Municipalities are prohibited from imposing taxes unless they are specifically authorized by the
legislature but can impose fees. What is the difference between a tax and a fee?

The primary difference between a tax and a fee is the source of the municipality’s power and, more importantly, the municipality’s purpose in imposing the amount. Taxes are imposed pursuant to the taxing power and the “levying of taxes constitutes the enforcement of proportional contributions from persons and property for the support of government and its public needs.” Buse v. Smith, 74 Wis. 2d 550, 247 N.W.2d 141 (1976). A tax is imposed for the purpose of raising revenue. Municipal taxing power is very limited and a municipality cannot impose a tax unless it is specifically authorized by the legislature.

In contrast, a fee is generally imposed under a municipality’s police power (the power to act for the public health, safety and general welfare) to pay for or defray costs associated with regulation and enforcement in a particular area. A municipality may be prompted to regulate because of specific problems associated with a particular activity or because the general nature of the activity reasonably demands local control and regulation. Examples of traditional areas subject to local regulation include sale of intoxicating liquors; businesses and occupations; exhibitions and shows; street uses and operation of vehicles; building construction; as well as activities of a noncommercial character that involve an element of potential harm or concern with regard to the public health, safety or welfare.

To determine whether something is a tax or a fee, courts look at the municipality’s purpose in imposing it. If revenue is the primary purpose and regulation is merely incidental, the imposition will be considered a tax; however, if regulation is the primary purpose the fact that some revenue is incidentally obtained does not make the imposition a tax. If the amount imposed is for regulation but clearly and materially exceeds the cost of regulation, inspection or police control, it will be considered excessive or unreasonable and will generally be held to be a tax or an illegal exercise of the police power.

Any license charge or fee must bear a reasonable relation to those expenses incurred by the municipality through its regulation. See Wis. Stat. sec. 66.0628(2). These expenses will generally include the cost of granting the license or permit (e.g., clerk’s and issuing authority’s time) and of investigating, inspecting and exercising proper police supervision. Where the legislature has set a range for fees (e.g., the fee for a “Class B” liquor license has a minimum of $50 and a maximum of $500), a municipality may set the fee anywhere within the statutory range, without justifying the particular fee. Sluggy’s Lake Front Inn, Inc. v. Delavan, 125 Wis. 2d 199, 372 N.W.2d 174 (Ct. App. 1985).

(rev. 1/14)