In a 7-0 decision the Supreme Court of Ohio held yesterday that “impact fees” assessed by a Warren County township on new residential and commercial development projects within its borders to pay for roads, parks, police and fire protection constitute taxes that the township is not legally authorized to collect under Ohio law. Drees Co. v. Hamilton Twp., Slip Opinion No. 2012-Ohio-2370.
The Hamilton Township Board of Trustees adopted a schedule of fees or assessments to be charged to applicants for zoning certificates for new construction or redevelopment of property within the unincorporated areas of the township. The trustees’ resolution established four categories of fees: a road-impact fee, a fire-protection-impact fee, a police-protection-impact fee, and a park-impact fee to offset increased services and improvements the township would need to provide because of the development.
The Supreme Court concluded that despite the fact that the Township referred to these funds as fees or assessments, based on the Court’s prior decisions, these were, in fact, taxes that the Township did not have the legal authority to levy. Justice Pfeifer wrote in his opinion: “The fact that the township’s resolution calls the assessments ‘fees’ is certainly not sufficient to establish that the assessments are not taxes. In order to determine whether certain assessments are taxes, we must analyze ‘the substance of the assessments and not merely their form.’
In analyzing the substance of the assessments, the Court determined that the “assessments” in this case were not regulatory in nature, but rather were primarily a means of revenue generation for the Township. Further, the Court found that these funds were now targeted to benefit the particular area on which the assessments were levied, but were, instead, used to fund programs generally throughout the Township. Additionally, the Court concluded that those upon whom these assessments were imposed received no specific benefit as a result of the assessment, but rather simply received the same services that others throughout the Township who do not pay the assessment received.
Based on these factors, the Court concluded that these assessments bore all the hallmarks of a tax and, were thus, beyond the authority of the Township to impose. This decision is important both to developers who have historically opposed the imposition of such assessments or fees on their new developments and to local governments who have made use of these assessments or fees to fund services as their community services became increasingly burdened by new development.For those of you who are developers, you may wish to carefully review assessments that have been imposed on communities you have developed in light of this decision. For those of you who are administrators or elected officials in local communities who have or will wish to impose assessments on new or existing developments, you should do so carefully and be guided by this decision in developing and enacting such assessments. It is likely that there will now be other challenges to similar assessment regimes across Ohio.