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HomeMy Public PortalAboutExhibit MSD 37D - Legal Rationale for Charging the Proposed Stormwater Capital Rate to Non-Profit and Governmental EntitiesMEMORANDUM To: Rate Commission From: Susan Myers Re: Legal Rationale for Charging the Proposed Stormwater Capital Rate to Non -Profit and Governmental Entities Date: April 20, 2018 A. Legal Rationale for the Stormwater Capital Rate to Be Charged to Tax Exempt Entities. There are three possible reasons why the stormwater capital rate can be charged to non-profit and governmental entities: (1) the stormwater capital rate can be properly interpreted as not being a property tax or any other form of tax, but as a charge or rate authorized by the Charter, and thus non-profit and governmental entities would not be exempt from paying it; (2) non-profit entities may not be exempt from paying the rate because the statutory exemption for non -profits conflicts with MSD's Charter; and (3) governmental entities may not be exempt from paying the stormwater capital rate because the rate can be construed to not be an ad valorem property tax and MSD's Charter specifically allows for governmental entities to be charged. It should first be noted that Zweig v. Metropolitan St. Louis Sewer District, 412 S.W.3d 223 (Mo. banc 2013), is not applicable here because that case did not decide this issue. Zweig focused on whether the stormwater user charge was a tax under the Hancock Amendment and the reworked Keller test and necessitated a vote — nothing more. Because the stormwater capital rate will be decided by the voters, Zweig and any Hancock -related analysis should not apply. And, as shown below, non-profit and governmental entities arguably are exempt only from ad valorem taxes, not from other taxes and charges that can be lawfully charged and collected, which was not decided by Zweig. 1. The Stormwater Capital Rate Is Fairly Interpreted as Not Being a Tax, But Is Instead a Rate or Charge Authorized by the Charter, and Non - Profit and Governmental Entities Would Not Be Exempt from Paying the Rate. Taxes fall into three separate categories: (1) capitation or poll taxes (assessed to a person); (2) ad valorem property taxes; and (3) excise taxes (such as sales, use, and licensing taxes and fees). Arsenal Credit Union v. Giles, 715 S.W.2d 918, 923 (Mo. banc 1986); City of Springfield v. Fredricks, 630 S.W.3d 574, 576 (Mo. 1982). The Missouri Constitution (Article X, § 6.1) provides that "[a]11 property, real and personal, of the state, counties and other political subdivisions ... shall be exempt from taxation ... and all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable ... may be exempted from taxation by general law." Mo. Const. art. X, § 6.1. Section 137.100 provides the statutory exemption from taxation for governmental and non-profit entities, tracking the language of the Constitution. R.S.Mo. § 137.100(1), (2), (5). The exemption, however, appears to apply only to ad valorem property taxes. This is evidenced by the language of the Constitution itself, which specifically references "assessed value" and "reassessment," thus connoting the referenced property tax is an ad 2 valorem one. Mo. Const. art. X, § 6.1-.2. Article X, § 4, in defining the classifications of property subject to taxation, provides that real property "shall be assessed for tax purposes at its value or such percentage of its value," further demonstrating that the taxation covered by the Constitution's exemption are ad valorem property taxes. Mo. Const. art. X, § 4. Likewise, Chapter 137 of the Missouri Statutes, titled "Assessment and Levy of Property Taxes," is replete with references to ad valorem taxes and the valuation and assessment of real and personal property. See, e.g., R.S.Mo. §§ 137.037, .073, .076, .080. Because § 137.100 is located in this chapter, it stands to reason that the statutory exemption applies only to ad valorem taxes. The stormwater capital rate is not an ad valorem property tax because it in no way relies on the value of the real property. As a result, the exemption should not apply. Nor does it appear that the stormwater capital rate falls within the other two categories of taxation. The rate is certainly not charged to each person within the District, so it is not a capitation tax. Excise taxes are defined very broadly to include "every form of taxation which is not a burden laid directly upon persons or property; in other words, excises include every form of charge imposed by a public authority for the purpose of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation." Centerre Bank of Crane v. Dir. of Revenue, 744 S.W.2d 754, 756 (Mo. banc 1988). The stormwater capital rate is not dependent on the performance of an act, enjoying some privilege, or engaging in an occupation. So, by 3 process of elimination, the rate does not fall within any traditional category of taxes and should not be subject to any exemption.1 The stormwater capital rate is best characterized as a rate or charge. MSD's Charter expressly permits the District "[t]o establish by ordinance a schedule or schedules of rates, rentals and other charges to be collected from all the real -property served by the - sewer facilities of the District, whether public or private." Charter § 3.020(16). The Charter further provides that the District can levy, assess, and collect ad valorem taxes "on all taxable property." Id. § 3.020(20). Finally, the Charter gives the District the power to levy and collect special benefit assessments for construction and improvement of facilities and infrastructure. Id. § 3.020(21). The District is thus limited in raising revenues to rates and charges, ad valorem taxes, and special assessments. The proposed stormwater capital rate is obviously a rate or charge because it is a variable charge based Crittenton v. Reed, 932 S.W.2d 403 (Mo. banc 1996), arguably should be inapplicable to the stormwater capital rate because the rate is not a special assessment and thus does not have to be connected to a specific benefit given to any particular property; rather, per the Charter § 3.020(16), the rate can be charged to any property "served by the sewer facilities of the District." If a court analyzed the stormwater capital rate as a special assessment versus general taxation issue, several cases involving sewer assessments, including one of MSD's, would be supportive of the stormwater capital rate being found not to be a general tax. In Lakewood Park Cemetery Association v. Metropolitan St. Louis Sewer District, 530 S.W.2d 240 (Mo. banc 1975), the court held that an MSD assessment for the extension and construction of sewers based on the square footage of property was not a property tax subject to the constitutional exemption granted to cemeteries. The court held that the cemetery, despite not being directly served by the sewer system being constructed, benefitted from the overall general health and welfare provided by the sewer assessment. Similarly, in Mullins v. Mt. St. Mary's Cemetery Ass 'n, 187 S.W. 1169 (Mo. 1916), the court found that a cemetery was liable for a special tax bill for sewer construction because the cemetery had to "bear its portion of the burden of preventing the passage of any noxious thing from it into or onto other lands. Whatever discharges that burden is a benefit to the property whence the noxious substance emanates." Therefore, in contrast to Crittenton, the courts have found that sewer construction provides a benefit for which tax exempt entities might be charged. Here, the stormwater capital rate will certainly improve the health and safety of the District as a whole through capital improvement and projects. 4 on the amount of impervious area on a property. It is neither based on a valuation nor on some specific benefit conferred or received. Based on the foregoing, because the stormwater capital rate is not an ad valorem property tax (or really any defined tax) and because it falls within the District's power to establish charges and rates on all property, "whether public or private," the exemption from taxation given to properties owned by non-profit and governmental entities should not apply, and it should be legal to charge the rate to those entities. 2. Non -Profit Entities May Not Be Exempt from Paying the Stormwater Capital Rate, Assuming It Is a Tax, Because the Statutory Exemption Conflicts with MSD's Charter. Assuming the stormwater capital rate is a property tax, the District should still have a sound and straightforward argument that the rate can nevertheless be charged to non-profit entities. The provision of the Missouri Constitution authorizing the creation of the District (Article VI, § 30(b)) explicitly provides that the Charter adopted by the voters of the District "shall become the organic law of the territory therein defined, and shall take the place of and supersede all laws, charter provisions and ordinances inconsistent therewith relating to said territory." Mo. Const. art. VI, § 30(b) (emphases added). The powers granted by this constitutional provision were intentionally conferred by constitutional amendment, rendering them "immune from legislative interference." State ex inf. Dalton v. Dearing, 263 S.W.2d 381, 386 (Mo. banc 1954); Gluck v. Terminal R.R. Ass 'n of St. Louis, 702 S.W.2d 476 (Mo. banc 1986) (state statute upheld because it was not "inconsistent" with MSD's applicable rules). The superseding effect of a Section 30 Charter is akin to, but "even greater than," the similar provisions for home rule by certain 5 counties under Article VI, Section 18. State ex inf. Dalton v. Metropolitan St. Louis Sewer Dist., 275 S.W.2d 225, 228 (Mo. banc 1955); see also State ex rel. St. Louis County v. Campbell, 498 S.W.2d 833, 836 (Mo. App. St.L. 1973) (holding that, under § 18, state statutes are superseded as to "matter[s] of local concern"). However, the Charter "does not supersede inconsistent constitutional provisions." State ex rel. City of St. Louis v. Mummert, 875 S.W.2d 108, 109 (Mo. banc 1994) (emphasis added) (holding that MSD's Charter could not override constitutional provisions regarding supervision and control of the judiciary, and thus circuit court judges did not have to vote to approve District trustees). The property tax exemption for non-profit entities is not a constitutional protection because Article X, § 6 merely provides that non-profit entities "may be exempted." Mo. Const. art X, § 6.1. It is R.S.Mo. § 137.100 that provides the exemption to non -profits. Therefore, the District could contend that, because the non-profit exemption is statutory in nature, and under the cases cited above, the statute is superseded within the District if it inconsistent with MSD's Charter. Such a contention would be based on the plain language of the Charter, which appears to demonstrate the inconsistencies. As noted, Charter § 3.020(16) expressly gives the District the power to collect rates and charges from "all real property ... , whether public and private," which obviously includes non- profit entities. Applying the statutory exemption to the stormwater capital rate would create a clear inconsistency between the two provisions. There is thus a straightforward, logical contention that § 137.100, as applied to the stormwater capital rate and non- profits, is superseded by the Charter and is not applicable to the District. 6 3. Governmental Entities May Not Be Exempt from Paying the Stormwater Capital Rate Because the Rate Is Not an Ad Valorem Property Tax and the Charter Specifically Authorizes Governmental Entities to Be Charged. The above analysis regarding the inconsistency between R.S.Mo. § 137.100 and the Charter does not apply to governmental entities because the exemption from property taxation for governmental entities is constitutional and thus absolute. However, there is a different argument that the governmental exemption is nevertheless inapplicable to the stormwater capital rate because the government subjected itself to the rate. The governmental property tax exemption "applies only to real estate taxes for general purposes." In re Foreclosure of Liens for Delinquent Land Taxes, 150 S.W.3d 364, 369 (Mo. App. W.D. 2004). This exemption does not necessarily extend to other classifications of tax, such as excises and assessments. See State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W.2d 405, 413-14 (Mo. banc 1936). Nevertheless, the rule is that properties owned by governmental entities are exempt from other forms of taxation unless "there is a clear legislative intent that such public property shall be subject to the assessment." Normandy Consol. Sch. Dist. v. Wellston Sewer Dist., 77 S.W.2d 477, 478 (Mo. App. St.L. 1934). Two analogous cases involving levee districts support the position that the stormwater capital rate can be charged to governmental entities. See In re Tri-County Levee Dist., 42 S.W.3d 779 (Mo. App. E.D. 2001); In re Fabius River Drainage Dist., 35 S.W.3d 473 (Mo. App. E.D. 2000). In Tri-County and Fabius, the Missouri Highway and Transportation Commission challenged levee district assessments on the ground that they 7 were unconstitutional taxes against the State. The courts rejected this contention and upheld the assessments. First, the courts noted that the exemption applied only to real estate taxes for general purposes, not to special assessments. Further, the courts explained that an assessment could be made against the State if there was "express enactment or clear implication" that the State could be charged; but "[l]nnguage allowing assessment against properties generally is insufficient to impose liability on property owned by the state." Tri-County, 42 S.W.3d at 787; Fabius, 35 S.W.3d at 483. The courts found that the issue was "one of delegated power, not exemption from taxation," and the state could delegate that power. Id. In those cases, the operative statutory language expressly referred to the state's property being assessed for the benefits received, and thus the assessments could be charged to the State. Here, it is a closer question. In the levee district cases, it was the State itself that passed statutes subjecting itself to the levee district charges. With respect to the District's charging the State the stormwater capital rate, an argument can be made that the State, through Article VI, § 30(b) of the Constitution, delegated power to the District to create, like the General Assembly, the organic controlling law regarding sewers and drainage within the District. This delegation of power could be further evidenced by the provision expressly superseding any inconsistent statutes. As a result, the District could argue that a court should look to the Charter to see if it expressly provides or clearly implicates that governmental entities can be charged for District services. As noted, the Charter expressly provides that rates or charges can be collected "from all the real property served by the sewer facilities of the District, whether public or private." Charter 8 § 3.020(16) (emphasis added). There is thus clear support in the language of the Charter that there is an express determination to charge public entities. Moreover, the Charter is different from more general statutory authorizations, such as "all property," that have been held to not authorize charging the State. See, e.g., In re Foreclosure of Liens for Delinquent Land Taxes, 150 S.W.3d at 369-70. Finally, there should be no issue with respect to collecting the stormwater capital rate from the federal government because the federal government expressly made itself subject to "payment of reasonable service charges" relating to stormwater runoff and pollution. 33 U.S.C. § 1323(a). "Reasonable service charges" are defined, in turn, as "any reasonable nondiscriminatory fee, charge, or assessment that is — (A) based on some fair approximation of the proportionate contribution of the property to stormwater pollution"; and "(B) used to pay or reimburse the costs associated with any stormwater management program ... regardless of whether that reasonable fee, charge, or assessment is denominated a tax." Id. § 1323(c). The stormwater capital rate should meet these criteria. First, the rate is based on impervious area, which is recognized as a fair approximation of the increased rate and volume of stormwater runoff from a particular property. Second, the funds collected from the stormwater capital rate will be used, as per the language of § 1323(c), to reimburse costs spent on "any stormwater management program (whether associated with a separate storm sewer system or a sewer system that manages a combination of stormwater and sanitary waste), including the full range of programmatic and structural costs attributable to collecting stormwater, reducing pollutants in stormwater, and reducing the volume and rate of stormwater discharge." 9