Taxes and Fees

At a recent lunch with my fellow Dispatchers we discussed the differences between taxes and fees. Our particular context was the proposed health insurance mandate and related fees, which Republicans maintain should be called taxes.

We decided that in this particular situation, the difference is political (being directed at Pres. Obama’s promise not to raise taxes on the middle class) not legal.

There are, however, situations in which the difference between taxes and fees has some legal meaning. This difference matters at the local level:

State and municipal governments, struggling with sinking revenue, are raising money by levying fees on consumers, slapping local businesses with back taxes and tweaking tax laws in ways that force many businesses to pay more.

That is leading to accusations — and, in some cases, lawsuits — that governments are trying to rake in more money without officially raising taxes, sometimes illegally.

The San Francisco Board of Supervisors, which can’t easily raise taxes without a referendum, has approved a controversial cigarette “fee” of 20 cents a pack that takes effect next month.

These restrictions on local tax increases are a result of tax and spending limits that were enacted in many states back in the 1970s and 80s.

States define taxes and fees somewhat differently, but the main features of “fees” usually include tying them to the costs of providing a particular public service, that is often optional on the part of the receiver. Naturally, Frisco argues that the cigarette charge is, in fact, a fee not a tax:

In San Francisco, tax lawyers say the city is sidestepping the electorate by labeling the new cigarette levy as a fee instead of a tax.

A spokesman for San Francisco Mayor Gavin Newsom said the fee only would recover the annual cost directly tied to cleaning up cigarette butts.

Eh? Ok. Sounds a little more like a tax to me. I’m sure the lawyers will sort it out.



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