Utah Supreme Court
2023 UT 2 (Click for text of opinion)
The Utah Supreme Court reversed a district court determination that Pleasant Grove City’s Transportation Utility Fee (TUF) was an illegal tax, concluding that its purpose qualified it as a service fee, but remanded to determine whether the fee was reasonable.
To address deteriorating roads, Pleasant Grove City adopted an ordinance and resolution which, together, established a Transportation Utility Fee. The TUF charged residential and commercial property owners a monthly fee based on their “intensity of use of the city streets,” dividing property owners into three categories: tier 1 businesses, tier 2 businesses, and residential. Funds generated by the TUF were kept separate from the City’s general fund, and could only be used for the repair and maintenance of city roadways. After passage of the TUF, several property owners sued the City to prevent it from being implemented, arguing that the City lacked authority to enact the TUF because “transportation utility” is not specifically authorized in Municipal Code. In the alternative, the owners argued that the TUF was not really a fee, but an illegal tax that was not enacted by proper procedure.
The district court ruled that state law gave a general grant of authority to the City to pass ordinances that are reasonably related to providing for public safety, health, morals, and welfare, and that this broad authority included authority to create a transportation utility and implement a fee or tax. However, the district court determined that the City’s TUF constituted a tax rather than a fee. The court held that the TUF did not qualify as a service fee because as the benefits of the TUF would accrue not only to the individual property owners in the city, but also to anybody that used the City’s road system, it could not conclude that there was a “specific benefit” that returns to those who pay the fee.
The Utah Supreme Court upheld the district court’s determination that the City could enact a transportation utility fee according to a general grant of authority, but reversed the determination that the TUF was actually an illegal tax. The Supreme Court held that the proper analysis of a service fee is a “specific charge” for a “specific service or benefit,” and that in this case, the the district court mischaracterized the benefit as an improved road system, when instead, the specific service is better characterized as the use of City roadways. The fact that some people who do not pay the fee may benefit from it does not necessarily transform the fee into a tax. Because those who pay the fee receive the particular benefit of using the road, the TUF is properly characterized as a service fee. The Supreme Court, however, remanded back to district court to next determine whether the fee is “reasonable,” in that it “bears some reasonable relationship to the cost of the benefit [or service].” So while the purpose of the TUF qualifies it as a service fee, if the TUF is unreasonable, it may lose that status.