The payment of a fee to a city in lieu of hotel taxes is not a topic that directly affects many people in the state. But the decision in the recent City of Delavan and Lodges at Lake Lawn Resort Condominium Association case may have a bearing on a broader range of fees imposed by municipalities for a variety of reasons.
The Delavan case was brought by a group of owners who purchased units in a condominium affiliated with Lake Lawn Lodge, and who chose to not rent those units to the public. The developer of the condominium had entered into an agreement with the City of Delavan, which required unit owners to make a payment to the City in lieu of the hotel taxes the City would have otherwise received, had those units been rented to the public as hotel rooms. The Wisconsin Court of Appeals ruled that this payment was an illegal tax and overturned the obligation to pay it.
The Court reasoned that a tax is an “‘enforced proportional contribution from persons and property’ levied to support a government and its needs,” and that “‘the primary purpose of a tax is to obtain revenue for the government’ as opposed to covering the expenses of providing certain services or regulation.” The Court ignored the name given to the fee or whether it was created in a contract between the municipality and the owner. It noted that the revenue generated was not dedicated to the provision of any service or regulation, and not for the purpose of recouping amounts the City had invested in the project, but purely for general government revenue, and it therefore was a “tax.” The Court then cited long-standing law that a tax is illegal unless the power to levy that tax was granted by the State.
We have seen local governments at every level assess fees, costs, and charges by many names, as their budgets have been pinched. This decision will likely have those governments reexamine the nature of those fees, how their ordinances creating those fees are worded, and how the collected fees are applied to specific costs.
The Delavan case can be found at: Domenico Bentivenga et al. v. City of Delavan and Lodges at Lake Lawn Resort Condominium Association, Inc., (2014 AP 137) (Wis. Ct. App. Oct. 15, 2014).