Arbor Investment Co. v. City of Hermann
2011 Mo. LEXIS 126
Mo.2011Background
- Arbor filed a class-action alleging Hermann's utility charges exceed costs and transfers to the general fund violate the Hancock Amendment, art. X, sec. 22(a).
- Hermann is the exclusive provider of electricity, natural gas, water/sewer, and refuse in Hermann, with rate increases without voter approval since 1980.
- The 2003 state auditor's report showed transfers of excess utility revenue to the general fund via a 10% gross receipts surcharge and other transfers; a 911 communications fee was added later.
- The transfers were conducted by the utilities themselves and involved city funds; Arbor concedes the funds are city accounts and that transfers were not unlawful per se.
- The trial court granted summary judgment favoring Hermann, holding Keller's five-factor test favored fees over taxes; Arbor appealed, and the Supreme Court granted transfer.
- The Missouri Supreme Court ultimately affirmed the trial court, applying Keller and Beatty, concluding the charges are fees rather than taxes under the Hancock Amendment under the facts presented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Keller’s five factors govern whether a charge is a fee or a tax under Hancock. | Arbor argues the five Keller factors determine whether the charges are taxes. | Hermann argues Keller factors are useful aids but not exclusive; context and Beatty may guide beyond the five factors. | Keller factors are helpful and usually dispositive, but not exclusive; balance here favors fees overall with one factor weighing toward tax. |
| Whether Hermann’s utility charges are true user fees or hidden taxes given monopoly status. | Arbor contends excess charges and transfers show hidden taxes. | Court concludes charges are user fees tied to services provided; excess, if any, does not convert to tax under 22(a). | Charges are user fees for services, not taxes under Hancock. |
| Does exclusive-provider status nullify Keller analysis when determining tax vs fee? | Arbor asserts sole provider status should classify charges as taxes. | Keller and Beatty control; sole-provider status is not dispositive. | Not dispositive; Keller factors remain the guiding framework. |
| Whether Beatty’s lien-related considerations affect the tax/fee determination. | Arbor relies on lien implications suggesting tax-like character. | Beatty adds that liens can push toward tax characterization in certain contexts, but not here. | Beatty factors and lien considerations support treating charges as fees rather than taxes. |
Key Cases Cited
- Keller v. Marion County Ambulance District, 820 S.W.2d 301 (Mo. banc 1991) (five-factor framework for distinguishing fees from taxes; fees for actual services generally not taxed under Hancock)
- Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. banc 1993) (recognizes Keller factors are aids and may involve additional considerations; ties go to taxpayers when uncertain)
- Pace v. City of Hannibal, 680 S.W.2d 944 (Mo. banc 1984) (upholds city overhead/employee costs and revenue losses as recoverable without converting to tax)
- Missouri Growth Association v. Metropolitan St. Louis Sewer District, 941 S.W.2d 615 (Mo. App. 1997) (post-Keller analysis applying factors; not exhaustive but helpful)
- Roberts v. McNary, 636 S.W.2d 332 (Mo. banc 1982) (initial interpretation of Hancock Amendment before Keller; led to Keller clarifications)
- Feese v. City of Lake Ozark, 893 S.W.2d 810 (Mo. banc 1995) (distinguishes sewer charges when service is not provided to all, affecting tax/fee result)