By Mike Kerman and Jonathan Feldman

The Delaware Chancery Court held that a town’s $27,000 building permit “fee” was in substance a tax that could not be levied against a tax-exempt water and sewer authority. The town assessed the fee upon the water and sewer authority before it would issue a permit to construct a water storage tank. Whether the town could impose such a charge depended on whether it was properly characterized as a fee or a tax, regardless of its label as a fee. The distinction, the court said, is that a fee is directly related to a service received or a burden contributed by the payer, and is intended to offset the government’s costs of regulating or policing the conduct or risks. A tax, in contrast, is an enforced contribution (not a voluntary payment) imposed without any relationship to specific benefits received by the taxpayer. Based on this distinction, the court found the building permit fee to be a tax because it was calculated without regard to any benefits to the authority and would be used within the town’s general revenue fund. The record failed to show that the town would incur costs anywhere near the $27,000 charge in processing the authority’s permit. Thus, there was no direct relationship between the $27,000 and the benefits received or burdens contributed by the tax-exempt water and sewer authority, therefore the tax could not be imposed. Camden-Wyoming Sewer & Water Auth. v. Town of Camden, C.A. No. 12347-VCS (Del. Ch. Sept. 18, 2017).