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Tax vs. fee

KEIZERTIMES/Andrew Jackson

Of the Keizertimes

Scott Klug, a member of the Keizer Parks and Recreation Advisory Board, initially balked at the idea of adding a fee to Keizer residents’ utility bill to support city parks.

He was most concerned about implementing a fee without asking residents whether they supported it first, but he also found fault in the term “fee.”

“You can call it a fee, but any time you ask someone to pay something they don’t want to pay, it’s a tax,” Klug said.

While that might be how it feels, there is precedent for what is deemed a tax vs. a fee. It’s also true that Oregon is one of only two states that haven’t adopted official definitions of the two.

“A tax has the primary purpose of raising revenue,” said Joseph Henchman, Tax Foundation vice president of legal projects, and author of a 2013 study looking at the issues surrounding fees and taxes. “By contrast, a fee recoups the cost of providing a service from a beneficiary.”

It’s also more than a difference of terminology. Many states include in their constitutions steps for enacting taxes and limitations on increases. Fees can be enacted more freely, which is one reason the city council can implement a dedicated parks fee without a vote of residents.

A fee is a charge imposed for the primary purpose of recouping costs incurred while providing a service to the payer. Taxes and fees are also different from a penalty, which has the primary purpose of punishing behavior.

Only Oregon and North Carolina, at the time of the study, hadn’t adopted legal definitions of the two. Moreover, Oregon is the only state without a rule to resolve any ambiguities in favor of the taxpayer.

It’s also a misconception that taxes are “mandatory” while fees are “voluntary.” Both need to be paid and government agencies can seek legal remedies to collect on balances.

All of this comes into play when discussing a potential fee to create a dedicated fund for Keizer parks. Because the city cannot raise property taxes – ballot measures passed in the 1990s locked in the rates – fees are one of essentially three options, and the only one that might ensure a degree of sustainability without creating additional costs.

If the revenues generated by the fee fell into the city’s general fund for the council to use for any purpose, it would be considered a hard-line tax.

However, because the revenue generated would become a dedicated parks fund it could be considered a “tax,” “user tax” or “fee” within the boundaries widely accepted. That squishiness is problematic in determining which term to use for the parks surcharge being discussed.

In his 2013 study, Henchman points out that “taxes fund general benefits to everyone while fees fund particularized benefits to the fee-payer.” By those measures, the proposed parks fee resembles a tax since it would be charged to all residents’ households on their utility bills – not just park users –  and the benefits of parks are felt throughout the city in terms of higher property values, reduced crime and 240 acres of public green spaces. At the same time, a fee designation is also appropriate since the funds would be used to recoup the costs of maintenance and improvements within the park system.

So, would the added charge be a fee or a tax? The answer may depend on how paying it makes you feel.