Real Estate and Land Use Litigation Alert - Massachusetts Appeals Court Affirms that Town Must Refund Sewer Connection “Fee” Charged to Developers

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In June 2009, we reported on a Massachusetts Superior Court decision in which the court ordered the Town of Saugus to return more than $670,000 in fees paid by developers to connect their projects to the sewerage system in that town. That trial court’s decision has now been reviewed and affirmed in full by the Massachusetts Court of Appeals in Denver Street LLC v. Town of Saugus. This appellate decision provides a strong basis for similarly situated developers to object to “I/I reduction” fees in circumstances that are similar to those outlined in the Denver Street case. It also provides important lessons for municipalities who want to charge lawful fees for new sewer connections.

The facts in the case are set out in our June 2009 alert. The crux of the Superior Court’s ruling was that the disputed “fee” was in fact an unlawful tax imposed on developers. The court started with the well-established proposition that a municipality may lawfully charge reasonable fees for specific services, but lacks the power to tax unless that power is expressly granted by the Massachusetts Legislature. The factors used to distinguish a permissible fee from an unlawful tax were set forth by the Supreme Judicial Court in its 1984 decision in Emerson College v. Boston. According to those wellsettled standards, fees, unlike taxes, are (1) charged in exchange for a particular government service that benefits the party paying the fee in a manner not shared by other members of society, (2) paid by choice, and (3) collected not to raise general revenues, but to compensate the governmental entity for providing the services.

Please see full alert for more information.

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Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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