Can a Maryland city charge property owners and businesses a 'street utility fee' based on how much traffic they generate, to pay for street maintenance, without getting the state legislature's permission first?

Plain-English summary

Delegate George C. Edwards asked the Attorney General whether the City of Cumberland had authority to impose a "street utility fee," a charge modeled on a Minnesota proposal that would bill property owners and tax-exempt entities based on the traffic their property use was projected to generate on municipal streets, as a way to fund street maintenance beyond the property tax.

The opinion concluded the City lacked authority to impose the fee without state enabling legislation, because the charge was properly a tax rather than a fee. It ruled out treating it as a user or service charge, since it would be mandatory and based on average trip-generation data rather than an individual's actual, chosen use of a specific service. Applying the Court of Appeals' test from Eastern Diversified Properties v. Montgomery County, it also ruled out treating it as a regulatory fee, since the charge had no genuine regulatory component and was, at bottom, a revenue measure to fund street infrastructure. Having concluded the fee was a tax, the opinion then determined it would be an excise tax (based on use of property, not property ownership or value) rather than a property tax, meaning the General Assembly could authorize it through general enabling legislation without running into the state constitutional uniformity requirement that governs property taxes.

Currency note

This opinion was issued in 2006. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, statute, or classification mentioned here, particularly since Article 23A has since been recodified into Maryland's Local Government Article.

Common questions

Could a Maryland city start charging businesses for street wear and tear based on estimated traffic, without asking the state first?
No, according to this opinion. It concluded that such a charge would be a tax, not a fee a municipality can impose on its own regulatory authority, so a city would need the General Assembly to pass enabling legislation applicable to municipalities generally before it could adopt one.

Why wasn't the street utility fee just treated like a water or sewer bill?
The opinion distinguished user fees, which are based on a person's actual, chosen consumption of a specific service, from the proposed street utility fee, which would be mandatory and based on average projected trip generation for a property's use category, regardless of whether that particular property owner actually used the streets more or less than average, and would only indirectly benefit many of those charged.

If the legislature did authorize this kind of fee, would every city have to charge exactly the same rate to be constitutional?
No. The opinion concluded the fee would be an excise tax rather than a property tax, meaning it would not be subject to the Maryland Declaration of Rights' Article 15 uniformity requirement that applies to property taxes, since the charge would be based on the use of property (traffic generation) rather than on property ownership or value.

Background and statutory framework

Maryland's Constitution requires General Assembly authorization for any tax or fee, both generally under Article 14 of the Declaration of Rights and, specifically for municipalities, under the home rule provision of Article XI-E, §5, which bars a municipality from levying any tax or fee not in effect on January 1, 1954 absent express General Assembly authorization applying uniformly to all municipalities. Following the Court of Appeals' decision in Campbell v. Mayor and Alderman of Annapolis holding this restriction applies to regulatory fees as well as taxes, the General Assembly granted municipalities authority to assess regulatory fees under Article 23A, §2(b)(33)(ii), but has not granted general municipal taxing authority.

The opinion applied the Court of Appeals' framework from Eastern Diversified Properties v. Montgomery County for distinguishing a regulatory fee from a tax based on the primary purpose of the charge (revenue versus regulation) rather than its label, and separately applied the three-factor test from Waters Landing Ltd. Partnership v. Montgomery County for distinguishing an excise tax from a property tax: the label given by the legislative body, the actual operation and practical effect of the charge, and the method used to fix its amount. It noted a split among other states' courts on similar "street utility" or "transportation utility" fees, citing Colorado's Bloom v. City of Fort Collins (upholding a similar fee as a valid special fee) against Washington's Covell v. City of Seattle (striking down a similar fee as an unconstitutional property tax) and Florida's City of Port Orange (invalidating a transportation utility charge as an unauthorized tax).

Citations and references

Statutes:
- Maryland Declaration of Rights, Article 14, requiring General Assembly authorization for any tax or fee
- Maryland Declaration of Rights, Article 15, the property tax uniformity requirement
- Maryland Constitution, Article XI-E, §2 and §5, the municipal home rule provisions classifying municipalities and requiring General Assembly authorization for new municipal taxes and fees
- Article 23A, §2(b)(33)(ii), granting municipalities authority to establish and collect reasonable regulatory fees and charges
- Article 23A, §10, declaring all Maryland municipal corporations a single class for constitutional purposes

Cases:
- Campbell v. Mayor and Alderman of Annapolis, 289 Md. 300, 424 A.2d 738 (1981), holding the constitutional restriction on new municipal taxes applies to regulatory fees as well
- West Capital Assoc. Ltd. Partnership v. City of Annapolis, 110 Md. App. 443, 677 A.2d 655 (1996), distinguishing service charges from taxes and regulatory fees
- Eastern Diversified Properties v. Montgomery County, 319 Md. 45, 570 A.2d 850 (1990), and Theatrical Corp. v. Brennan, 180 Md. 377, 24 A.2d 911 (1942), establishing the purpose-based test for distinguishing a regulatory fee from a tax
- United States v. City of Huntington, West Virginia, 999 F.2d 71 (4th Cir. 1993), on street maintenance as a core government function and the bar on taxing federal property
- Griffin v. Anne Arundel County, 25 Md. App. 115, 333 A.2d 612 (1975), applying the Article 15 uniformity requirement to municipal property taxes
- Weaver v. Prince George's County, 281 Md. 349, 379 A.2d 399 (1977), holding the uniformity requirement does not extend to excise taxes
- Waters Landing Ltd. Partnership v. Montgomery County, 337 Md. 15, 650 A.2d 712 (1994), the three-factor test distinguishing an excise tax from a property tax
- Florida v. City of Port Orange, 650 So. 2d 1 (Fla. 1994), invalidating a similar transportation utility charge as an unauthorized tax
- Bloom v. City of Fort Collins, 784 P.2d 304 (Colo. 1989), upholding a similar transportation utility fee as a valid special fee under Colorado law
- Covell v. City of Seattle, 905 P.2d 324 (1995), striking down a similar municipal street utility charge as an unconstitutional property tax under Washington law

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/2006/91oag14.pdf

Original opinion text

14 [91 Op. Att'y

                    MUNICIPALITIES

T AXATION - M UNICIPALITY L ACKS A UTHORITY TO I MPOSE
"S TREET U TILITY F EE" W ITHOUT E NABLING L EGISLATION
F ROM THE G ENERAL A SSEMBLY

                          January 12, 2006

The Honorable George C. Edwards
Maryland Delegate

  You have requested our opinion on the authority of the City of

Cumberland ("City") to impose a "street utility fee" - a revenue
source intended to assist the municipality in the maintenance of its
streets.

   For the reasons explained below, it is our opinion that the street

utility fee envisioned by the City is more akin to an excise tax than
a regulatory fee or a user fee. Accordingly, the City lacks authority
to impose such a charge unless the General Assembly enacts
enabling legislation applicable to municipalities generally.

                               I

                      Street Utility Fee

A. Purpose of Fee

  You provided a letter from the City Administrator, who

explained that the contemplated street utility fee would allow the
City to raise revenue from individuals and entities located within the
City based on the traffic they are likely to generate on municipal
streets. Those revenues would supplement or substitute for the
property tax and other revenues that currently fund street
maintenance. Unlike the property tax, the street utility fee would
extend to tax-exempt entities that benefit from a system of well-
maintained streets, but that have not traditionally contributed to the
cost of street maintenance.

 The City Administrator accurately framed the key issue:

whether such a charge is a regulatory fee, which a municipality has
authority to impose, or whether it is more appropriately considered
a tax, which would require the enactment of enabling legislation by
the Legislature and which may be subject to other constitutional
constraints.

B. Minnesota Proposal

 We understand that the street utility concept is based on a

proposal developed by the League of Minnesota Cities ("Minnesota
League"). The Minnesota League, in partnership with that state's
City Engineers Association and Public Works Association, has
proposed legislation that would enable Minnesota's municipalities
to impose a street utility fee, which it describes as a dedicated
funding source for street maintenance similar to utility charges for
water or sewer services.

  Under the Minnesota League's proposal, such a fee would be

based on a "trip-generation rate" calculated for various land uses,
according to the current edition of the Trip Generation Manual
published by the Institute of Transportation Engineers.[1] A property
owner could appeal the amount of the fee or the application of the
trip generation rate to the governing body of the municipality and
then to the state's tax court.

  The ordinance imposing the charge would have to be adopted

by a two-thirds vote of the municipal governing body in accordance
with certain procedural requirements. As a prerequisite, the
municipality would have to adopt a five-year master plan for the
proposed reconstruction, upgrade, and maintenance of its streets.
Revenues resulting from the fee would be used only in accordance
with that plan. A municipality would not be precluded from also
drawing on revenue from other sources for municipal street work.

 In concept, the fee structure would be equitable, since the

charge would be based on the projected proportional use of
municipal streets by residents, businesses, and other entities within
the municipal limits.[2]

                              II

                           Analysis

A. Municipal Authority to Impose Fees and Taxes

 The Maryland Constitution prohibits the imposition of any

form of tax or fee without the authorization of the General
Assembly. Maryland Declaration of Rights, Article 14. The
municipal home rule amendment of the State Constitution sets forth
a similar limitation:

       ... No ... municipal corporation shall levy any
       type of tax, license fee, franchise tax or fee
       which was not in effect in such municipal
       corporation on January 1, 1954, unless it shall
       receive the express authorization of the
       General Assembly for such purpose, by a
       general law which in its terms and effect
       applies alike to all municipal corporations in
       one or more of the classes provided for in
       Section 2 of this Article. ...

Maryland Constitution, Article XI-E, §5.[3] This restriction applies
not only to general revenue measures, but to regulatory fees as well.
Campbell v. Mayor and Alderman of Annapolis, 289 Md. 300, 308,
424 A.2d 738 (1981).

 Subsequent to the Campbell decision, the General Assembly

granted municipalities authority to assess regulatory fees. Annotated
Code of Maryland, Article 23A, §2(b)(33)(ii).[4] See 89 Opinions of
the Attorney General 212, 217 (2004). However, the General
Assembly has not granted municipalities general taxing authority.

B. Nature of "Street Utility Fee"

   Conceptually, a street utility fee might be best characterized as

a "burden offset charge." See Spitzer, Taxes vs. Fees: A Curious
Confusion, 38 Gonz. L. Rev. 335, 345-49 (2002-03). Nonetheless,
it must be analyzed within the parameters of Maryland law. First,
we consider whether a street utility fee is a user fee analogous to
utility charges. We then address whether a street utility fee is
properly characterized as a regulatory charge or a tax.

        1.     Service Charge

   The courts have distinguished service charges, or user fees,

from taxes and regulatory fees. See West Capital Assoc. Ltd.
Partnership v. City of Annapolis, 110 Md. App. 443, 450-51, 677
A.2d 655 (1996). Generally, such charges are based on consumption
(e.g., water) or the provision of a service (e.g., sewer service) to the
person charged. By contrast, a street utility fee would be mandatory
and based on average trip generation data, without regard to actual
use of the streets by any individual or entity. In addition, improved
street maintenance would only indirectly benefit many of those
assessed. Accordingly, we do not believe the contemplated street
utility fee could fairly be characterized as a user or service charge.[5]

        2.    Regulatory Fees and Tax Measures Distinguished

  In Eastern Diversified Properties v. Montgomery County, 319

Md. 45, 570 A. 2d 850 (1990), the Court of Appeals determined that
a "development impact fee" imposed in two "planning policy areas"
of the county to help pay for road construction was a tax rather than
a regulatory fee. The Court stated that whether a particular fee
constitutes a valid regulatory measure or constitutes a tax depends
on the purpose of the enactment, rather than the label applied to it.
319 Md. at 53. The Court looked to the following standard for
distinguishing between the two:

        [W]hether a particular Act is primarily a
        revenue measure or a regulatory measure is
        important, because different rules of
        construction apply. A regulatory measure may
        produce revenue, but in such a case the
        amount must be reasonable and have some
        definite relation to the purpose of the Act. A
        revenue measure, on the other hand, may also
        provide for regulation, but if the raising of
        revenue is the primary purpose, the amount of
        the tax is not reviewable by the courts. There
        is no set rule by which it can be determined in
        which category a particular Act primarily
        belongs. In general, it may be said that when
        it appears from the Act itself that revenue is its
       main objective, and the amount of the tax
       supports that theory, the enactment is a
       revenue measure. ... [W]here the fee is
       imposed for the purpose of regulation, and the
       statute requires compliance with certain
       conditions in addition to the payment of the
       prescribed sum, such sum is a license proper,
       imposed by virtue of the police power ...

Id. at 53, quoting Theatrical Corp. v. Brennan, 180 Md. 377, 381-82,
24 A.2d 911 (1942) (internal citation omitted). In Eastern
Diversified, payment of the development impact fee was a
prerequisite to obtaining a building permit. The sole condition
imposed on a developer by the impact fee ordinance was payment of
the fee. Although the stated purpose was to regulate development,
revenues were dedicated to road construction in a large area. These
reasons, and the absence of a nexus between the fee and stated
regulatory purpose, led the Court to conclude that the impact fee was
a revenue measure rather than a regulatory fee. Id., 53-55; see also
89 Opinions of the Attorney General at 214-16.

  Under the standard applied in Eastern Diversified, it is our

view that the City's contemplated street utility fee is properly
characterized as a tax rather than a regulatory fee, even assuming
that the charge would be proportionally distributed among the
landowners that benefit from a system of well maintained streets.
The street utility fee would primarily be a revenue measure as it
would be assessed without any regulatory component. Furthermore,
the charges would be collected throughout the municipal limits,
without any assurance of a direct benefit to those assessed. The only
nexus would be the benefit to landowners relying on municipal
streets due to improvements made in accordance with a plan. To be
sure, the revenue would be dedicated to investment in the City's
street infrastructure. However, the cost of street maintenance has
traditionally been viewed a core function of government. United
States v. City of Huntington, West Virginia, 999 F.2d 71, 73 (4th Cir.
1993), cert. denied, 510 U.S. 1109 (1994). For these reasons, we
believe the street utility fee would be properly characterized as a tax
rather than a regulatory fee. Thus, Article 23A, §2(b)(33)(ii) would
not authorize the City to impose such a charge.

C. Nature of the Tax

  Whether the Legislature may authorize a tax in the form of the

contemplated street utility fee depends on the nature of that tax.
Article 15 of the Maryland Declaration of Rights limits the
assessment and levying of taxes on property as follows:

             That the levying of taxes by the poll is
       grievous and oppressive and ought to be
       prohibited; that paupers ought not to be
       assessed for the support of the government;
       that the General Assembly shall, by uniform
       rules, provide for the separate assessment,
       classification and sub-classification of land,
       improvements on land and personal property,
       as it may deem proper; and all taxes thereafter
       provided to be levied by the State for the
       support of the general State government, and
       by the Counties and by the City of Baltimore
       for their respective purposes, shall be uniform
       within each class or sub-class of land,
       improvements on land and personal property
       which the respective taxing powers may have
       directed to be subjected to the tax levy; yet
       fines, duties or taxes may properly and justly
       be imposed, or laid with a political view for
       the good government and benefit of the
       community.

This limitation - referred to as the uniformity requirement - extends
to property taxes imposed by municipal corporations as well as State
and county property taxes. Griffin v. Anne Arundel County, 25 Md.
App. 115, 126-27, 333 A.2d 612, cert. denied, 275 Md. 749 (1975).
However, this limitation applies only to property taxes; it does not
extend to excise taxes.[6] Weaver v. Prince George's County, 281
Md. 349, 355, 379 A.2d 399 (1977).

  The modern view of an excise tax is that it extends to "any tax

not levied directly on the ownership of property as such" and
includes "[a] tax on the use and enjoyment of a privilege appurtenant
to property ..." Weaver, 281 Md. at 362. See also 16 McQuillin, The
Law of Municipal Corporations §44.190 (3rd ed. rev. 2003) (term
"excise tax" has come to include practically any tax that is not an ad
valorem tax).

  The Court of Appeals has looked to three factors that

distinguish an excise tax from a property tax. See Waters Landing
Ltd. Partnership v. Montgomery County, 337 Md. 15, 650 A.2d 712
(1994). First, while not determinative, the label given to the tax by
the legislative body is entitled to "considerable weight." 337 Md. at
25. A second factor is the "actual operation and practical effect" of
the tax. While a property tax is "a charge on the owner of the
property by reason of his ownership alone without regard to any use
that might be made of it ... an excise tax is ... imposed upon the
performance of an act, the engaging in an occupation, or the
enjoyment of a privilege." 337 Md. at 25-26 (emphasis in original;
internal quotations omitted). Finally, "the methods used to impose
[the taxes] to fix their amount" should be taken into account. 337
Md. at 26. Thus, where a tax is based on the privilege exercised by
the taxpayer, without regard to valuation of the property, it is an
excise tax.[7]

  As we understand the contemplated street utility fee, it would

not be based on ownership of property or the actual value of the
property.[8] Rather, its assessment would be based on the use of
property or, more accurately, on the traffic likely to be generated as
a result of that use. In our view, the Legislature could authorize
municipalities to impose of a street utility fee such as that proposed
by the Minnesota League as an excise tax measure.[9]

  In summary, the Legislature could enact enabling legislation,

applicable to municipal corporations throughout the State,
authorizing municipalities to enact a street utility fee dedicated to
street maintenance.[10]

                                III

                           Conclusion

  In our opinion, a street utility fee would be regarded as a tax

rather than a regulatory fee or user charge. The City lacks authority
to impose the charge unless the Legislature enacts enabling
legislation. The Legislature could authorize municipalities to
impose such a charge as an excise tax without running afoul the
constitutional uniformity requirement applicable to property taxes.

                                      J. Joseph Curran, Jr.
                                      Attorney General

                                      William R. Varga
                                      Assistant Attorney General

Robert N. McDonald
Chief Counsel
Opinions and Advice

[1] The Trip Generation Manual (7th ed. 2003) includes trip
generation data for 150 land use categories, based on over 4,250
individual trip generation studies.
To create a manageable fee structure, property classifications would
likely be grouped with land uses with similar trip generation
characteristics. See, e.g., Schoening, Development of a Street Utility for
Funding Street Maintenance, Public Works 38 (August 2001) (addressing
Lake Oswego, Oregon's experience).

[2] The legislation proposed by the Minnesota League did not pass
during the 2005 legislative session.

[3] Article XI-E, §2 of the Maryland Constitution requires that the
General Assembly classify municipal corporations into not more than four
classes based on population. The General Assembly has declared that all
municipal corporations constitute a single class. Annotated Code of
Maryland, Article 23A, §10.

[4] The statute reads:

             In addition to, but not in substitution of, the
         powers which have been, or may hereafter be,
         granted to it, [a municipal] legislative body also
         shall have the following express ordinance-
         making powers:
                                 ...
                  (33) Subject to the limitations imposed
         under Article 24 of the Code, the Tax-General
         Article, and the Tax-Property Article, to establish
         and collect reasonable fees and charges:
              ...
                  (ii) Associated with the exercise of any
         governmental or proprietary function authorized
         by law to be exercised by a municipal corporation.

[5] The Supreme Court of Florida reached a similar conclusion when
it invalidated a "transportation utility charge" imposed by a municipal
government as an unauthorized tax. Florida v. City of Port Orange, 650
So. 2d 1 (Fla. 1994). The Court distinguished between a user fee and a tax
as follows: "User fees are charges based upon the proprietary right of the
governing body performing the use of the instrumentality involved. ...
[T]hey are charged in exchange for a particular governmental service
which benefits the party paying the fee in a manner 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 governmental service and thereby
avoiding the charge." Id. at 3 (internal citations omitted). But see Bloom
v. City of Fort Collins, 784 P.2d 304 (Colo. 1989) (en banc) (mandatory
transportation utility fee was a valid "special fee" under Colorado law).

[6] The uniformity requirement under Article 15 of the Declaration
of Rights applies to general property taxes, but not to special taxes such
as special assessments. See 63 Opinions of the Attorney General 16
(1978). The final clause of Article 15, "taxes ... laid with a political
view," authorizes the imposition of taxes other than property taxes. See
Friedman, The Maryland State Constitution: A Reference Guide 24
(2006).

[7] While an excise tax would be based on use of the property, this
is not to say that the Legislature could not provide a mechanism for the
enforcement of the tax through imposition of a lien on the property itself
and other property of the responsible taxpayer. See Waters Landing, 337
Md. at 27.

[8] Similarly, a street utility fee would not be a special assessment
since a special assessment may be made only if there is a special benefit
that accrues to the properties assessed, a benefit reflected in the value of
those properties, in addition to any public benefit. See 89 Opinions of the
Attorney General 107, 110-11 (2004).

[9] We found two cases from other states that reached different
conclusions about whether similar charges would be considered property
taxes under the laws of those states. In Bloom v. City of Fort Collins, 784
P.2d 304 (Colo.1989) (en banc), a divided Colorado Supreme Court held
that a municipal "transportation utility fee" imposed on owners or
occupants of developed lots to support street maintenance was not
property tax subject to constitutional uniformity requirement of the
Colorado constitution, but rather a "special fee" related to the cost of
maintaining city streets.
By contrast, in Covell v. City of Seattle, 905 P.2d 324 (1995) (en
banc) a divided Supreme Court of Washington held that a municipal street
utility charge was a property tax that violated the uniformity requirement
of that state's constitution. Citing one of its prior cases "defining a
property tax as a tax on things tangible and intangible and an excise tax as
the right to use or transfer things," the majority opinion held that the
charge was not an excise tax because the charge in question was ultimately
based on ownership of property as opposed to the use of a city service.
The Seattle fee is distinguishable to some extent from the Minnesota
League proposal in that the latter fee appears to be more closely calibrated
to projected use of the streets generated by the assessed property owner.

[10] The application of the street utility charge to properties exempt
from the property tax is a policy question for the Legislature. Given that
the charge is a tax rather than a regulatory fee, the charge may not be
imposed on property of the federal government. See, e.g., United States
v. City of Huntington, West Virginia, 999 F.2d 71 (4th Cir. 1993), cert.
denied, 510 U.S. 1109 (1994).