleboro, 260 U.S. 366, 376 (1922).257. See David F. Shores, State Taxation of Interstate Commerce — Quiet Revolution

or Much Ado About Nothing?, 38 TAX L. REV. 127, 132–34 (1982).258. See Case of the State Tax Freight Tax, 82 U.S. (15 Wall.) 232, 272–75 (1872).

The total immunity of interstate commerce from state taxationbegan to erode as early as the 1920s.252 The Commerce Clause doesnot relieve persons engaged in interstate commerce from “their justshare of state tax burden.”253 However, cumulative tax burdenscaused by the interstate operation of a business are prohibited.254 Inaddition, the Supreme Court held that taxes that discriminateagainst interstate commerce are unconstitutional.255

The Court prohibited local governments from taxing the privi-lege of doing business in interstate commerce.256 The so-called im-munity doctrine established a meaningful limitation on local taxingpower.257 Confusion reigned as the Court adopted a formalistic anal-ysis of state taxation to ascertain categories of taxes. For instance,the Court examined the levy to determine whether it was a direct orindirect tax.258 The Court found that “a direct tax on interstate sales,even if fairly apportioned and nondiscriminatory, [is] . . . unconstitu-


259. Complete Auto, 430 U.S. at 280 (citing Freeman v. Hewit, 329 U.S. 249 (1946)).This concept was known as the Spector rule because it was followed in Spector MotorService, Inc. v. O'Connor, 340 U.S. 602, 609–10 (1951). See Complete Auto, 430 U.S. at278–79.

260. 430 U.S. 274, 288–89 (1977); see also infra notes 349–59 and accompanyingtext.

261. See id. at 281. The four-prong test in Complete Auto provided that a state maytax interstate commerce if: (1) the commerce has a substantial nexus with the state;(2) the tax is fairly apportioned; (3) the tax is not discriminatory on interstate commerce;and (4) the tax is fairly related to the services of the state. See id.; see also infra notes349–59 and accompanying text.

262. Complete Auto, 430 U.S. at 281 (citation omitted in original).263. See Cooley v. Board of Wardens, 53 U.S. (12 How.) 299, 319 (1852).264. Facially discriminatory taxes imposed solely on merchants or products from out-

of-state were historically held invalid. See Walling v. Michigan, 116 U.S. 446, 455 (1886);Webber v. Virginia, 103 U.S. 344, 350–51 (1880); Cook v. Pennsylvania, 97 U.S. 566, 573(1878); Welton v. Missouri, 91 U.S. 275, 282, 283 (1875).

265. American Trucking Ass'ns v. Scheiner, 483 U.S. 266, 284 n.16 (1987) (quotingRobbins v. Taxing Dist., 120 U.S. 489, 498 (1887)).

266. 91 U.S. 275 (1876).

tional per se.”259

The immunity doctrine ended with the decision in CompleteAuto Transit, Inc. v. Brady.260 Complete Auto eliminated the formover substance focus.261 The Court held that “interstate commercemay be made to pay its own way.”262 Despite the effort to end the im-munity of interstate commerce from appropriate state taxation, theComplete Auto decision did not fully clarify the concepts of its now-longstanding test. The rule of Complete Auto, favoring substanceover form, invites various interpretations of the scope of interstatecommerce. The validity of a levy under the Commerce Clause isevaluated by the national or local character of the tax.263

The Supreme Court most often judged a levy's validity underthe Commerce Clause by examining whether the tax discriminatedagainst interstate commerce.264 The Court decided a long line ofdrummer's cases which were invalidated because “the tax on drum-mers operates greatly to their disadvantage in comparison with themerchants and manufacturers of [the taxing jurisdiction].”265

In 1875, Welton v. Missouri266 was the first decision declaring adrummer's license tax invalid. The Court held that:

[C]ommercial power continues until the commodity has ceased to bethe subject of discriminating legislation by reason of its foreigncharacter. That power protects it, even after it has entered the


267. Id. at 282; see also Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318,332–33 n.12 (1977) (quoting Welton, 91 U.S. at 282).

Solicitors' activities were considered to be the commencement of interstate com-merce. See Real Silk Hosiery Mills, Inc. v. City of Portland, 268 U.S. 325, 335 (1925);Robbins, 120 U.S. at 497. The Court reached this conclusion because of discriminationagainst the solicitor in favor of local merchants. See Welton, 91 U.S. at 283. The poten-tial effect of a cumulative burden was also emphasized. Cf. Town of Farmington v.Miller, 328 P.2d 589, 593 (1958) (holding that a city ordinance levying an occupation taxwas not unconstitutional as applied to a foreign drummer who regularly solicited ordersin town).

268. 120 U.S. 489 (1887).269. See id. at 498.270. See id. at 499. The statute in Robbins imposed a tax on “[a]ll drummers, and

all persons not having a regular licensed house of business in the taxing district, offeringfor sale or selling goods . . . by sample.” Id. at 490–91 (quoting TENN. STAT. ch. 96, § 16(1881) (overruled 1887)).

271. See id. at 498. Vendors' license taxes were valid if imposed upon vendors whobrought their goods into the state directly for sale from their wagons. Cf. Wagner v. Cityof Covington, 251 U.S. 95, 102 (1919) (holding a state tax on itinerant vendors is validwhen enforced impartially to goods manufactured in and outside the state); Baccus v.Louisiana, 232 U.S. 334, 337–38 (1914) (holding that the State could forbid the sale ofdrugs by itinerant vendors because drugs are in the power of state regulation); Kehrer v.Stewart, 197 U.S. 60, 65–66 (1905) (holding that all goods are taxable property of thestate upon arrival despite origination or destination); American Steel & Wire Co. v.Speed, 192 U.S. 500, 519–20 (1904) (finding that goods shipped between states are notimported goods and are subject to taxation); Emert v. Missouri, 156 U.S. 296, 318–19(1895); Machine Co. v. Gage, 100 U.S. 676, 677 (1879) (upholding a peddler tax whenlevied without regard to place of growth, manufacture, or production of goods).

Another type of discrimination is subjecting nonresidents to higher tax ratesthan local businesses. See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389,394–95 (1952).

272. See Robbins, 120 U.S. at 498; see also George Brody, Recent Decisions, 44MICH. L. REV. 1135 (1946); A. McAlevy, Recent Cases, 20 TEMP. L.Q. 586 (1946–1947);Anna E. Laskowsi, Recent Decisions, 9 U. DET. L.J. 214 (1946); cf. Dunbar-Stanley Stu-dios, Inc. v. Alabama, 393 U.S. 537, 542 (1969). In 1946, the Court set aside, underCommerce Clause principles, a license tax imposed by the City of Richmond on “engag-ing in business as solicitor[s].” Nippert v. City of Richmond, 327 U.S. 416, 417, 434(1946).

State, from any burdens imposed by reason of its foreign origin.267

The leading case of Robbins v. Shelby Taxing District268 heldthat a license tax as applied to an out-of-state merchant discrimi-nated in effect against interstate commerce.269 The Court reasonedthat such commerce is more likely to be conducted by drummersthan the domestic commerce with which it competes.270 The tax dis-advantaged business conducted over state borders.271 The Courtfound the practical effect of the statute to be the key to evaluatingits constitutionality.272


273. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 73 (1963).274. See Associated Indus. v. Lohman, 511 U.S. 641, 647 (1994). A facially discrimi-

natory tax may be constitutional if it is compensatory. The Court defined a compensato-ry tax as one that is “designed simply to make interstate commerce bear a burden al-ready borne by intrastate commerce.” Id.

275. See West Point Wholesale Grocery Co. v. City of Opelika, 354 U.S. 390, 391–92(1957) (holding invalid a city ordinance that imposed a privilege tax on nonresidentwholesalers, but taxed resident wholesalers after a certain level of sales had beenreached); Nippert, 327 U.S. at 431; Best & Co. v. Maxwell, 311 U.S. 454, 456–57 (1940).

276. See United States v. Lopez, 115 S. Ct. 1624, 1630–31 (1995). In Lopez, theCourt found the connection between handgun control and commerce too attenuated alink to fall within the clause. In its analysis, the Court reviewed the evolution of theCommerce Clause application, pointing out that it is directed to the traffic of goods. Seeid. at 1626–30. The Lopez decision reiterated the position that commerce does not extendto internal workings “which [are] carried on between man and man in a State, or be-tween different parts of the same State, and which does not extend to or affect otherStates.” Id. at 1627 (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 194 (1824)).

277. 116 S. Ct. 848 (1996).278. See id. at 852. Fulton Corporation, a North Carolina company, owned stock in

six other corporations, five of which neither did business nor earned income within thestate. See id. The five out-of-state corporations were not subject to the state's incometax. See id. The sixth corporation, Food Lion, conducted 46% of its business in NorthCarolina. See id. All the stock was subject to the state's intangible tax, and the five out-of-state corporations' stock was taxed on 100% of its value. See id. Food Lion stock wastaxed on 54% of its value. See id.

279. Id. at 853 (quoting Associated Indus., 511 U.S. at 647 (quoting New Energy Co.v. Limbach, 486 U.S. 269, 273 (1988))).

280. Id. at 854 (quoting Oregon Waste Sys., Inc. v. Department of Envtl. Quality,511 U.S. 93, 99 (1994)).

Taxes and exactions that discriminate against interstate com-merce, even when composed in part of intrastate commerce, areunconstitutional.273 Moreover, the Court has held a facially discrim-inatory local tax constitutional if local commerce is subject to anequivalent, although technically different, tax.274

A tax discriminates not only facially, but also when it discrimi-nates in effect.275 The Commerce Clause focuses primarily on eco-nomic events.276 Fulton Corp. v. Faulkner277 assessed the constitu-tionality of North Carolina's intangible tax on corporate stock ownedby state residents.278 The Court stated that the dormant CommerceClause “prohibits economic protectionism — that is, `regulatorymeasures designed to benefit in-state economic interests by burden-ing out-of-state competitors.'”279 The initial step in applying thisdoctrine is to determine whether the state's measure “regulatesevenhandedly with only `incidental' effects on interstate commerce,or discriminates against interstate commerce.”280


281. Fulton, 116 S. Ct. at 854 (quoting Chemical Waste Management, Inc. v. Hunt,504 U.S. 334, 342 (1992)).

282. The Court has approved graduated fees. See, e.g., Dixie Ohio Express Co. v.State Revenue Comm'n, 306 U.S. 72, 74, 78 (1939) (approving fees on manufacturer'srated capacity); Clark v. Poor, 274 U.S. 554, 660 (1927) (approving fees on vehiclecaravaning); Hendrick v. Maryland, 235 U.S. 610, 624–25 (1915) (approving motor vehicleregistration fee based on the vehicle's horsepower rating); cf. Hicklin v. Coney, 290 U.S.169 (1933); Kane v. New Jersey, 242 U.S. 160 (1916).

In Clark, 274 U.S. at 555, a statute required that a motor transportation compa-ny, desiring to operate within the state, obtain a certificate from the Public UtilitiesCommission prior to commencing operations. The company also had to pay an annualtax, graduated according to the number and capacity of the vehicles used. See id. at555–56. The Court stated that the tax did not discriminate against interstate commercebecause highways are public property. See id. at 557. Its users are subject to state regu-lation “to ensure safety and convenience and the conservation of the highways.” Id. Evenif a tax is used for other purposes, it is constitutional if it has a “proper purpose and isnot objectionable in amount[;] the use to which the proceeds are put is not a matterwhich concerns [those charged the fee].” Id.

Dixie Ohio Express addressed the Georgia Maintenance Tax Act. 306 U.S. at 73.The statute imposed a tax on each motor vehicle not for hire: $15 on each one and onehalf ton vehicle, $30 on each two ton vehicle, and $30 on each trailer. See id. at 74.When used for hire, taxes were $50, $75, and $30, respectively. See id. The money wentto the maintenance of United States rural postal roads and not to the highways. See id.at 75.

The Court held that the statute did not discriminate against interstate com-merce. See id. at 77. The amount of the charges for using the highways and the meth-ods of collecting those charges were left to the states so long as they were reasonableand did not burden interstate commerce. See id. at 76. The statute did not impose a feeon the privilege or business of interstate commerce; its clearly stated purpose was tocollect compensation for the privilege of operating vehicles on state roads. See id. at 77.A state does not offend the Commerce Clause if it “chooses to use part or all of the pro-ceeds for purposes other than the construction, improvement, or maintenance of its high-ways.” Id. In addition, the Court found that the appellants did not fulfill the burden ofproving that their use of this state's highways did not equal the amount of the fee. Seeid. at 78.

If the Commerce Clause is used as the basis for invalidatinguser fees, the challenge will most likely be based on discrimination.A state tax is “discriminatory if it `tax[es] a transaction or incidentmore heavily when it crosses state lines than when it occurs entirelywithin the State.'”281

C. History of Flat User Fees

1. Special Revenue Statutes — Taxing the Privilege of Use

Highway user fees have had a lengthy history of constitutionalscrutiny.282 Concepts developed to assure the constitutionality ofhighway user fees imposed on interstate motor carriers are instruc-


283. Highway user fees are higher than most user fees because of the tremendousassociated costs. See generally Capitol Greyhound Lines v. Brice, 339 U.S. 542, 544(1950); Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 506 (1947);Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285, 289 (1935).

284. User taxes are generally flat for ease of collection. For a discussion of user feesthat are graduated or specially computed, see the cases cited in infra notes 286, 288.

285. See Hendrick v. Maryland, 235 U.S. 610, 623–24 (1915). In Hendrick, the MotorVehicle Law of Maryland mandated that vehicle owners pay an annual registration feedetermined by the vehicle's horsepower. See id. at 619. Nonresidents of Maryland wereexempt from this rule for 14 days under certain conditions, but residents of the Districtof Columbia were not included in the exemption. See id. at 620. The state used the feesfor construction, maintenance, and repair of the streets of Baltimore as well as stateroads. See id. The Court held that the statute did not discriminate against interstatecommerce because highways are inherently dangerous and public safety depended onproper maintenance. See id. at 622. Roads must be improved to meet the needs of thegrowing public who use them. See id. Additionally, the plaintiff failed to produce evi-dence of the fee's unreasonableness. See id. at 624.

286. See Interstate Transit, Inc. v. Lindsey, 283 U.S. 183, 186 (1931). The statute inthis case provided a graduated fee imposed upon operating interstate motor busses basedon seating capacity for the privilege of operating on the highways. See id. at 185. TheCourt held that the statute discriminated against interstate commerce. See id. at 190. Astate cannot impose a tax on the privilege of interstate commerce, but can impose a feefor the use of its highways and their maintenance. See id. at 185.

287. See Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285,289 (1935).

288. See Kane v. New Jersey, 242 U.S. 160, 168–69 (1916) (addressing the validityof New Jersey automobile law of 1906). The statute in Kane provided that no personshall drive a vehicle upon the state's highways unless they had been licensed and theautomobile had been registered. See id. at 164. The fee was graduated based upon horse-

tive because highway user fees represent the type of user fee mostoften challenged and, correspondingly, most often studied.283 Thefollowing series of cases provides a mechanism to evaluate theevolution of legal principles governing user fees.284

Graduated flat fees on highway use have been sanctioned since1915.285 Early decisions of the United States Supreme Court re-quired highway user fees to be fairly related to the services providedby the state.286 By 1935, however, the Court sanctioned completelyflat user taxes imposed on the “use” or the “privilege of use” of high-ways.287 It was considered impossible to account for all of the factorscontributing to the cost of providing a highway system. The adminis-trative difficulties of matching the cost of providing the highwaysystem to a specific user outweighed potential error in assignment ofthe expense.

Interstate motor carriers have had designs on actual mileage-based user systems since the beginning of the century.288 Their argu-


power. See id. The fees generated helped to maintain the Motor Vehicle Department,and any excess went to highway improvements. See id. The statute did not discriminateagainst interstate commerce because the state has a “right to exact reasonable compen-sation for special facilities afforded as well as reasonable provisions to ensure safety.” Id.at 167.

289. The tax must be in the form of reimbursement for the cost of providing publichighways. See Ingels v. Morf, 300 U.S. 290, 294 (1937). The act at issue in Ingels im-posed a fee of $15 on caravans that was paid into the general fund of the state treasuryfor administrative expenses as well as policing the highways to provide for safety oftraffic where caravaning was being conducted. See id. at 292–93. The Court held thatthe statute burdened interstate commerce. See id. The statute's declared purpose was toadminister the act and police the highways. See id. at 295. The Court held that theState cannot declare another purpose when the statute states otherwise. See id. at 296.Additionally, the appellee met its burden by showing that the fees were unreasonable inrelation to its purpose and the fees collected. See id. at 296–97; cf. Morf v. Bingaman,298 U.S. 407, 408–12 (1936) (addressing chapter 56 of the New Mexico Session Laws of1935). The statute required a permit to sell autos within the state at the cost of $7.50, iftransported under their own power, and $5.00 if towed or drawn by another vehicle. Seeid. at 409. The statute also taxed auto-sellers for transporting cars over state roads. Seeid. at 408. The Court found the statute did not discriminate against interstate com-merce. See id. at 410. Unlike Interstate Transit, the statutory language in Morf identi-fied the fee as a charge for the privilege of using the state's highways. See id.

290. Aero Mayflower Transit Co. v. Georgia Pub. Serv. Comm'n, 295 U.S. 285, 289(1935) (citations omitted).

ments have had no weight because the charge imposed to travel on aparticular road was not a levy on the actual use of the roads, butupon the privilege of using the roads.289 Thus, the actual amount ofroad use was irrelevant. The “privilege doctrine” permitted the mo-tor carrier to make as extensive a use of the road as desired. Themotor carrier's individual choice of business routes determined thecost per mile. The Supreme Court stated:

The [flat] fee is for the privilege for a use as extensive as the carrierwills that it shall be. There is nothing unreasonable or oppressivein a burden so imposed. One who receives a privilege without limitis not wronged by his own refusal to enjoy it as freely as he may.290

Early opinions also differentiated between exactions imposed bygeneral revenue statutes and those imposed by special revenue stat-utes. This distinction resulted in two lines of cases. Special revenuefunds are generated by fees which could be utilized solely to providethe facilities offering the privilege of use. A statute creating a spe-cial revenue fund had to satisfy a unique test. The test was firstclearly articulated in Evansville-Vanderburgh Airport Authority


291. 405 U.S. 707, 716–17 (1972).292. See generally Sprout v. City of S. Bend, 277 U.S. 163 (1928) (basing a gross

receipts tax on seating capacity). The opinion suggested that the tax would have beenconstitutional if the revenue had been specifically segregated for highway use. See id. at171.

293. 430 U.S. 274, 279 (1977).294. The separate and distinct qualifications for the different funds were:

Aero Mayflower Complete Auto (special revenue) (general revenue) (1) Nexus (implied) (1) Nexus (2) Fair approximation of use (2) Apportionment

(all incidents taking place in-state)(3) No Discrimination (3) Discrimination (4) Not manifestly disproportionate (4) Fairly related

or excessive

Compare Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 501–02(1947), with Complete Auto, 295 U.S. at 279.

295. 483 U.S. 266 (1987).296. See id. at 295–96.297. 295 U.S. 285 (1935). The litigation involved Georgia's Motor-Carrier Act of

1931, which provided that a private carrier for hire must “apply for and obtain from thePublic Service Commission a certificate of public convenience and necessity . . . mustpay a registration and license fee of $25 for every vehicle so operated.” Id. at 287. Pro-ceeds were devoted to highway repair and maintenance. See id. at 287. The Court heldthat the fee did not unlawfully burden interstate commerce because it was moderate,

District v. Delta Airlines, Inc.291 Fees or taxes generating generalrevenue funds that inure to general public use were subjected to adifferent test292 which the Court ultimately articulated in CompleteAuto.293

Litigation subsequent to Evansville-Vanderburgh Airport andComplete Auto appears to maintain the separate test scheme.294

However, the opinion rendered in American Trucking Ass'ns v.Scheiner295 makes the argument plausible that the separate tests forfees generating special revenue funds and general revenue fundshave been merged.296 The four-prong test established in CompleteAuto remains the archetypal test, but it is unclear whether it is nowthe sole test for determining the constitutionality of state taxes im-posing fees for the exercise of a privilege under the CommerceClause.

An attempt to ascertain the current test of constitutionality ofuser fees is aided by a study of the refinement of principles of themajor user fee cases. In 1935, the Court in Aero Mayflower TransitCo. v. Georgia Public Service Commission297 sanctioned a twenty-


“exacted without hostility to foreign or interstate transactions,” and imposed “upon do-mestic vehicles operated in like conditions.” Id. at 289.

298. See id. Flat highway taxes were held not to impermissibly discriminate againstout-of-state carriers engaged in interstate commerce because: (1) A tax precisely cali-brated to the wear and tear caused to the highways by a particular vehicle would not beadministratively feasible; (2) the taxes at issue were imposed for the privilege of usingthe highways rather than for their actual use; (3) out-of-state vehicles could not com-plain if they failed to avail themselves of the opportunity to use the roads as much asin-state vehicles; and (4) the taxes at issue were not burdensome to interstate carriers.See id.

299. Id.300. 332 U.S. 495 (1947). The Court interpreted Montana's Motor Carriers Act,

which provided “a flat tax of $10 for each vehicle operated by a motor carrier over thestate's highways, payable on issuance of a certificate or permit, which must be securedbefore operations begin and annually thereafter.” Id. at 496. The act also imposed anannual fee of $15. See id. at 497. The funds “were allocated to the state's general fund.”Id. The state, however, imposed the fee “in consideration of the use of the highways ofthis state.” Id. at 501 (citation omitted). The statute did not discriminate against inter-state commerce because each fee applied to both local and interstate operations. See id.

In American Trucking Ass'ns v. Scheiner, 483 U.S. 266 (1987), the trucking in-dustry argued that the industry had changed, becoming more interstate and competitive.Brief for Appellant at 45, Scheiner (No. 86-357). The economic impact of multiple taxesenacted by numerous states increased substantially. See id. at 46. Thus, the truckingindustry argued that Aero Mayflower Transit Co. v. Board of R.R. Comm'rs was appro-priate. See id. at 45–48.

301. Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495, 506 n.19(1947) (citations omitted).

five dollar flat tax for the use of Georgia's state roads.298 The Courtconcluded that collecting a tax on a proportionate, per-mileage basiswould produce “administrative difficulties.”299 In 1935, it was ex-tremely difficult to document a particular carrier's use of the roadsin Georgia.

The Court in Aero Mayflower Transit Co. v. Board of RailroadCommissioners,300 refused to invalidate a non-mileage related statetax. The Supreme Court upheld the tax because to invalidate it:

[W]ould mean that a state could never impose a minimum fee, butwould have to adjust its taxes to the inevitable variations in the useof the highways made by various carriers. The Federal Constitutiondoes not require the state to elaborate a system of motor vehicletaxation which will reflect with exact precision every graduation inuse. In return for [a] $15 fee, appellant can do business grossing$3,000 per vehicle annually for operations on Montana roads.Appellant was not wronged by its failure to make the full use of thehighways permitted.301


302. 339 U.S. 542 (1950).303. See id. at 548. This is an example of a special revenue statute.304. See id. at 543. Jerome Hellerstein offers this definition of the formal structure

of a tax:A workable definition of the subject of a tax is (1) the property taxed in thecase of a property tax; (2) the activity, event, privilege or specific property righttaxed in the case of an excise tax; and (3) the income received or accrued inthe case of an income tax.

JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE AND LOCAL TAXATION 31 (5th ed.1988). “The measure of a tax is the yardstick or base to which the tax rate is applied.”Id.

305. Capitol Greyhound, 339 U.S. at 544.306. Id. at 546–47.307. Id. (citation omitted).308. Id. at 547. Carriers will succeed in challenging state road taxes only if they

prove that the total state taxes are out of line with fair compensation due to the state.See id.

In Capitol Greyhound Lines v. Brice,302 the Court rejected achallenge to a Maryland tax that allocated proceeds specifically tohighway use.303 The base of the tax was the fair market value of thevehicle.304 This tax base was obviously suspect. There seemed to beno correlation between the expense of providing a state highwaysystem and the value of a vehicle using it. Not surprisingly, thestatute was challenged. The Court acknowledged the existence of“innumerable factors bearing on the fairness of compensation” re-quired from motor carriers.305 The Court refused to select one factor,such as mileage, as the talisman for curing inequities in a statetaxing scheme.

The Court explicitly rejected the argument that the Marylandtax was unsound because it lacked “uniformity among carriers inrelation to road use.”306 The tax's lack of precision was not confound-ing to the Supreme Court because:

Complete fairness would require that a state tax formula vary withevery factor affecting appropriate compensation for road use. Thesefactors . . . are so countless that we must be content with roughapproximation rather than precision. Each additional factor adds toadministrative burdens . . . . [which we recognize] may be sufficientto justify states in ignoring even such a key factor as mileage.307

The Court's rather rudimentary test determined whether thetotal amount of the tax was “shown to be in excess of fair compen-sation for the privilege of using state roads.”308 Fair market value,


309. See id. at 546. When the entire taxing scheme is considered, “the total chargeas among carriers does vary substantially with the mileage traveled.” Id.

Maryland v. Louisiana, 451 U.S. 725 (1981), reaffirmed the concept that “[a]state tax must be assessed in light of its actual effect considered in conjunction withother provisions of the State's tax scheme.” Id. at 756.

310. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.707, 709 (1972). The money collected was for the maintenance of the airport. See id. TheSupreme Court stated: “Our inquiry is whether the use of airport facilities occasioned byenplanement is a permissible incident on which to levy these fees.” Id. at 714–15. Theinquiry in Evansville-Vanderburgh Airport focused on nexus and proportionality. See id.at 716–17. Those fees applied to all individuals, regardless of their residence, and weredirectly related to the individual's presence at the airport and use of the facilities. Seeid. at 717.

311. See id.312. Id. at 713–14 n.6 (quoting Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602,

607 (1951)). The Spector case involved a different type of tax. See id., 340 U.S. at 603.In Spector, a “state tax construed as falling `upon the privilege of carrying on a businessthat was exclusively interstate in character'” was the issue. Evansville-Vanderburgh Air-port, 405 U.S. at 713–14 n.6 (quoting Spector, 340 U.S. at 609).

313. See Evansville-Vanderburgh Airport, 405 U.S. at 715. “[A] State may impose aflat fee for the privilege of using its roads, without regard to the actual use by particularvehicles, so long as the fee is not excessive.” Id. at 715.

314. Id. at 714.315. Id. at 716 (citation omitted).316. Id. at 716–17.

when viewed in combination with other mileage-based taxes im-posed by Maryland, was a constitutionally acceptable base for thetax.309

Evansville-Vanderburgh Airport involved a one dollar fee im-posed on each passenger enplaning commercial aircraft at DressMemorial Airport.310 The Court held that the statute was not an un-reasonable burden on interstate commerce.311 Evansville-Vanderburgh Airport explicitly recognized the distinction of the lineof cases involving a tax “levied as compensation for the use of high-ways.”312 The Court characterized its earlier highway toll opinions as“instructive.”313 “[A] charge designed only to make the user of state-provided facilities pay a reasonable fee to help defray the costs oftheir construction and maintenance may constitutionally be imposedon interstate and domestic users alike.”314 The fee “must reflect a`uniform, fair and practical standard' relating to public expendi-tures, it is the amount of the tax, not its formula, that is of centralconcern.”315 The toll must be “based on some fair approximation ofuse or privilege for use.”316 Moreover, the toll must neither discrimi-nate against interstate commerce nor exceed the governmental


317. Id. at 717.318. 435 U.S. 444 (1978). In Massachusetts v. United States, there was no Commerce

Clause issue. The issue was the constitutional doctrine of implied immunity of stategovernment from federal taxation. See id. at 446.

319. See id. at 449–50. The statute in question was the Airport and Airway RevenueAct of 1970 which required payment of an annual registration tax “on all civil aircraft —including those owned by State and National Governments — that fly in the navigableairspace of the United States.” Id. at 449–50. “The amount of the annual [fee] dependsupon the type and weight of the aircraft.” Id. at 450.

320. Id. at 451 n.9.321. Massachusetts v. United States, 435 U.S. at 462.322. Id.323. Id.324. Id. at 463 (quoting Capitol Greyhound Lines v. Brice, 339 U.S. 542, 545 (1950)).

“The requirement that total revenues not exceed expenditures places a natural ceiling onthe total amount that such charges may generate and the further requirement that themeasure be reasonable and nondiscriminatory precludes the adoption of a charge thatwill unduly burden state activities.” Id. at 467.

325. See Massachusetts v. United States, 435 U.S. at 466.

benefit conferred. However, discrimination does not occur because“some other formula might reflect more exactly the relative use ofthe state facilities by individual users.”317 There was no suggestionof individually evaluating the extent of an individual's consumptionof the facility or the extent the privilege was offered or used.

The Court reaffirmed Evansville-Vanderburgh Airport in Mas-sachusetts v. United States.318 The State of Massachusetts imposedregistration fees on aircraft.319 The statute did not discriminateagainst interstate commerce because the registration tax was im-posed to recover part of the marginal cost by the possible user, “andto ensure that the fee system reflects in some manner the addition-al costs that heavier and faster . . . aircraft impose upon it.”320 Reve-nue measures that “operate only to compensate a government forbenefits supplied” do not offend the Commerce Clause.321 “A govern-mental body has an obvious interest in making those who specifical-ly benefit from its services pay the cost . . . .”322 The charge should be“structured to compensate the government for the benefit con-ferred.”323 A tax “`should be judged by its result, not its formula, andmust stand unless proven to be unreasonable.'”324 The administra-tive costs of ascertaining actual costs leads to a higher fee than set-ting a flat fee.325

The Massachusetts v. United States opinion relied extensively onearlier flat tax decisions to evaluate the validity of the challengedfee. The Court limited its analysis to fees generating special revenue


326. See id. at 463–67.327. See id. at 464. Reasonable compensation was generally not disputed unless the

amount was so large that it was suspect. See id. (quoting Capitol Greyhound Lines, 339U.S. at 547).

328. These cases may also rely, in part, on the privilege doctrine, the principle thatlocal governments may not impose taxes on the right of interstate merchants to “do busi-ness” within their jurisdiction. See Nippert v. Richmond, 327 U.S. 416, 420 (1945); Best& Co. v. Maxwell, 311 U.S. 454, 456 (1940); Sprout v. City of S. Bend, 277 U.S. 163, 168(1928); Robbins v. Shelby County Taxing Dist., 120 U.S. 489, 496–97 (1887).

The Supreme Court has observed “that the rule of Robbins v. Shelby CountyTaxing District . . . has been narrowly limited to fixed-sum license taxes imposed on thebusiness of soliciting orders for the purchase of goods to be shipped interstate.”McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 57 (1940).

329. 120 U.S. 489 (1887). For further discussion of Robbins, see supra notes 268–72and accompanying text.

330. See id. at 498–99.331. See id. at 490–91.332. Id. at 498.333. Id.334. 277 U.S. 163 (1928).

funds. The opinion did not cite a single case involving general reve-nue funds.326 The Massachusetts v. United States decision clearlyconfirmed that states are free to levy a nondiscriminatory,nonexcessive fee for the use of public facilities.327

2. General Revenue Statutes — Taxing the Use

As the Aero Mayflower line of cases relating to special revenueuser fees developed, there was a parallel line of litigation targetinggeneral revenue flat privilege taxes.328 Because the taxes were notproportioned on the extent of contact between the taxing jurisdictionand the subject of taxation (usually a merchant), they were heldunconstitutional.

In Robbins v. Taxing District,329 the United States SupremeCourt ruled a flat tax with a discriminatory impact on out-of-statebusiness was unconstitutional.330 The so-called “drummer's tax” wasfacially neutral. The tax was imposed on persons engaged in the saleof goods in Memphis who did not have a fixed place of business inthe city.331 The tax “discriminat[ed] against the merchants and man-ufacturers of other states.”332 “This [type] of taxation is usually im-posed at the instance and solicitation of domestic dealers, as ameans of protecting them from foreign competition.”333

In Sprout v. City of South Bend,334 the Court overturned a city


335. See id. at 171–72.336. A city motor bus ordinance “prescrib[ed] license fees [that varied] with the seat-

ing capacity of the bus.” Id. at 167.337. Id. at 170.338. Id.339. 311 U.S. 454, 456–57 (1940).340. See id.341. See id. at 456.342. See id.343. 327 U.S. 416 (1946).344. Id. at 417.345. See id. at 417–18, 434.346. A $50 flat fee was imposed, in addition to a 0.5% tax on gross earnings. See id.

at 418.347. Id. at 427. It is “common knowledge” that local commercial influences induce

licensing fee for buses.335 This statute was also facially neutral.336 Itdiscriminated against out-of-state companies because the tax was“the same for busses [sic] plying the streets continuously in localservice and for busses [sic] making, as do many interstate busses[sic], only a single trip daily.”337 Importantly, but not surprisingly,the Court implied that the standard for nondiscrimination in opera-tion may be different if the fee revenue has been “applied to the con-struction or maintenance of the city streets.”338 At the time Sproutwas decided, a clear delineation existed between general revenueand special revenue taxes and fees.

The Court followed the Robbins and Sprout precedents in strik-ing down a facially neutral privilege tax on itinerant sellers in Best& Co. v. Maxwell.339 The objectionable pattern was repeated. Out-of-state businesses paid a disproportionately large amount of taxes.340

There was no relation between the amount of the tax and the com-pany's actual activities in the state.341 The Court declared the taxunconstitutionally discriminatory.342

In Nippert v. City of Richmond,343 the Court adhered to the hold-ings of the so-called “drummer” cases. The Court followed its now“long line”344 of general revenue opinions to invalidate a flat tax onsolicitors that discriminated against out-of-state merchants.345 InNippert, the City of Richmond imposed an annual license tax for theprivilege of soliciting business in the city.346 The Court observedthat, with respect to the fifty-dollar flat fee, “a single act of . . . solic-itation would bring the [flat tax] into play” and that the tax “inher-ently bore no relation to the volume of business done or of returnsf r o m i t . ” 3 4 7 T h e C o u r t o b j e c t e d t o t h e t a x ' s i n


adoption of this type of statute because: “Provincial interests and local political powerare at their maximum weight in bringing about acceptance of this type of legislation.”Id. at 434.

The Court has cited Nippert with approval in recent opinions. See, e.g., AmericanTrucking Ass'ns v. Scheiner, 483 U.S. 266, 296 (1987); Capital Cities Cable, Inc. v. Crisp,467 U.S. 691, 713 (1984); Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 403 (1984);Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615, 626, 629 (1981); Boston StockExch. v. State Tax Comm'n, 429 U.S. 318, 329 (1977).

348. Nippert, 327 U.S. at 430–31. The Court applied principles of both the third andfourth prongs of the Complete Auto test to invalidate the $50 flat tax at issue. See id. at431, see also supra note 261.

349. 430 U.S. 274 (1977).350. See id. at 288–89, see also discussion infra section IV.D.2.351. See id. at 275.352. See id. at 288–89. Complete Auto eliminated the artificial classification of taxes

according to the label assigned to a statute by the state. See id. at 288. The test is “astandard of permissibility of state taxation based upon its actual effect rather than itslegal terminology.” Id. at 281.

353. Complete Auto, 430 U.S. at 279, 281. For an excellent summary of the historyof the immunity of privilege taxes from state taxes, see Complete Auto, 430 U.S. at278–87.

terference with commerce because:

[A] flat license tax annually imposed lacking any proportion to thenumber or length of visits or the volume of the business or return,can only mean the stoppage of a large amount of commerce whichwould be carried on either in the absence of the tax or under theincidence of one taking account of these variations.348

This second line of cases invalidated general fund state tax stat-utes that discriminated against interstate commerce either faciallyor in operation. Facial discrimination is not difficult to discern. Evenif the statute is neutral in its application, the operating effect of thetax may favor in-state over out-of-state interests. Such a statute isequally infirm but more difficult to identify.

In Complete Auto Transit, Inc. v. Brady,349 the Court eliminatedthe interpretation of Commerce Clause principles granting immuni-ty from state taxes imposed on the privilege of conducting interstatebusiness.350 Complete Auto involved a challenge to a Mississippi stat-ute imposing a sales tax on the privilege of doing interstate businessin that state.351 The Court explicitly overruled prior law and upheldthe levy.352 The privilege doctrine was abolished in favor of observingeconomic realities and the rationale that interstate commerceshould “pay its way.”353


354. See id. at 279, 288–89.355. See id. at 279.356. See id.; see, e.g., General Motors Corp. v. Washington, 377 U.S. 436, 441 (1964);

see also State v. Quill Corp., 470 N.W.2d 203, 216 (N.D. 1991). This requirement is simi-lar to the state's personal service jurisdiction examined in the early tax case, Interna-tional Shoe Co. v. Washington, 326 U.S. 310, 321 (1945). The State of Washington waspermitted to exercise in personam jurisdiction over International Shoe's activities becausethey were systematic and continuous. For Commerce Clause purposes, there is no sub-stantial nexus requirement for a state to impose a use tax when a solicitor seeks salessolely through the mail or by common carrier. See Quill, 470 N.W.2d at 418.

357. See id.; Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 115 S. Ct. 1331 (1995)(sustaining a sales tax imposed by the State of Oklahoma on bus tickets from Oklahomato an out-of-state destination).

358. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).359. See id.360. See, e.g., Commonwealth Edison Co. v. Montana, 453 U.S. 609, 617 (1981);

Maryland v. Louisiana, 451 U.S. 725, 754 (1981).361. The uncertainty is not unique. Footnote 37 in Crane v. Commissioner, 331 U.S.

1, 13–14 (1947), inspired controversy for years. The puzzle was whether the full amountof nonrecourse debt should be included in the “amount realized” for I.R.C. § 1001(b)purposes if the fair market value of the property is less than the amount of the obliga-tion. Commissioner v. Tufts, 461 U.S. 300, 307 (1983), resolved the issue by finding fairmarket value irrelevant in the analysis.

362. 453 U.S. 609 (1981). Complete Auto cited six cases as antecedents of the four-part test. 430 U.S. at 278 n.6. Two of the cited cases involved special revenue highwayuser taxes similar to Pennsylvania's axle tax: Clark v. Paul Gray, Inc., 306 U.S. 583(1939), and Ingels v. Morf, 300 U.S. 290 (1937).

In Clark, the California Caravan Act of 1937 required a fee of $15 for each auto-mobile driven into the state for sale. See 306 U.S. at 585–86. The fees were to be usedto “`reimburse the State for expense incurred in administering police regulations . . . and to public safety upon the highways' . . . the other is `compensation for the privilege

Complete Auto discarded the distinction placed on “privilege”taxes.354 State taxes must comply with a four-prong test.355 First,Complete Auto required a “substantial nexus” between the taxingstate and the contact or activity which forms the basis for the tax.356

Second, a tax must be “fairly apportioned” to the activity within thetaxing state.357 Third, a tax may not “discriminate against interstatecommerce.”358 The final requirement of the test stipulated that thetax must be “fairly related” to the services and benefits provided bythe state.359

Although the Supreme Court has reiterated the Complete Autotest in almost every subsequent case challenging a state tax underthe Commerce Clause,360 it did not explicitly state that the test wasuniversal or if the special revenue test articulated by Evansville-Vanderburgh Airport remained viable.361 Complete Auto cited twospecial revenue flat fee cases, implicitly reaffirming their viability.362


of using the public highways.'” Id. at 586 (quoting The Caravan Act of 1937). Two excep-tions are those vehicles moving into the northern or southern zones of the state. See id.at 586–87.

The Court held that the statute does not discriminate against interstate com-merce because “states have constitutional authority to exact reasonable fees for the useof their highways by vehicles moving interstate.” Id. at 593 (citing Dixie Ohio ExpressCo. v. State Revenue Comm'n, 306 U.S. 72 (1939); see also Morf v. Bingaman, 298 U.S.407 (1936); Sprout v. City of S. Bend, 277 U.S. 163 (1928); Clark v. Poor, 274 U.S. 554(1927); Kane v. New Jersey, 242 U.S. 160 (1916); Hendrick v. Maryland, 235 U.S. 610(1915)).

States “may classify [a] vehicle[ ] according to the character of the traffic and theburden it imposes on the state by that use” but the charge for the use may not beunreasonable or excessive. Clark, 306 U.S. at 593–94 (citing Dixie Ohio Express Co., 306U.S. at 72); see also Morf, 298 U.S. at 413; Hicklin v. Coney, 290 U.S. 169 (1933); Con-tinental Baking Co. v. Woodring, 286 U.S. 352, 370–71 (1932)). This is a “legislative, nota judicial,” question. See Clark, 306 U.S. at 594. In addition, “the Fourteenth Amend-ment does not require classification for fees . . . to follow any particular form or words.”Id. at 595. The burden of proof that the fee is excessive is on the party questioning thestatute. See id. at 600. “If the fees charged do not appear to be manifestly disproportion-ate to the services rendered,” the Court cannot determine that they are excessive solelyfrom its knowledge or experience. See id.

363. 453 U.S. 609 (1981).364. See id. at 612.365. See id. at 620–21.366. See id. at 621.367. See id.368. See id. at 626, 629.

Coupling these cases with general revenue tax cases without distinc-tion may suggest a merging of the analyses of Evansville-Vanderburgh Airport and Complete Auto.

Subsequent cases have not specifically addressed the issue andare ambiguous. In Commonwealth Edison Co. v. Montana,363 a chal-lenge to the Montana coal severance tax, a general revenue tax, wasinitiated.364 The appellant alleged that the tax violated the fourthprong of the Complete Auto test, describing it as excessive in relationto the services provided by the State.365 The appellant relied on theexcessiveness limitation applicable in the user fee cases.366 In reject-ing the appellant's position, the Court held that the Montana sever-ance tax was a general revenue tax rather than a user charge.367 Assuch, the amount of the tax did not have to be tied to the value ofthe services provided to the company or the costs incurred by theState resulting from the mining companies' presence in the state.368

The measure of the tax must bear a reasonable relation to thetaxpayer's presence and,


369. Commonwealth Edison, 453 U.S. at 625–26 (quoting Western Live Stock v.Bureau of Revenue, 303 U.S. 250, 254 (1938) (footnotes and citations omitted)). As aresult, a taxpayer may not challenge a tax as “unreasonable in amount for the privilegegranted” as suggested in Capitol Greyhound Lines v. Brice, 339 U.S. 542, 545 (1950). SeeCommonwealth Edison, 453 U.S. at 627–28.

370. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 445 (1979); see Com-monwealth Edison, 453 U.S. at 629.

371. See Commonwealth Edison, 453 U.S. at 618. The appellants argued that be-cause 90% of the coal was shipped out of state, the tax was discriminatory. See id. at617.

[t]he relevant inquiry under the fourth prong of the Complete AutoTransit test is not, as appellants suggest, the amount of the tax orthe value of the benefits allegedly bestowed as measured by thecosts the State incurs on account of the taxpayer's activities. Rath-er, the test is closely connected to the first prong of the CompleteAuto Transit test. Under this threshold test, the interstate businessmust have a substantial nexus with the State before any tax maybe levied on it. Beyond that threshold requirement, the fourthprong of the Complete Auto Transit test imposes the additionallimitation that the measure of the tax must be reasonably relatedto the extent of the contact, since it is the activities or presence ofthe taxpayer in the State that may properly be made to bear a “justshare of state tax burden.”369

What is clearly apparent in Commonwealth Edison is that theCourt refused to mandate a review of a general revenue tax for anacceptable rate or level of taxation of activities to satisfy the “fairlyrelated” standard. Under the holding, all that a state is required toprovide the taxpayer is the “benefits of a trained work force and theadvantages of a civilized society.”370 Commonwealth Edison reaf-firmed Complete Auto. It has been alleged that Commonwealth Edi-son removed the substance from the fourth prong of the CompleteAuto test. Undoubtedly, the impact of the fourth prong of the Com-plete Auto test is now severely limited in general revenue statutes.

In Commonwealth Edison, the Court also rejected theappellants' allegations of discrimination. A tax burden primarilyborne by out-of-state consumers does not make a tax discrimina-tory.371 The tax burden did not shift as a result of a distinction be-tween in-state and out-of-state consumers. The State measured thetax by the amount of coal consumed. Commonwealth Edison ac-cepted this measure as a proportional tax clearly satisfying thefourth prong of the Complete Auto test:


372. Id. at 628–29 (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495,522 (1937)).

“[T]he incidence of the tax as well as its measure [must be] tied to the earningswhich the State . . . has made possible, insofar as government is the prerequisite for thefruits of civilization for which, as Mr. Justice Holmes was fond of saying, we pay taxes.”Id. at 626 (quoting Wisconsin v. J.C. Penney Co., 311 U.S. 435, 446 (1940)).

373. See Commonwealth Edison, 453 U.S. at 627.374. The Court stated: “We are satisfied that the Montana tax, assessed under a

formula that relates the tax lability to the value of appellant coal producers' activitieswithin the State, comports with the requirements of the Complete Auto Transit test.” Id.at 629.

375. See id. at 626.376. See id. at 622 n.12. The standard in Commonwealth Edison was determined to

be fairly apportioned with a standard which is both externally and internally consistent.See id. at 629.

377. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.707, 719–20 (1972).

Rather, when the measure of a tax is reasonably related to thetaxpayer's activities or presence in the State . . . the taxpayer willrealize, in proper proportion to the taxes it pays, “[t]he only benefitto which the taxpayer is constitutionally entitled, . . . that derivedfrom his enjoyment of the privileges of living in an organized soci-ety, established and safeguarded by the devotion of taxes to publicpurposes.”372

Does Commonwealth Edison stand for the proposition that allstate taxes must be proportional in order to meet the fourth part ofthe Complete Auto test? The quoted dictum in Commonwealth Edi-son clearly stated that a proportional general revenue tax meets thefourth prong of the Complete Auto test.373 The Court characterizedMontana's coal severance tax as acceptable because its measure isproportional to the taxpayer's mining activity within the state. Thetax is measured by the value of coal taken in Montana, an appro-priate standard.374 Therefore, the tax is fairly related to the servicesprovided by the State.375

Whether this language specifically and invariably requires pro-portionality is subject to some disagreement.376 The Evansville-Vanderburgh Airport standard requires user fees to be nonexcessive,a very different standard.377 The opinion in Commonwealth Edisondifferentiates between principles of constitutional law solely rele-vant to user fees as opposed to general revenue taxes. The Courtstated:


378. Commonwealth Edison, 453 U.S. at 621 (citation and footnote omitted).379. See, e.g., Evansville-Vanderburgh Airport, 405 U.S. at 709; Clark v. Paul Gray,

Inc., 306 U.S. 583, 586 (1939); Ingels v. Morf, 405 U.S. 291, 292 (1936).380. The cost of providing the facility provides a natural ceiling on the total amount

of revenue which can be collected from such a tax.As the Court has stated, “such imposition, although termed a tax, cannot be

tested by [the same] standards which generally determine the validity of taxes.” Inter-state Transit, Inc. v. Lindsey, 283 U.S. 183, 190 (1931). “Because such charges are pur-portedly assessed to reimburse the State for costs incurred in providing specific quantifi-able services, we require[ ] a showing, based on factual evidence in the record, that “thefees charged do not appear to be manifestly disproportionate to the services ren-dered . . . .” Commonwealth Edison, 453 U.S. at 622 n.12 (quoting Clark, 306 U.S. at599); see Morf, 300 U.S. at 296–97.

The matter of a rate of tax is uniformly held to be within the discretion of theLegislature. See Commonwealth Edison, 453 U.S. at 627 (citing Helson v. Kentucky, 279U.S. 245, 252 (1929)); cf. City of Pittsburgh v. Alco Parking Corp., 417 U.S. 369 (1974)(stating that the Court will not determine the reasonableness of a tax within Congress'power); A. Magnano Co. v. Hamilton, 292 U.S. 40 (1934) (finding that the legislature'smotive for levying a tax is outside the scope of judicial review).

381. The sharing of the just burden of the state tax burden has already been ap-

The Montana Supreme Court held that the coal severance tax is“imposed for the general support of the government.” [A]nd we haveno reason to question this characterization of the Montana tax as ageneral revenue tax. Consequently, in reviewing appellants' conten-tions, we put to one side those cases in which the Court reviewedchallenges to “user” fees or “taxes” that were designed and de-fended as a specific charge imposed by the State for the use ofstate-owned or state-provided transportation or other facilities andservices.378

Each of the cases the Court cited in the foregoing passage in-volved a user fee imposed on transportation.379 Did this passagesignify that user fees are exempt from the Complete Auto test? TheCourt may have put such cases to one side solely to make it clearthat user taxes would remain subject to the Evansville-VanderburghAirport analysis; or the language may indicate that the excessive-ness requirement, outlined in Evansville-Vanderburgh Airport, is anadditional and distinctive inquiry required under the Complete Autotest for special revenue taxes.

User charges do have a definitive limitation on excessiveness.380

The amount of tax, not its formula, is important. If it is concludedthat Complete Auto applies to special revenue fees, the fourth prongof the test stil l has substance.3 8 1 If not so inter


plied in determining the fairness of fees. See generally Reidy Terminal, Inc. v. Directorof Revenue, 898 S.W.2d 540 (Mo. 1995) (en banc).

382. See PAUL J. HARTMAN, FEDERAL LIMITATIONS ON STATE AND LOCAL TAXATION

665–66 (1981).383. 483 U.S. 266 (1987). See generally Robert J. Borrello, American Trucking

Associations v. Scheiner: Truckers Challenge Pennsylvania's Highway User Fees Underthe Dormant Commerce Clause, 41 U. MIAMI L. REV. 1117 (1987).

384. See Scheiner, 483 U.S. at 297. Whether the opinion in Scheiner related toapportionment, discrimination, or a claim that the taxes are not fairly related to theservices provided by the state, remains unclear.

385. See id. at 274 (citing 75 PA. CONS. STAT. § 9902 (1984)).386. See id.387. See id. at 274–75.388. See id. at 285.389. See Scheiner, 483 U.S. at 285. 390. See id. at 292–94.

preted, the fourth prong has little present viability.

3. Application of Discrimination Concepts to Special Revenue UserFees — The Scheiner Opinion

The highway user-fee opinions established a set of applicableconsiderations different from those applied to general revenue taxes,reflecting the unique nature of user fees.382 In American TruckingAss'ns v. Scheiner,383 the United States Supreme Court abandonedover a half century of precedent. It struck down Pennsylvania's flatannual highway tax as it applied to truckers engaged in interstatecommerce.384 Pennsylvania's axle tax ranged in amount from $72 to$180 per truck.385 The State also imposed a $25 identifica-tion marker fee.386 Additionally, Pennsylvania charged registrationfees and fuel consumption fees that all states imposed on the truck-ing industry.387

The trucking industry attacked these levies, arguing that ifPennsylvania had the right to impose a flat tax on their operations,then so could every other state.388 The cumulative consequences ofsuch a regime would impose a crippling financial burden on theinterstate motor carriers.389

The Court observed that the earlier highway user fee cases piv-oted on the fact that the taxes were exacted in consideration for theprivilege of using state highways, which created a distinctly localtaxable event.390 It is irrelevant if the event precipitating the imposi-tion of the axle tax was for the privilege of conducting interstate


391. See id. at 294–95.392. See id., see also Complete Auto, 430 U.S. at 281.393. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 614–17 (1981); De-

partment of Revenue v. Association of Wash. Stevedoring, 435 U.S. 734, 743–50 (1978);Complete Auto, 430 U.S. at 278–89.

394. Scheiner, 483 U.S. at 296.395. See id. at 282.396. See id. at 282–83.397. See Goldberg v. Sweet, 488 U.S. 252, 261 (1989) (holding that unfair apportion-

ment of income from another state is a form of discrimination against interstate com-merce).

398. See Scheiner, 483 U.S. at 290; see also American Trucking Ass'ns v. Goldstein,483 A.2d 47, 56 (Md. 1984) (upholding a flat highway user charge against CommerceClause attack). In Goldstein, the Maryland Court of Appeals rejected the taxpayer's argu-ment that the Complete Auto case overruled the long line of flat fee cases. See id. at 54.

business.391 The privilege doctrine has been discredited.392 It hasbeen eliminated from Commerce Clause analysis.393 The Court stat-ed:

[T]he precedents upholding flat taxes can no longer support thebroad proposition . . . that every flat tax for the privilege of using aState's highways must be upheld even if it has a clearly discrim-inatory effect on commerce by reason of that commerce's interstatecharacter. Although out-of-state carriers obtain a privilege to usePennsylvania's highways that is nominally equivalent to thatwhich local carriers receive, imposition of the flat taxes for aprivilege that is several times more valuable to a local businessthan to its out-of-state competitors is unquestionably discrimina-tory and thus offends the Commerce Clause.394

A state cannot unfairly burden interstate commerce to providefor its fiscal needs if the cost to be paid by interstate commercegreatly exceeds the cost paid by local commerce. Discriminationagainst interstate commerce will occur at some point.395 Moreover,interstate commerce is responsible for paying its part to use an ex-pensive public facility. However, it must be treated fairly when com-pared with local commerce.396

Taxing a privilege which is several times more valuable to intra-state commerce is a form of discrimination against interstate com-merce.397 The Court struck down the axle tax as discriminatory be-cause it imposed a greater burden on out-of-state trucks than in-state trucks.398 Highway user fees imposed by Pennsylvania must be


399. See Scheiner, 483 U.S. at 280. Apportionment also requires a standard which isboth internally and externally consistent. The Court's consideration of this argumentgave it the opportunity to further elaborate on internal consistency. The Court held thatPennsylvania's unapportioned flat taxes for the use of its roads failed the internal consis-tency test because Pennsylvania provided no immunity for payment of like taxes to otherstates. See id. at 284. Interstate commerce was at a competitive disadvantage because ofcumulative tax burden. Pennsylvania's registration fees were upheld because of theState's reciprocity and apportionment provisions. See id. at 282–83; see also Goldberg v.Sweet, 488 U.S. 252, 267 (1989) (upholding a five percent tax on the gross charges ofinterstate telecommunications); Tyler Pipe Indus., Inc. v. Washington State Dep't of Rev-enue, 483 U.S. 232, 240–51 (1987) (discussing and criticizing the internal consistencytest); Armco Inc. v. Hardesty, 467 U.S. 638, 645–46 (1984) (holding a gross receipts taxon businesses selling tangible property at wholesale unconstitutional); Melvin L. Doxie,Squaring State Flat Taxes with the Internal Consistency Test: American Trucking Associ-ations v. Scheiner, 41 TAX LAW. 461 (1988) (discussing the Supreme Court's retreat fromits prior presumption of nondiscrimination in its application of the “internal consistencytest”).

400. See Scheiner, 483 U.S. at 291. In the Author's interpretation, the AeroMayflower line of cases was overruled, apparently, except to the extent that flat taxesare the only practical means of collecting revenue from users and the use of a morefinely graduated revenue user fee schedule would create genuine administrative burdens.

401. See Scheiner, 483 U.S. at 292. Scheiner may be interpreted to have declaredthat all taxes must be directly proportional to the taxpayer's contact with the State. Seeid. at 292; see also Suellen M. Wolfe, Recovery from Halper, The Pain of Additions toTaxes Is Not the Sting of Punishment, 25 HOFSTRA L. REV. 161 (1996).

402. See Scheiner, 483 U.S. at 285–86; see also Tyler Pipe Indus., Inc. v. WashingtonState Dep't of Revenue, 483 U.S. 232 (1987) (manufacturing tax on goods manufacturedin-state and sold to nonresidents); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)(liquor tax with exemption for certain local producers); Armco Inc. v. Hardesty, 467 U.S.638 (1984) (gross receipts tax with exemption for local manufacturers); WestinghouseElec. Corp. v. Tully, 466 U.S. 388 (1984) (franchise tax permitting a credit for exportsoriginating in state); Container Corp. v. Franchise Tax Bd., 463 U.S. 159 (1983) (contain-

applied in a fair and apportioned manner.399 The opinion blurred theconcepts of discrimination and apportionment. The axle tax wasfound discriminatory against interstate commerce because, in prac-tical effect, it imposed a higher per mile cost on interstate truckscompared to local trucks. The tax violated the fourth prong of theComplete Auto test because it did not vary directly with mileage,and thus did not fairly relate to the services the State provided.400 Itis now unequivocally clear that Commerce Clause principles requireapportionment for some user fees.401 The drummer line of cases citedin Scheiner documented the Court's belief that unapportioned flattaxes imposed on both interstate and intrastate commerce may vio-late the Commerce Clause if they subject the taxpayer to the risk ofcumulative tax burdens to which intrastate commerce is not sub-ject.402


er company with overseas subsidiaries); F.W. Woolworth Co. v. Taxation & RevenueDep't, 458 U.S. 354 (1982) (tax on “gross-up” income of a retail corporation); Asarco Inc.v. Idaho State Tax Comm'n, 458 U.S. 307 (1982) (corporate tax on non-domiciliary parentcorporation); Maryland v. Louisiana, 451 U.S. 725 (1981) (natural gas from federallands); Exxon Corp. v. Department of Revenue, 447 U.S. 207 (1980) (vertically integratedoil companies); Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980) (wholesaleand retail marketing of oil products).

403. There were nine binding flat fee precedents. See Capitol Greyhound Lines v.Brice, 339 U.S. 542 (1950) (basing highway user fee on fair market value of motor vehi-cles); Aero Mayflower Transit Co. v. Board of R.R. Comm'rs, 332 U.S. 495 (1947) (impos-ing flat highway user fee on motor carriers); Clark v. Paul Gray, Inc., 306 U.S. 583(1939) (imposing flat highway user fee on certain motor vehicles); Dixie Ohio Express Co.v. State Revenue Comm'n, 306 U.S. 72 (1939) (basing highway user fee on manufac-turer's rated capacity); Morf v. Bingaman, 298 U.S. 407 (1936) (flat highway user feeimposed on motor carriers); Hicklin v. Coney, 290 U.S. 169 (1933) (basing highway userfee on carrying capacity); Clark v. Poor, 274 U.S. 554 (1927) (basing highway user fee oncarrying capacity); Kane v. New Jersey, 242 U.S. 160 (1916) (basing highway user fee onhorsepower); Hendrick v. Maryland, 235 U.S. 610 (1915) (basing highway user fee onhorsepower). There were also three additional, explicit approvals of prevailing flat feeanalysis. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 621–22 & n.12(1981); Massachusetts v. United States, 435 U.S. 444, 463–69 (1978); Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S. 707, 714–16 (1972).There were at least two other tacit approvals of flat fees. See Complete Auto, 430 U.S. at278 n.6; Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602, 607 n.4 (1951).

404. Scheiner's newly announced requirement that specifically dedicated highwayuser fees must be proportional created a potential liability of nearly $1 billion to theseven states that imposed highway user fees as a part of their highway taxationschemes. The Commonwealth of Pennsylvania alone had a potential liability of $450million. See Peter Kelley & Karl Blankenship, Decision Drives out Axle Tax, PATRIOT

(Harrisburg), June 24, 1987, at A1.405. Cases upholding flat highway user fees had been cited with apparent approval

as recently as 1981. See Commonwealth Edison, 453 U.S. at 621–22; Massachusetts v.United States, 435 U.S. at 463–64; Evansville-Vanderburgh Airport, 405 U.S. at 714–16.

Prior to Scheiner, not a single opinion of the United States Su-preme Court questioned the vitality of the highway user fee deci-sions.403 In the author's opinion, what the Court articulated inScheiner was revolutionary.404 The Court reversed its previous po-sition and, apparently, established a new principle of law.405 AfterScheiner, user fees may be in jeopardy of being labeled unconsti-tutional.

D. Constitutional Defects of User Fees

1. Distinguishing Taxes and User Fees


406. INFRASTRUCTURE, supra note 21, at 3. A broad definition of benefit-relatedcharges would include user fees, utility charges, special assessments, license fees andtaxes, and narrow based benefit taxes. See MANDELKER & NETSCH, supra note 72, at 291.

It is beyond the scope of this Article to provide a detailed description of thedetermination of the character of an exaction. However, improved lighting in commercialsections for merchants provided by a special assessment to pay its cost is a form of ben-efit capture. It is not a user charge because the individual pedestrians do not pay forthe privilege of having the path lit.

407. See INFRASTRUCTURE, supra note 21, at 3, 8.408. See Richard C.E. Beck, Is Compromise of a Tax Liability Itself Taxable? A Prob-

lem of Circularity in the Logic of Taxation, 14 VA. TAX REV. 153, 174 (1994); Samuel D.McVey, State Environmental Permit Fees Charged to Federal Facilities: DistinguishingLegal User Fees from Illegal Taxes, 29 SANTA CLARA L. REV. 879, 885 (1989); Rebecca S.Rudnick, State and Local Taxes on Nonprofit Organizations, 22 CAP. U. L. REV. 321,342–51 (1993); Daniel Shaviro, An Economic and Political Look at Federalism in Taxa-tion, 90 MICH. L. REV. 895, 903–07 (1992).

409. Michael Duffy, Hitting the Ground Running: Bush Dashes Around Washington,but His First-Week Stumbles on Abortion and Taxes Point to a Rougher Road Ahead,TIME, Feb. 6, 1989, at 30 (quoting Richard Darman).

410. See GELFAND & SALSICH, supra note 12, at 91. These “charges have been de-fined as `payments imposed on a benefit or quid pro quo principle provided the payeeacquiesces in the payment of the levy.'” Id.

It will be no surprise if user fees, as a class, are specificallytargeted for constitutional scrutiny. The classification of an exactionmay be a distinction without a difference for Commerce Clause anal-ysis. If relevant, the classification of an exaction as a user fee isoften enigmatic. As a prefatory matter, user fees and taxes do havesome very similar characteristics.

The distinction “is not always clear in practice where benefit-based financing ends and general taxation begins.”406 Commentatorshave described the range of services and facilities provided by a localgovernment as a continuum of benefits that range from purely pub-lic to almost commercial.407 Categorizing the source of revenue for agovernment-provided benefit is an extremely difficult determi-nation.408 A United States House member appearing on a nationallybroadcast television program discussing legislation involving a userfee stated, “[I]f a revenue plan `looks' or `quacks' like a tax, it is atax.”409

Charging for government-provided services mimics businessactivity. When engaging in commercial activity, the local govern-ment acts in a proprietary capacity rather than a governmentalcapacity. In effect, the local government charges “rent” for the use ofa facility.410 Goods or services are considered sold by the govern-


411. See id. at 90. Examples of utility charges and user fees include water, sewerand electricity charges, garbage collection fees, and fees for recreational facilities such asmunicipal golf courses and parks. See id. at 90–91. One author has stated:

If a taxpayer does receive specific goods or services in exchange for a govern-mental exaction, payment is generally not regarded as a “tax” at all, but ratheras a distinct charge such as a user fee or special assessment. . . .

It is in the nature of a general tax that the payor receives no exact quidpro quo: revenue is pooled for general public purposes and it is impossible totrace or value the benefits to any particular taxpayer.

Beck, supra note 408, at 174.412. See generally DANIEL R. MANDELKER & DAWN CLARK NETSCH, STATE AND LOCAL

GOVERNMENT IN A FEDERAL SYSTEM 330–37 (4th ed. 1996). Because utility charges anduser fees are usually levied per unit, the total costs to users varies with the quantity ofgoods and services consumed. In effect, user charges establish a direct link between theexpenditure and the revenue sides of the budget for specific governmental services. Seeid.

413. Unlike user fees, general ad valorem property taxes are financial transfers togovernment and not a bargained-for exchange of services; they principally serve revenueneeds. See id. at 262–66.

414. Id. at 331.415. See GELFAND & SALSICH, supra note 12, at 91. Special assessments and devel-

opment fees are occasionally characterized as compulsory user fees. See id.416. See Beck, supra note 408, at 175. The Internal Revenue Service defines a tax

as follows:[A]n enforced contribution, exacted pursuant to legislative authority in the exer-cise of taxing power, and imposed and collected for the purpose of raising reve-nue to be used for public or governmental purposes, and not as a payment forsome special privilege granted or service rendered. Taxes are, therefore, distin-guishable from various other contributions and charges imposed for particularpurposes under particular powers or functions of the government. In view ofsuch distinctions, the question whether a particular contribution or charge is tobe regarded as a tax depends upon its real nature. If it is in the nature of atax, it is not material that it may be called by a different name; and, converse-

ment.411

The public-at-large should inure little benefit from user fee fi-nanced public operations. A close relationship between theindividual's payment and the receipt of direct benefits from the pro-vision of public services is a feature of a user fee.412 An identifiableindividual benefactor of the government services or facilities result-ing from payment is indicative of a user fee.413

User fees have been described as charges that have the distinc-tive characteristic of being voluntary payments based on “direct,measurable consumption of publicly provided goods and services.”414

In fact, the marked difference between a user fee and a tax is oftenthe voluntary nature of a user fee415 and the compelling nature of atax.416 Generally, individuals who do not use the ser


ly, if it is not in the nature of a tax, it is not material that it may be so called.Id. at 175 n.94 (quoting Rev. Rul. 57-345, 1957-2 C.B. 132, revoked on a factual basis byRev. Rul. 60-366, 1960-2 C.B. 63).

417. See National Cable Television Ass'n v. United States, 415 U.S. 336, 340–41(1974).

418. See City of Detroit v. Murray Corp., 355 U.S. 489, 492 (1958). The differentia-tion between user fees and regulation is also difficult to discern. See Shaviro, supra note408, at 903. Shaviro also observes that a regulation might also be called a tax “given itsform and the likely surreptitiousness of the regulatory motive.” Id. at 904; see alsoWolfe, supra note 401, at 161.

419. See National Cable, 415 U.S. at 340. Justice Marshall's dissent in NationalCable characterized the attempt to differentiate a tax and a fee as futile and unneces-sary. Marshall would limit the inquiry to whether Congress authorized the exaction. Seeid. at 352 (Marshall, J., dissenting).

BLACK'S LAW DICTIONARY 1457 (6th ed. 1990) defines “tax” as “public bur-dens . . . without reference to peculiar benefits to particular individuals or property.”

420. 435 U.S. 444 (1978).421. See id. at 463.422. Id. at 466–67. See supra notes 318–27 and accompanying text for a detailed

discussion of Massachusetts v. United States.423. TRIBE, supra note 245, at 311. Tribe asserts that the Commerce Clause allows

Congress to “impose whatever conditions it wishes, so long as the conditions themselves

vice or consume the output of the government programs financed byuser fees do not contribute to their funding.417

The label of an exaction is not controlling in defining its na-ture.418 The Supreme Court defines a tax as an involuntary collec-tion of funds that does not necessarily relate to any benefit bestowedby government on a taxpayer.419 The Court analyzed the constitu-tionality of a sovereign's attempt to tax another sovereign in Massa-chusetts v. United States.420 The Court sanctioned a user fee asconstitutionally imposed in such a transaction.421 The Court held theuser fees valid because “the charges [did] not discriminate against[the fee payer], [were] based on a fair approximation of use of thesystem, and [were] structured to produce revenues that [would] notexceed the total cost to the [government] of the benefits to be sup-plied.”422

2. The Commerce Clause Challenge: Discrimination

Undoubtedly, one of the most potent weapons to challenge astatute on a constitutional basis is the Commerce Clause. The clauseimposes “protective conditions on the privilege of engaging in anactivity that affects interstate commerce or utilizes the channels orinstrumentalities of such commerce.”423 Limitations to this rule,


violate no independent constitutional prohibition, on the privilege of producing for, serv-ing customers in, or otherwise `sitting astride the channels of' interstate commerce.” Id.at 312.

The purpose of privileges preserved in both state constitutions and the Four-teenth Amendment is to provide equal treatment for every individual without favoring ordiscriminating against one side or another. See Shaffer v. Carter, 252 U.S. 37, 55, 57(1920).

424. This element was clarified by the Supreme Court in 1943. See Penn Dairies,Inc. v. Milk Control Comm'n, 318 U.S. 261 (1943) (holding if the express intent to ex-clude a state regulation is not present, a state may impose burdens on the entity with-out de facto invalidity). The Court concluded a legislative requirement the privilege ofinterstate commerce is necessary to preclude too large a class. See id. at 275.

425. This federal immunity cannot be infringed upon by the state. See Mayo v.United States, 319 U.S. 441, 445–46 (1943). The ruling in New York ex rel. Rogers v.Graves, 299 U.S. 401, 407–08 (1937), caused a widespread reaction. The Court held thatactivities of interstate commerce are exempt from state control. Consequently, revenuereceived by employees should be exempt. The decision was reversed in Graves v. NewYork, 306 U.S. 466, 486 (1939), which held a privilege could not be made to exemptfederal employee salaries.

426. These arguments began as early as Welton v. Missouri, 91 U.S. 275, 279 (1876).The recent trend of cases argue several bases of violations, one of which is invariablydiscrimination. See, e.g., Fulton Corp. v. Faulkner, 116 S. Ct. 848 (1996); McKesson v.Division of Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990); Maryland v. Louisiana,451 U.S. 725 (1981).

427. See, e.g., Western Union Tel. Co. v. Kansas ex rel. Coleman, 216 U.S. 1 (1910);Atlantic & Pac. Tel. Co. v. City of Philadelphia, 190 U.S. 160 (1903); Leloup v. Port ofMobile, 127 U.S. 640 (1888); Robbins v. Shelby County Taxing Dist., 120 U.S. 489 (1887).

Facially discriminatory taxes imposed solely on merchants or products from out-of-state were always held invalid. See, e.g., Walling v. Michigan, 116 U.S. 446 (1886);

however, have developed.424 Initially, the states had no power to taxthe privilege of doing interstate business because it is a privilegegranted by the federal government. Ultimately, states were permit-ted under certain conditions to tax activities within their borders ifthe federal government failed to provide a specific legislative privi-lege.425

Future activity of the United States Supreme Court will focuson discrimination. This is not a new trend.426 A challenge to a levy'svalidity under the Commerce Clause will likely be most successfulwhen discrimination is alleged.

With few exceptions, user fees have been reviewed by the Unit-ed States Supreme Court in the context of highway user fees. How-ever, other similar exactions have been struck down by the Court.Many license, franchise, and privilege taxes were invalidated asimposed on a business conducting exclusively interstate com-mence.427 In Railway Express Agency v. Virginia,428 the Court held


Webber v. Virginia, 103 U.S. 344 (1881); Cook v. Pennsylvania, 97 U.S. 566 (1878);Welton v. Missouri, 91 U.S. 275 (1876).

428. 347 U.S. 359 (1954).429. Id. at 368. The privilege cannot extend so far as to destroy the state's ability to

conduct necessary powers. See Flint v. Stone Tracy Co., 220 U.S. 107, 350–51 (1911); seealso Railroad Co. v. Peniston, 85 U.S. (18 Wall.) 5, 13 (1873).

430. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 282 (1977); Welton v.Missouri, 91 U.S. 275, 280 (1876).

431. Facially discriminatory statutes were struck down in Oregon Waste Systems,Inc. v. Environmental Quality, 511 U.S. 93 (1994); Chemical Waste Management, Inc. v.Hunt, 504 U.S. 334 (1992); and New Energy Co. v. Limbach, 486 U.S. 269 (1988).

Classification based on residency or location of activity is generally invalid. SeeChalker v. Birmingham & N.W. Ry., 249 U.S. 522, 527 (1919). Chalker overturned aTennessee privilege tax that was four times higher for taxpayers whose main office wasoutside the state. See id. at 526. The classification, based upon the location of ataxpayer's main office, was “arbitrary and unreasonable.” Id. at 527.

432. 429 U.S. 318 (1977).433. See id. at 331; see also West Point Wholesale Grocery Co. v. City of Opelika,

354 U.S. 390, 391–92 (1957) (holding invalid a state law taxing all foreign wholesalers,but taxing resident wholesalers only after a certain level of sales had been met); Nippertv. City of Richmond, 327 U.S. 416, 432 (1946); Best & Co. v. Maxwell, 311 U.S. 454,455–56 (1940).

434. Boston Stock Exch., 429 U.S. at 331.

that the State could not require license, privilege, or occupationtaxes for “local incidents such as gathering up or putting down inter-state commodities as an integral part of their interstate move-ment.”429

The Commerce Clause prohibits state taxes which expresslyfavor in-state over out-of-state operations.430 Facially discriminatorystatutes have been uniformly ruled unconstitutional.431 A stocktransfer tax was at issue in Boston Stock Exchange v. State TaxCommission.432 Reduced rates were provided for certain stock trans-fers effected through the New York Stock Exchange. The statutewas discriminatory because its purpose was to favor local commer-cial interests over out-of-state business interests.433 The Court held:

The obvious effect of the tax is to extend a financial advantage tosales on the New York exchanges at the expense of the regional ex-changes. Rather than “compensating” New York for a supposedcompetitive disadvantage resulting from [a former statute], theamendment forecloses tax-neutral decisions and creates both anadvantage for the exchanges in New York and a discriminatoryburden on commerce to its sister States.434


435. Armco Inc. v. Hardesty, 467 U.S. 638, 643 (1984) (quoting Maryland v. Loui-siana, 451 U.S. 712, 759 (1981)); see also Henneford v. Silas Mason Co., 300 U.S. 577,582–83 (1937); Hinson v. Lott, 75 U.S. (8 Wall.) 148, 152–53 (1868).

The Court has defined a compensatory tax as one that is “designed simply tomake interstate commerce bear a burden already borne by intrastate commerce.” Associ-ated Indus. v. Lohman, 511 U.S. 641, 647 (1994). The taxes must serve a “complemen-tary function” to one another. See Minneapolis Star & Tribune Co. v. Minnesota Comm'rof Revenue, 460 U.S. 575, 582 (1983); see also Walter Hellerstein, Complementary Taxesas a Defense to Unconstitutional State Tax Discrimination, 39 TAX LAW. 405, 409–19(1986).

436. 116 S. Ct. 848 (1996).437. See id. at 852.438. See id. at 856. In Associated Industries v. Lohman, 511 U.S. 641 (1994), a Mis-

souri statewide use tax was struck down. It did not complement a local sales tax wherethe aggregate use tax could, in some instances, exceed the local tax. The taxes were notcomplementary because the burden imposed on intrastate and interstate was not even.See id. at 648–49.

439. Fulton Corp., 116 S. Ct. at 854 (quoting Oregon Waste Sys., Inc. v. Departmentof Envtl. Quality, 511 U.S. 93, 99 (1994)).

440. The Commerce Clause prohibits as “unconstitutionally discriminatory . . . statetaxes non-discriminatory on their faces, which without sufficient justification, imposeeconomic burdens on interstate enterprises which are not in fact imposed on local com-petitors.” TRIBE, supra note 143, at 356.

441. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1976).442. See Guy v. Baltimore, 100 U.S. 434, 439 (1879).

A facially discriminatory state tax is constitutional if local com-merce is subject to a tax on a “substantially equivalent event.”435

Fulton Corp. v. Faulkner436 assessed the constitutionality of NorthCarolina's intangibles tax on corporate stock owned by state resi-dents.437 The primary issue was the compensatory tax doctrine. Thepurported companion tax was adjudged not to be complementary.438

Defenses to discriminatory taxes are strictly construed. Even if thediscrimination is negligible, the court will evaluate claims ofdiscrimination strictly. Regardless of the scale of the discrimination,the Commerce Clause does not condone it. A determination must bemade whether the state's measure “regulates evenhandedly withonly `incidental' effects on interstate commerce, or discriminatesagainst interstate commerce.”439

A tax, discriminatory in operation or effect,440 is equally uncon-stitutional. Evaluating the practical effect of the statute in operationis required.441 A state tax is discriminatory if it taxes a transactionor incident more heavily when it crosses state lines than when itoccurs entirely within the state.442 In Bacchus Imports, Ltd. v.


443. 468 U.S. 263 (1984).444. See id. at 273.445. See id. at 268, 273.446. See id. at 269, 273.447. 366 U.S. 199 (1961).448. See id. at 204.449. A tax on the privilege of doing business as a drummer was invalidated because

“the tax on drummers operates greatly to their disadvantage in comparison with themerchants and manufacturers of [the taxing jurisdiction.]” Robbins v. Shelby TaxingDist., 120 U.S. 489, 498 (1887).

Vendors' licenses taxes are valid, however, if imposed upon vendors who bringtheir goods into the state directly for sale from their wagons. See Wagner v. City ofCovington, 251 U.S. 95 (1919); Baccus v. Louisiana, 232 U.S. 334 (1914); Kehrer v. Stew-art, 197 U.S. 60 (1905); American Steel & Wire Co. v. Speed, 192 U.S. 500 (1904); Emertv. Missouri, 156 U.S. 296 (1895); Machine Co. v. Gage, 100 U.S. 676 (1879).

Another type of discrimination is subjecting nonresidents to higher tax ratesthan local business. See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342 U.S. 389(1952).

450. 451 U.S. 725 (1981).451. See id. at 760.

Dias,443 the Court rejected the imposition of a Hawaiian excise taxon the wholesale sale of alcoholic beverages that exempted somelocally produced alcoholic beverages.444 The State of Hawaii defend-ed the statute by asserting that no actual competition between thewholesalers existed, and the intention of the statute was to promotea struggling Hawaiian industry.445 The Court rejected these argu-ments as irrelevant for Commerce Clause purposes.446

The Commerce Clause focuses on economics. Successful chal-lenges of a statute as violative of Commerce Clause principles mustfocus on economic realities. Proving a claim of discrimination re-quires an economic analysis of the operation of the statute. The taskto prove discrimination is not an easy one. What seems to be a bla-tant case of discrimination may be sustained. In Alaska v. ArcticMaid,447 a tax on predominantly exported frozen fish was sustained,even though fresh fish, which remained predominantly in-state, wasnot similarly taxed.448

A statutory scheme which, when viewed in its entirety, operatesto handicap a nonresident is unconstitutional.449 Maryland v. Louisi-ana,450 struck down Louisiana's First-Use Tax on natural gas.451

There were no exemptions or credits in the First-Use Tax statute.However, these features were located elsewhere in the state's taxcode, and insulated local industry from the tax. The operation of the


452. See id. at 756.453. 466 U.S. 388 (1984).454. See id. at 403 (quoting Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318,

329 (1977) (internal quotations and citation omitted)).455. Id. at 406 (quoting Boston Stock Exch., 429 U.S. at 331) (DISC is an abbrevia-

tion for Domestic International Sales Corporation); see also R.J. Reynolds Tobacco Co. v.New York Dep't of Fin., 643 N.Y.S.2d 865, 875 (N.Y. Sup. Ct. 1995) (holding discrimina-tory a statute forbidding the use of accelerated depreciation for out-of-state property).

456. In West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994), a facially neutralstatute was declared discriminatory in effect. All milk dealers were taxed by the state ofMassachusetts but revenue from the tax passed into a fund which subsidized only in-state dairy farmers. See id. at 188. The refunding of the tax paid by in-state dairy farm-ers through the state subsidy system had the same effect as a discriminatory tax law.See id. at 194.

457. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 194 (1824), clarified that commerce didnot extend to internal workings “which [are] carried on between man and man in aState, or between different parts of the same State, and which does not extend to oraffect other States.”

The concept allowing for the difficulty in separating intrastate and interstateactivity is similar in theory to the unitary tax principle found in state income taxation.The states use apportionment to divide income from a unitary business. A unitary busi-ness is one displaying “(1) functional integration; (2) centralization of management; and(3) economies of scale.” See Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768,781 (1992). A “flow of value” links the business operation into one whole. See BarclaysBank PLC v. Franchise Tax Bd., 512 U.S. 298, 311 n.10 (1994).

In property taxation, this concept is likewise valid. See Norfolk & Western Ry. v.Missouri State Tax Comm'n, 390 U.S. 317, 320 (1968); Pullman Co. v. Richardson, 261U.S. 330, 338 (1923).

458. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 77 (1963).

Louisiana statutes was found to discriminate in effect.452 Similarly,in Westinghouse Electric Corp. v. Tully,453 a credit was found to beviolative of the Commerce Clause as discriminatory because it“provid[ed] a direct commercial advantage to local business.”454 Thecredit encouraged DISC-related activity within the state, “fore-clos[ed] `tax-neutral decisions and . . . create[d] . . . an advantage'for firms operating in New York by placing a `discriminatory burdenon commerce to its sister States.'”455 A combination of a tax and sub-sidy scheme may effectively operate in a discriminatory manner.456

Some of the most difficult questions of discrimination arisewhere the state taxes both interstate commerce and some amount ofintrastate commerce.457 Taxes and exactions that discriminateagainst interstate commerce, even when composed in part of taxeson intrastate commerce, are unconstitutional.458

While the defense, in litigation involving charges of discrimina-tion on interstate commerce, may still assert that an exaction is im-


459. It will be assumed that the trade constitutes interstate commerce:Appellant seeks to demonstrate that the transportation it provides from therailhead to the dealers is part of a movement in interstate commerce. Appelleeargues that appellant's transportation is intrastate business, but further arguesthat even if the activity is part of interstate commerce, the tax is not unconsti-tutional . . . . The Mississippi courts, in upholding the tax, assumed that thetransportation is in interstate commerce. For present purposes, we make thesame assumption.

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 276 n.4 (1977).460. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615 (1981).

While attacking the tax on a privilege operating partially interstate and partiallyintrastate will likely fail, if the transaction is characterized as a sale of a service, thetaxable event may be assignable to one taxing jurisdiction. An unapportioned sales taxon all tickets sold within the state did not violate the Commerce Clause regardless ofwhere the trip began or ended. See Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 115S. Ct. 1331, 1340–43 (1995).

461. DANIEL SHAVIRO, FEDERALISM IN TAXATION: THE CASE FOR GREATER UNIFORMITY

42 (1993) (citations omitted).462. The consequence of enacting an unconstitutional statute is recognized but is a

risk undertaken:One might think that the states would refrain from imposing such burdens,given the general social gains from locational neutrality, the self-defeating na-ture of competition to impose greater burdens on others than others impose ononeself, and the capacity of threats of retaliation to enforce cooperation. Unfor-

posed on solely in-state commerce, the possibility of success of suchan argument is nil.459 The attachment of interstate commerce to a“local or intrastate activity” does not insulate the tax statute fromCommerce Clause protection.460

If the Commerce Clause is used to invalidate user fees, the chal-lenge will most likely be based on discrimination. The cases exam-ined above illustrate the Supreme Court's interpretation of the term“discrimination.” It is far from precise. Most authorities agree:

While the notion of discrimination against outsiders or interstatecommerce seems easy to grasp intuitively, it has proved slippery inpractice. Some dismiss it as “shibboleth,” while even the more hope-ful concede that it is “not self-defining” and can appear “delusivelysimple.” Essentially, discrimination is a specific form of locationalnonneutrality, founded on comparing two groups–the persons in-side and the persons outside the taxing jurisdiction or, alterna-tively, the commerce originating inside and the commerce originat-ing outside.461

Local government tax policy naturally attempts to shift the burdenof a tax to outsiders.462 The development of the theory of the nega


tunately, however, while these considerations powerfully constrain state andlocal tax behavior and have created significant areas of cooperation, their forceis incomplete.

Id. at 72.463. See id. at 71.464. See TRIBE, supra note 245, at 410; see also Williams v. Vermont, 472 U.S. 14,

27 (1985) (holding that a statute providing individuals who bought cars outside of Ver-mont before becoming residents of that state were denied credit for taxes paid violatesthe equal protection of the law).

465. A commentator has stated: “The measure of a tax is the yardstick or base towhich the tax rate is applied. Measures of taxes vary widely.” HELLERSTEIN &HELLERSTEIN, supra note 304, at 31-32. The predominant types in use are:

(1) The Value of Property: Property taxes, Death taxes (estate and inheritance),Capital stock taxes; (2) Income or Receipts: Gross receipts taxes, Gross incomeTaxes, Net income taxes; (3) Selling Price: Sales and use taxes; (4) Fixed orFlat sums: Four or five cents a package on cigarettes, six cents per gallon ofgasoline, etc.; License taxes, Stock issue and transfer taxes; (5) MiscellaneousMeasures: Weight of car in auto license tax, Face amount of bond in bond issuetax, Amount of authorized capital in corporate organization tax.

Id.466. This concept has been studied extensively:The base of a personal tax system specifies what material benefits are relevantin determining each taxpayer's taxable capacity. A traditional starting point informulating the base of the personal income tax has been the Haig/Simonsincome definition . . . . According to that definition, taxable income would equalthe sum of the taxpayer's consumption during the taxable period plus the in-crease (or minus the decrease) in the taxpayer's net worth during that period.A personal consumption tax, in contrast, would exclude from the tax base anyincrease in a taxpayer's savings and would include in the base any decrease insavings. Both bases would tax consumption financed out of current income andneither base would tax previously acquired wealth not currently consumed.

MICHAEL J. MCINTYRE ET AL., READINGS IN FEDERAL TAXATION 1 (2d ed. 1983).467. See id. “A tax system's measure of taxable capacity depends not only upon its

base but also upon its taxable period rules and its taxable person rules. The relation-ships among these complementary rules have only begun to be explored by tax commen-tators.” Id.

tive Commerce Clause is attributed to the shifting of burdens acrossstate lines.463 The Supreme Court has barred taxing statutes asdiscriminatory on the political representation argument.464

Despite the vagueness which surrounds discrimination, localgovernments must anticipate Commerce Clause challenges to theiruser fee statutes. When litigation reveals a weakness in a tax stat-ute, which ultimately is labeled infirm, the weakness is often thebase of the tax, called its measure.465 A tax's measure directly influ-ences where the burden of the tax falls.466 But the party that bearsthe burden of a tax is often difficult to identify. The burden of a taxis the result of an aggregate of tax attributes.467 “The task of mea-


468. MARK CARTER MILLS & GEORGE W. STARR, READINGS IN PUBLIC FINANCE AND

TAXATION 325 (1932) (citing Robert Murray Haig, The Problem of Measuring the TaxBurden, in REPORT OF THE NEW YORK STATE TAX COMMISSION FOR THE REVISION OF THE

TAX LAWS 92-100 (1932)). The difficulties begin with such problems as:First, there exist insufficient data regarding the economic status of each of theseveral groups into which it may be desirable to divide the population of thestate . . . ; [s]econd[ ], not enough is known about the shifting and the econom-ic effects of taxes . . . ; [t]hird, how shall the population be grouped to comparetax burdens?

Id. at 326–27.469. See id. “It is impossible to give a complete description of the distribution of the

tax burden among individuals.” Id. at 325.470. SHAVIRO, supra note 461, at 51 (citations omitted).471. 453 U.S. 609 (1981).472. See id. at 636.473. See id. at 612.474. Id. at 625 (quoting General Motors Corp. v. Washington, 377 U.S. 436, 440–41

(1964)).

suring the `burden' of existing taxation, quite aside from that offorecasting effects of changes, bristles with complications.”468

If the Supreme Court determines that a statute favors localinterests over out-of-state interests, it is invalidated. The process bywhich the Supreme Court ascertains who bears the burden of a taxis clouded. It is difficult, almost nearly impossible, to judge astatute's actual effect or incidence on the distribution of the taxburden.469 Cases which have direct relevance to user fees illustratethe controversy:

Are Courts institutionally capable of examining the rate or level ofa state tax to decide whether it is reasonable? Commonwealth Edi-son says no in the context of a coal severance tax, while AmericanTrucking Associations v. Scheiner says yes in the context of a flattax on truckers' use of in-state highways.470

In Commonwealth Edison Co. v. Montana,471 the Court upheld astate severance tax on all coal extracted from the state's land wherethe tax liability greatly impacted coal exported from the state.472 Thetax was also imposed on the small amount of coal which remained inthe state.473 “[T]he decisive issue turn[ed] on the operating incidenceof the tax.”474

When a tax is assessed in proportion to a taxpayer's activities orpresence in a State, the taxpayer is shouldering its fair share of


475. Id. at 627 (quoting Exxon Corp. v. Wisconsin Dep't of Revenue, 447 U.S. 207,228 (1980) (internal quotations omitted)).

476. See id. at 626. “Because it is measured as a percentage of the value of the coaltaken, the Montana tax is in `proper proportion' to the appellants' activities within theState and, therefore, to their `consequent enjoyment of the opportunities and protectionwhich the State has afforded' in connection with those activities.” Id. (quoting GeneralMotors Corp. v. Washington, 377 U.S. 436, 441 (1964)); see also Nippert v. City of Rich-mond, 327 U.S. 416, 427 (1946).

477. RANDOM HOUSE DICTIONARY OF ENGLISH LANGUAGE 1153 (1967) defines propor-tional as: “(1.) comparative relation between things or magnitude as size, quantity, num-ber, etc.; (2.) proper relation between thing or party.”

478. SHAVIRO, supra note 461, at 73–74 (citation omitted). The Author concludesthat “[i]n-state producers or landowners may bear most or all of the real tax burden.” Id.at 74.

479. 453 U.S. at 629.

supporting the State's provision of “police and fire protection, thebenefit of a trained work force, and the `advantages of a civilizedsociety.'”475

To satisfy the fourth requirement of the Complete Auto test, theCourt held that the measure of the tax must bear a relationship tothe taxpayer's activity or presence.476 To establish a reasonable rela-tionship, a tax must be proportional.477 Is proportionality the talis-man? Proportionality itself is not. If the measure of the tax is incor-rectly chosen, its burden, when computed in economic terms, may bemisplaced:

Consider the coal severance tax in Commonwealth Edison. Whiledirectly borne by consumers (predominately from out of state), itsreal incidence, even in the short term, cannot be determined with-out examining such factors as “the degree of geographic concentra-tion, the mobility of various factors of industry, cartelization bytaxing states, international competition or price-umbrella effects,natural substitutability, government regulation, the prevalence oflong term contracts, the importance of transportation costs and theway in which such costs are determined, unionization, and marketstructure as well as the more mundane attributes of long-andshort-run elasticities of supply and demand.”478

The Court in Commonwealth Edison concluded the tax was“assessed under a formula that relate[d] the tax liability to the valueof the coal producers' activities within the State.”479 The coal ex-tracted was a correct measure of the activity. As the passage above


480. 483 U.S. 266 (1987).481. SHAVIRO, supra note 461, at 52.482. Scheiner, 483 U.S. at 286.483. See id. at 286–87.484. Professionals have recognized that the weight of a vehicle is a direct cause of

damage to highways:The paper begins by noting that there is a widely perceived fiscal problem asso-ciated with the nation's roads and bridges, and that current “user fees” ontrucking bear little relationship to the costs actually imposed by the vehicle. Itturns out that the actual costs imposed by trucks depend critically on axle load-ings, and that there is a standard measure, called the ESAL (equivalent single-axle load) that can be used to calculate the cost imposed per vehicle-mile, by atruck.

Paul N. Courant, Comment to Kenneth A. Small & Clifford Winston, Welfare Effects ofMarginal-Cost Taxation of Motor Freight Transportation, in STUDIES IN STATE AND LOCAL

PUBLIC FINANCE 113, 128–29 (Harvey S. Rosen ed., 1986).

recounts, coal extracted is not necessarily the best measure of thetax, but it does sound logical. Proportionality may be the require-ment needed to satisfy the fourth prong of the Complete Auto test,but it does not insure the lack of discrimination.

American Trucking Ass'ns v. Scheiner480 is an example of theSupreme Court's “can-do approach to measurement.”481 The Su-preme Court made a definitive conclusion that mileage was the cor-rect measure for fees for the use of Pennsylvania highways. Thestate's facially neutral user fee was held to be discriminatoryagainst interstate commerce. The Court struck down the Pennsylva-nia axle tax because it accepted the appellant's argument that out-of-state truckers bore a proportionately greater share of the taxburden.482

Due to the out-of-staters' more limited presence in the state, theaxle tax was determined to be both discriminatory in effect and notfairly related.483 Pennsylvania's effective tax rate in terms of cost-per-mile traveled was higher for a truck registered outside of Penn-sylvania. This conclusion could only be reached if the proper basewas mileage and specific economic studies of the distribution of theburden of the tax were not required.484

An economic analysis would take into consideration many morefactors to determine the incidence of a tax. For example, the Evans-ville Airport facilities are frequented by non-passengers. Many ofthe publicly-provided facilities are fully developed commercial prop-erties attracting large segments of the public for many reasons.Business passengers inure more tangible financial benefit from the


485. In Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123(1931), the Supreme Court determined that the method of accounting used by the Stateof North Carolina resulted in taxation of the company out of proportion to its businesstransactions in the state. The taxpayer had evidence of the sources of the profits per-taining to its buying, manufacturing, and selling operations. See id. at 127. A 250% errorin apportionment by the State was unacceptable. See id. at 135. There is some questionof whether the evidence was actually introduced in the case. See id. The taxpayer madean offer of proof which was rejected. See id. at 130.

In Butler Bros. v. McColgan, 315 U.S. 501, 511 (1942), the taxpayer failed toprove its case utilizing separate accounting.

486. 511 U.S. 93 (1994).487. See generally Steve Yarbrough, Compensatory Fee or Protectionist Tax: Oregon's

Surcharge on Out-of-State Waste, 34 NAT'L RESOURCES J. 497 (1994).488. Oregon Waste Sys., 511 U.S. at 102–05.489. 116 S. Ct. 848 (1996).490. Id. at 856 (quoting Oregon Waste Sys., 511 U.S. at 103).

use of travel and airport facilities. But many business passengersuse premises which are privately maintained within the airportcomplex. After additional factors are analyzed, should the measureof the fee be plane embarkment?

Every user fee has the potential of being invalidated as uncon-stitutional if the effective rate is higher on an out-of-state residentwho uses public facilities less than the in-state counterpart. Facial-ly, the decisions in Commonwealth Edison and Scheiner do not seemskewed. Certainly a coal severance tax measured on coal extractedseems rational. Moreover, a natural base for a fee for the use ofhighways seems to be the number of miles traveled. These holdingsseem to be psychologically logical.

In other cases, more credible evidence has been required.485 Thestatute declared unconstitutional in Oregon Waste Systems, Inc. v.Department of Environmental Quality486 was facially discrimina-tory.487 The statute charged a $2.25 per ton surcharge on the dis-posal of out-of-state waste. The disposal of waste generated in-statecost 85¢. The State attempted to defend the statute by assertingthat it was justified because of the cost incurred in disposing ofwaste. The State did not fulfill its burden of proving the actual costborne in disposing of out-of-state waste.488

In Fulton Corp. v. Faulkner,489 the Court held that the appor-tionment requirement of the Complete Auto analysis requires that:“[T]he tax on interstate commerce [must] be shown roughly to ap-proximate — but not to exceed — the amount of the tax on intra-state commerce.”490 The Court continued that the judiciary “as insti-


491. Id. at 859 (quoting Minneapolis Star & Tribune Co. v. Minnesota Comm'r ofRevenue, 460 U.S. 575, 589–90 (1983) (footnote omitted)).

492. Best & Co. v. Maxwell, 311 U.S. 454, 456 (1940).493. MILLS & STARR, supra note 468, at 337.

tutions are poorly equipped to evaluate with precision the relativeburdens of various methods of taxation. The complexities of factualeconomic proof always present a certain potential for error, andcourts have little familiarity with the process of evaluating the rela-tive economic burden of taxes.”491

A determination must be made whether the statute under at-tack “will in its practical operation work discrimination againstinterstate commerce.”492 To determine where the burden of a taximpacts is a daunting task:

[I]t must be apparent that those who conceive of the tax system assomething which can be measured, evaluated, approved, or con-demned by reference to a single simple formula may be justly ac-cused of superficiality. The results of existing practice and the prob-able effects of a suggested course of action can be approximatelydetermined only by painstaking study and analysis.493

If the Supreme Court views the statute as favoring local inter-ests over out-of-state, it will invalidate the tax on the basis of dis-crimination. Some burden on interstate commerce is apparentlypermitted, but the Court eventually draws a line. The demarcationline is very synthetic. Its artificiality makes the attack of discrimi-nation an ever-present threat. When ascertainment of where a taxburden falls is determined, a measure may become more or less ob-jectionable.

Requiring a specific and detailed economic analysis of a taxburden is not possible or justified. The line of decisions relating todiscriminatory state taxes have confused the concepts more thanclarified them. The objective is no more than what it was in 1915:

In view of the many decisions of this court there can be no seriousdoubt that where a state at its own expense furnishes special facili-ties for the use of those engaged in commerce, interstate as well asdomestic, it may exact compensation therefor. The amount of thecharges and the method of collection are primarily for determina-tion by the state itself; and so long as they are reasonable and are


494. Hendrick v. Maryland, 235 U.S. 610, 623–24 (1915).495. See Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc., 405 U.S.

707, 717–20 (1972).

fixed according to some uniform, fair and practical standard, theyconstitute no burden on interstate commerce.494

V. CONCLUSION

User fees are a basic component of fiscal schemes of local gov-ernments. They represent a charge for the use of public facilitieswhich must be built and maintained. A local government is entitledto fair reimbursement for providing the facilities.

Prior to the 1980s, the United States Supreme Court differenti-ated user fees and applied a unique standard to assess their consti-tutional limits within the context of the Commerce Clause. TheCourt recognized that public facilities had to be built and main-tained, regardless of the amount of use. This acknowledgement wascritical to its early holdings. User fees were considered a paymentfor the use of a privilege. The extent of use of the public facility wasan individual choice.

Funds generated by a statute for these public facilities are seg-regated and subject to separate accounting. For Commerce Clausepurposes, “special revenue” funds are subject to a test articulated inEvansville-Vanderburgh Airport. The Court imposed three condi-tions. The fee could not discriminate; the fee must be a fair approxi-mation of use; and the fees collected could not be excessive in com-parison to the benefit conferred.495 Litigation in early 1900s focusedon the total revenue generated, which is not permitted to exceed thetotal expense of the public facility. Since the fee is compensatory, itcannot be excessive or manifestly disproportionate.

Although it is now arguable that the subject of user taxes maybe constitutionally indistinguishable from travelling salesmen, thedecisions in Best & Co., Robbins, and Nippert clearly evidence ahistorical difference. Discriminatory taxes were invalidated in thesecases under the different principles applied to taxes generating gen-eral revenue funds.

Complete Auto discarded the formalistic criterion of “privilege”in favor of a realistic economic analysis of the tax effect of general


496. Commonwealth Edison Co. v. Montana, 453 U.S. 609, 615 (1981) (quoting MobilOil Corp. v. Commissioner of Taxes, 445 U.S. 425, 443 (1980)).

497. Id. at 626 (emphasis added).498. Id. at 629.

revenue fees. Under the Complete Auto test, all state taxes burden-ing interstate commerce must pass a four-prong test designed toassess “the practical effect of the tax.” Whether this clear evolutionin the law regarding general revenue taxes pronounced in CompleteAuto also applies to special revenue funds is unclear. The continuedforce of the separate line of cases that addresses user fees as specialrevenue funds is now uncertain.

The Supreme Court also significantly narrowed the parametersof these standards in Commonwealth Edison and Scheiner. TheCourt made it clear that it would not endorse a tax on a “privilege”wholly unrelated in its measure to the extent the taxpayer actuallyuses the privilege. This “consistent and rational method of inqui-ry”496 requires both that a tax not discriminate against interstatecommerce and that “the measure of the tax must be reasonably re-lated to the extent of the [taxpayer's] contact” with the taxingstate.497 “[W]hen the measure of a tax bears no relationship to thetaxpayers' presence or activities in a State, . . . the State is imposingan undue burden on interstate commerce.”498

The Supreme Court decisions in Commonwealth Edison andScheiner may also support the supposition that the special revenueand the general revenue tests merged. Do the standards in Evans-ville-Vanderburgh Airport still apply to special revenue funds or arethe statutes merely subject to an additional excessiveness test underthe Complete Auto test? The potential impact of this reversal of pre-cedent on the separate tests for special revenue and general revenueexactions is unknown. The overlapping or merging of special andgeneral revenue tax standards pose the most likely stage for furthergrowth of applicable principles by the United States Supreme Court.

Caution should be exercised by legislative bodies of local govern-ments when drafting user fees until post-Scheiner case law becomessufficiently developed. A disproportionate burden falling upon inter-state commerce is no longer constitutionally acceptable for specialrevenue fees statutes. There is the concern that the taxpayer suffersdiscrimination at the hands of a government in which it has novoice. These fees are “in . . . practical operation . . . capable of use”


499. McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 56 (1940).500. Shaviro, supra note 408, at 935; see also SHAVIRO, supra note 461, at 48.501. See United States v. Sperry Corp., 493 U.S. 52, 60 (1989).502. These requirements are a burden to the user as well. Administrative and com-

pliance requirements are “a drag on interstate trade almost as debilitating as the borderrestrictions our federal system was originally designed to prevent.” SHAVIRO, supra note461, at 75 (citation omitted).

503. See Clayton P. Gillette & Thomas D. Hopkins, Federal User Fees: A Legal andEconomic Analysis, 67 B.U. L. REV. 795, 805–06 (1987). But see Terrance J. Schroepfer,Fee-Based Incentives and the Efficient Use of Spectrum, 44 FED. COMM. L.J. 411, 420–23(1992).

504. See Skinner v. Mid-America Pipeline Co., 490 U.S. 212, 214 (1989) (citingConsolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, §7005(a)(1), entitled “Pipeline Safety User Fees”).

by the State to place the (nonresident) at a disadvantage in competi-tion with the resident.499 A constitutional objection to the statuteshould be factually supported with as much economic detail as possi-ble to accurately and clearly prove discrimination.

Determining the financial impact of a fee or tax is difficult. Re-cent holdings by the United States Supreme Court seem superficial.Discrimination cases are an assemblage of confusion. “[T]heantidiscrimination standard has an almost excruciating unclarityand inconsistency in practice, due partly to the Court's mistakes anderratic behavior in interpreting it, but more fundamentally to thestandard's built-in difficulties.”500

Local governments are not required to devise perfect formulaeto ensure the lack of discrimination.501 Very refined methods of col-lecting revenue would impose genuine administrative burdens.502

Precisely calculated user fees naturally increase administrativecosts, and, consequently, the amount of revenue needed to operate afacility. While the base of the tax need not be perfect; it must pos-sess a close relationship to the burden of taxation. To be fair inapplication, the burden of the fee should vary substantially withuse.

Economic information should be used by the local government tochoose not only the appropriate rate for the tax, but the appropriatebase for the tax as well. The base of the fee must be formulated in afashion which does not promote discrimination. Ideally, marginalcosting should be utilized.503 Correspondingly, cost subsidization isavoided. Some average costing is unavoidable, but the determinationshould take consumption into consideration in some manner. Thebase should weigh as many subjective factors as possible.504 These


505. Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 37 (1980).506. See NAGEL ET AL., supra note *, § 3.11.

components will vary with the nature of the facility, but often in-clude the time of use, location, season of the year, and demand con-ditions. There are also very technical engineering and scientific ele-ments which contribute to the shifting of a tax burden. These intri-cate factors and the intangible value of the facility to the individualuser are often uncertain and cost prohibitive to determine.

In theory, the constitutional challenges to user fees are nowinfinite. “The principal focus . . . must be the practical operation ofthe statute, since the validity of state laws must be judged chiefly interms of their probable effects.”505 The “economic realities” of thechallenged fee will determine its constitutional fate.

User fees as a source of alternative or supplemental financinghave always been subject to constitutional limitations. User feescrutiny recently underwent a metamorphosis in order to insure thepreservation of Commerce Clause protection. Clarification of a Com-merce Clause test for user fees is forthcoming. Its impact on a localgovernment's fiscal scheme will be substantial. Growth followingthis metamorphosis could produce a butterfly or a beast. The resultis difficult to foresee. Local governments should be cautious indrafting and evaluating the constitutionality of user fees and beforever wary of the “silver bullet.”506

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