Supreme Court Decision Draws New Distinction Between Taxes and Fees

In a surprising decision in June, the South Carolina Supreme Court invalidated a road maintenance charge and a telecommunications charge imposed by Greenville County. This case, Burns v. Greenville County Council, turned on the question of whether the charges constituted taxes or fees.

Cities and towns may impose fees under SC Code Section 5-7-30, which allows them to “establish uniform service charges.” Authorization for municipal fees also comes from SC Code Section 6-1-330(a), which states that municipalities may charge “a service or user fee.” Additionally, municipal taxes are limited in part by SC Code Section 6-1-310, which states that a “local governing body may not impose a new tax after December 31, 1996, unless specifically authorized by the General Assembly.”

How fees were previously determined to be valid
The question in the Burns decision was whether the road maintenance and telecommunications charges were fees that are valid under the law, or were taxes that are invalid under the law. For many years, courts have determined whether a charge is a fee or a tax under the four-part test established in the 1992 case Brown v. County of Horry, which stated that a fee is a uniform service charge, and therefore valid, if:

  1. the revenue generated is used to benefit those who pay it, even if the general public also benefits; 
  2. the revenue generated is used only for the specific improvement it is intended for; 
  3. the revenue generated does not exceed the cost of the improvement; and 
  4. the fee is imposed uniformly on all those who pay it.
Determining fee validity under Burns 
In the Burns decision, the Supreme Court held the General Assembly modified the Brown test by amending SC Code Section 6-1-300(6). That statute now states that a service or user fee is “a charge required to be paid in return for a particular government service or program ... that benefits the payer in some manner different from the members of the general public not paying the fee.” 

Under the Burns test, the Supreme Court held the road maintenance charge under consideration was an invalid tax because “every driver on any road in Greenville County – whether their vehicles are registered in Greenville County, Spartanburg County, or in some other state – benefits from” the road maintenance paid for by Greenville County residents.

Similarly, the Supreme Court found that the telecommunications charge was an invalid tax because there was no proof that an enhanced telecommunications system benefitted the fee payers in a manner different from the general public.

Justice John Kittredge wrote separately to highlight the issue at stake: “I believe today’s decision sends a clear message that the courts will not uphold taxes masquerading as ‘service or user fees.’”

Implications of the Burns decision 
This is an important and far-reaching decision. Municipalities must review all of their existing charges to determine if they comply with this new, more restrictive interpretation. At a minimum, municipalities should carefully investigate and document the benefit received directly by those paying a charge, and how that benefit differs from the benefit to the general public. For example, the Burns court suggested that the county government could have defended the telecommunications charge by proving that those properties that were subject to the fee increased in value because of the enhanced public safety communication system. 

Read the text of the June 2021 Burns v. Greenville County Council