Report from Montpelier – Fees vs. Taxes

By Kate Webb
What is the difference between a fee for a driver’s license and a tax on a refrigerator? Revenue is revenue, right? Not exactly and as the “Fee Bill” is up for debate on the floor of the House this week, I thought this a good time to address this question.  How does a fee differ from a tax?
A fee is designed to cover the cost of a specific service to be paid by users.  In contrast, a tax is designed to raise general funds to support services and programs for the common good, although the common good is often in the eyes of the beholder.   We raise a tax, as our Vermont Constitution says, when it “ought to appear evident to the Legislature to be of more service to community than the money would be if not collected.”
A fee is tied to the cost of regulation or supervision of the service. Thus the primary purpose of a fee is not to raise revenues but to cover the expense of regulation and although it does not need to be exact, the courts have said it needs to be reasonably related to the cost of providing the service.
Simply put, regulation of the Shelburne Fishing Access, for example, is covered through fees, based on the belief that those who use it should pay for it. The users of this area, the fishermen and more recently motorboat users, cover this cost through fishing licenses and a portion of boat registration fees. This is why you could face an irritated fisherman if you are parking there to launch your kayak or iceboat.  They paid a fee for this use;  you didn’t.  Fees fund regulation of a wide variety of services such as the inspection of pesticides applications, nail salons, and restaurants to name a few.
Fees can also be used to help change our negative behavior to solve a problem. Bottle return fees or electronic waste disposal fees motivate users to reduce trash headed to our burdened landfills.  If this fee dries up, it should be due to the problem going away as well.
In contrast, a tax is added to various transactions for the purpose of raising revenue, which is not necessarily connected to the activity being taxed. Taxes will be addressed later in the session and will directly affect our final decisions on spending, and how dollars can be used as a match to maximize federal dollars. So stay tuned on this account.
Revenue related to the “fee bill” happens this week. On the docket for 2014 are fees that fund the regulation of certain agricultural activities, professional licensing, corporate and business regulation, current use, crime victim services and restitution, liquor control, and worker’s compensation to name a few. A controversial fee to support apiary inspection has been pulled to allow stakeholders more time to work on an acceptable proposal.  Many of these fees have not changed in a decade. However, the current bill calls for a slight reduction in liquor fees. Go figure.
Please join Representative Joan Lenes and me at Bruegger’s most Tuesday mornings at 7:30 am for coffee and conversation.

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