Justices Rule User Fees Are Not Taxes, Averting $22-Billion Budget Headache

The Supreme Court, sparing Congress and the Bush Administration a big budget headache, ruled unanimously Tuesday that government “user fees” are not taxes and therefore may be imposed by federal agencies without being enacted into law.

If the decision had gone the other way, it could have threatened as much as $22 billion in fees collected by various federal agencies, ranging from the Coast Guard to the Nuclear Regulatory Commission and the Securities and Exchange Commission.

An adverse ruling also would have greatly complicated federal budget negotiators’ efforts to reduce the deficit this year.

Way to Hike Revenue

In most instances, Congress passes a law authorizing the charging of fees in a regulated industry and leaves it up to the agency to decide who pays exactly what. Recently, congressional leaders and the Bush White House have talked of adding new “user fees” as an attractive way of increasing revenue without raising taxes.

On Tuesday, the justices, overturning a lower court ruling in Oklahoma, said that the current method of handling user fees is legal.

“So long as Congress provides an administrative agency with standards guiding its action,” the agency officials can take on the authority to set specific fees, wrote Justice Sandra Day O’Connor.

The delegation of authority for setting fees for some government services had been challenged by such groups as the U.S. Chamber of Commerce, the National Assn. of Manufacturers and the National Taxpayers Assn., which charged that this way of raising money was both unwise and unconstitutional.

In briefs to the high court, they said that the Constitution does not permit legislators to hide behind bureaucrats imposing fees and instead requires them to pass laws prescribing the amount charged and who must pay. Moreover, they said that the fees charged by agencies such as the NRC and the SEC actually pay for the operation of the agency itself, and thus should be considered taxes and not a fee for service.

Last year a district judge in Oklahoma agreed with these arguments and ruled unconstitutional a 1985 congressional budget act allowing federal regulators to impose “reasonable” fees on users of pipelines carrying natural gas and hazardous liquids. The judge concluded that pipeline fees set by the Department of Transportation actually are taxes and that the Constitution reserved for Congress alone the “power to lay and collect taxes.”

Although the pipeline case involved only about $9 million in fees, the Justice Department saw the ruling as a potential threat to user fees in general and appealed the case (Skinner vs. Mid-America Pipeline Co., 87-2098) directly to the Supreme Court.

‘Longstanding Principle’

O’Connor said that her opinion “reaffirmed our longstanding principle” that the Constitution permits Congress to delegate to the executive branch the power to carry out the details of its laws.

During the New Deal era of the 1930s, this issue provoked a major constitutional conflict between the Supreme Court on one side and the Democrat-dominated Congress and Franklin D. Roosevelt Administration on the other. On several occasions, the conservative court struck down New Deal laws on the grounds that it was unconstitutional for Congress to give Roosevelt’s new agencies the power to regulate the economy.

In 1937, however, the high court changed course and accepted the modern bureaucratic system in which the lines between regulations and laws, or between taxes and fees, are not so clear. In the 52 years since then, the justices have not struck down a single law on the grounds that Congress has abdicated its constitutional powers to the executive branch.

Meanwhile, in an important taxing victory for the Western states, the court ruled Tuesday that states may tax businesses for oil and gas taken from Indian reservations.

On a 6-3 vote, the justices upheld New Mexico’s tax on oil corporations operating on Indian lands, concluding that this tax does not subject a company to illegal multiple taxation nor does it infringe on the rights of Indians (Cotton Petroleum vs. New Mexico, 87-1327).