A taxing topic: Understanding the difference between fees and taxes

Utilities are funded in a variety of ways. What classifies one charge as a fee, others as taxes, and why does the terminology matter?

The terms tax and fee are often confused or used interchangeably.

In media and customer circles, blog commenters and public-meeting attendees may refer to sewer or stormwater fees as taxes. Is the difference significant?

Blogger David Alpert posted a fine clarification of his own back in 2009, and it applies similarly to the District’s sewer and stormwater rates:

What’s the difference? A tax takes a cut of some other transaction for the purposes of raising revenue that’s not connected to the activity being taxed. A fee, on the other hand, is a charge connected to the actual direct governmental cost of the activity. For example, the sales tax doesn’t just recoup the city’s direct expenses that result from having sales take place. Revenue from the property tax funds a variety of programs, not just services to property owners. But if property owners paid a direct charge that went to trash collection from their property, we could call that a fee.

The Sewer District’s rates (one for regional wastewater service and another for regional stormwater management) are fees rather than taxes because they are charged for the actual cost of service to our customers: operation and maintenance of the Sewer District’s facilities and assets to provide wastewater and stormwater management.

In the end to many customers, bills are bills, and we understand that calling them “higher taxes” or “higher fees” doesn’t change that bottom line. But when it comes to context and consistency, the difference matters.