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April 1, 2024 – A village transportation utility fee that is based in part on the proportional share of road use estimated for each property subject to the fee is an illegal tax, the Wisconsin Court of Appeals (District II) has ruled in Wisconsin Manufacturers and Commerce, Inc. v. Village of Pewaukee, 2023AP690 (March 13, 2024).

In February 2021, the Village of Pewaukee (Village) enacted an ordinance that created a transportation utility. The ordinance specified that the utility was to repair streets and sidewalks.

The ordinance assessed a transportation user fee (TUF) on every developed property in the village. The TUF was made up of a base fee, which was equal for every property owner, and a usage fee.

The usage fee was calculated by dividing the utility’s budget by the total number of estimated trips for all property owners and allocating to each property owner a proportional share, based on use categories listed in the Institute of Traffic Engineers Manual.

In April 2022, Wisconsin Manufacturers and Commerce, Inc. (WMC) sued the Village in Waukesha County Circuit Court. WMC argued that the TUF was an illegal excise tax that violated the Uniformity Clause of the Wisconsin Constitution.

The circuit court concluded that the TUF was a fee, not a tax, and granted summary judgment for the Village.

WMC appealed.

Recent Precedent Controls

In her opinion for the three-judge panel, Judge Maria Lazar explained that the Wisconsin Supreme Court’s unanimous opinion in Wisconsin Property Taxpayers, Inc. v. Town of Buchanan, 2023 WI 58, 408 Wis. 2d 287, 992 N.W. 2d 100, was controlling.

Jeff M. Brown
Jeff M. Brown , Willamette Univ. School of Law 1997, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by
email or by phone at (608) 250-6126.

Lazar noted that Buchanan involved a challenge to a town’s imposition of a TUF, which consisted of two components: 1) equal amounts collected from residential properties; and 2) varying amounts collected from commercial properties, based on each property’s size, the nature of the business on the property, and the estimated number of trips made by the business on the property.

“The Supreme Court held that the funding mechanism for Buchanan’s transportational utility was a tax,” Judge Lazar wrote. “Thus, we must hold that the TUF at issue here is also a tax.”

Buchanan Is Binding

The Village argued that Buchanan was distinguishable because the parties in that case agreed that the fee was a tax, and under Wisconsin Court of Appeals caselaw, an opinion does not set binding precedent for an issue that wasn’t litigated or decided.

Lazar acknowledged that there was no dispute among the parties in Buchanan about whether the fee was a tax.

But, she wrote, the Village was mistaken in arguing that the Supreme Court didn’t decide the issue because “the court explicitly held that ‘[t]he parties are correct’ on this issue, citing caselaw … to explain its conclusion that ‘the TUF is a tax because the Town imposed it on a class of residents for the purpose of generating revenue.”

Home Rule Authority Is Irrelevant

The Village also argued that Buchanan was distinguishable because, unlike towns, villages have home rule authority under the Wisconsin Constitution.

But that was irrelevant, Judge Lazar concluded.

“The Village does not explain, and we do not perceive, the relevance of this fact to the question of whether a charge is a fee or a tax; it can only arguably relate to the legality of a fee, since a village may not adopt a tax under its home rule authority,” Lazar wrote.

The Village argued that its TUF was different than the Town of Buchanan’s because the method it used to determine a property’s “estimated use” was more specific than the method used by the town for its TUF.

But there was little evidence for that assertion, Judge Lazar wrote, and “the Village cites no support from Town of Buchanan or any other authority for the notion that any such difference has legal significance.”

The Court of Appeals reversed the judgment of the circuit court.