When is a fee not a fee?

Before the holidays a state judge delayed implementation of a new tax on taxi rides in New York City, part of the Mayor’s congestion pricing plan. Later this month he will be asked to strike the tax down permanently. Whatever the press may call it, it’s not a congestion fee, it’s a tax on a disfavored business (taxis) to benefit a favored business (the MTA).

To see what’s going on we should understand some terms, tax and fee and discrimination. When the government takes your money, American law traditionally classifies the payment as a tax, a fee, or a fine. There are different rules for how all of these payments may be collected and used.

Taxes are nonconsensual. If you buy computers, gasoline, or tampons you may have to pay. If you have a house, a boat, or points on your license you may have to pay. The government can do whatever it likes with the money.

User fees are in some sense voluntary, and more importantly they pay for an individualized benefit and are based on the cost to provide the benefit. Tolls, park entrance fees, and building inspectors are examples. The government is supposed to use the payment to provide the service. Because user fees are like business transactions courts are much more tolerant of fees than they are of taxes.

The distinction is related to the concept of a “public good” in economics. Boston attempted to charge a fire protection fee for tall buildings. Fire protection in an urban area is a public good. Your burning building endangers your neighbors. You can’t opt out of the fire district. State courts ruled the “fee” for a basic government service was really a tax. In some rural areas where fires don’t spread there are voluntary fire protection fees. People do opt out. Sometimes they save money. Sometimes their buildings burn down.

If everybody paid ten cents a minute for occupying a travel lane below Central Park, with revenue going to road maintenance, that could be a user fee. Instead lobbyists and negotiators decided taxis would pay $2.50 per ride, Uber would pay $0.75 per ride, and cars, trucks, and buses would pay nothing. The charge was not be based on road maintenance costs and it would not be spent on providing a benefit to taxi drivers. Quite the opposite: It would be spent to subsidize their competition, feeding the MTA’s $14 billion budget.

The charge is not a user fee. It is not a congestion fee either because it only targets a small part of the congestion. The New York City taxis regulator who is being sued agreed on this much.

The “congestion” charge is a discriminatory tax. But so is the graduated income tax (which discriminates against people who make more money). “Discrimination” in the abstract is not illegal. What’s illegal is disparate treatment that harms a protected class or is otherwise considered clearly unjustified by a judge.

I think drivers have a plausible case here. A car, a taxi, a truck, and an Uber all drive from point A to point B. They pay four different rates, and the one that takes the most road space pays the least. The tax may even increase congestion as higher fares drive people back into their own cars.

Taxi drivers’ other complaint is they already paid for the right to drive people around Manhattan. Some of them paid a million dollars for a medallion.

Drivers lost when they sued to block ride-hailing services. The government doesn’t have a duty to protect business from private competition.

This time is a little different. Congestion pricing is explicitly intended to discourage driving. Now taxi drivers can say “they are trying to put us out of business.” Putting them out of business, as opposed to allowing them to fail, could be seen as revoking the license they paid so much for.

Me, I don’t like discriminatory taxes and divide-and-conquer politics. I’m cheering for the taxi drivers. If we see a uniform congestion fee with the money going Upstate instead of into the tunnels, I’ll reconsider. We all know that won’t happen.

You can follow the action on the New York courts’ web site, case 161920-2018. The next hearing is in a few weeks. The final decision could be years away.

The opinions expressed in this post belong to the author and do not necessarily represent those of the National Motorists Association or the NMA Foundation. This content is for informational purposes and is not intended as legal advice. No representations are made regarding the accuracy of this post or the included links.

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2 Responses to “When is a fee not a fee?”

  1. anonymous says:

    The problem isn’t the length of the vehicle. It’s sudden double parking. I think Ubers should be charged more than taxis, since they have to wait while a specific person finds them.

    And improving transit could make things better for taxis and Ubers, by preventing crippling gridlock. Though throwing more money at the MTA doesn’t necessarily improve transit.

    • John Carr says:

      Ten or twenty years ago NYC warned that double parkers would start to get moving violations instead of parking tickets. I don’t know if that threat turned into enforcement. It takes a lot of police to ticket people who stop for a minute or two at a time.

      Better to reserve a spot on each block for very short term parking. In some places it’s legal to “stop” in front of a hydrant even though it’s illegal to “park” in front of one. If NYC is such a place, there’s a possible solution to the pick up/drop off problem.