Can a Maryland county charge a percentage-based fee on industrial revenue bonds issued by a state financing authority?

Plain-English summary

Howard County passed a bill charging 0.125% of the face amount of any refunding bond issued through the Maryland Industrial Development Financing Authority (MIDFA) for a project in the county, calling the charge a fee for advertising, processing, and reviewing the bonds. MIDFA's executive director asked the Attorney General whether the county actually had authority to impose this charge on MIDFA's own refunding bond issues. The opinion concluded it did not: despite its label, the charge functioned as a tax rather than a fee for services, because its amount bore no reasonable relationship to the county's actual processing costs, and Howard County, a charter home rule county, had never been given the power by the General Assembly to impose this kind of tax.

Currency note

This opinion was issued in 1988. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Maryland county charge a percentage-based fee on state financing authority bonds just by calling it a "fee"?
Not according to this opinion. The Attorney General concluded that the label a county uses does not control; what matters is the purpose of the charge, and a charge with no reasonable relationship to the actual cost of services rendered is a tax regardless of what the ordinance calls it.

What made the Attorney General decide Howard County's charge was really a tax and not a legitimate fee?
Several factors: the fee schedule did not distinguish the county's much lower costs when MIDFA (rather than the county itself) issued the bonds, the charge scaled with the bond amount even though the county's processing work was the same regardless of size, and a typical $10 million bond issue would generate $12,500 for the county, far more than needed to cover the processing and public hearing costs the fee was supposed to cover.

Did Howard County have any other way to tax MIDFA bond issues if this charge was invalid?
The opinion said no existing state law gave Howard County authority to impose an excise tax on bond issuance, but noted that if the General Assembly believed this revenue source should be available to Howard County or other jurisdictions, it could enact a law authorizing it.

Background and statutory framework

MIDFA issues tax-exempt or taxable bonds to finance or refinance facilities under FI §13-138 and the Maryland Economic Development Revenue Bond Act, and before MIDFA can issue bonds for a project in a given jurisdiction, that county or municipality must adopt a resolution and hold a public hearing (a "TEFRA notice") under federal tax law. Local governments typically charge a fee to cover the costs of processing that resolution and hearing, and Section 148 of the Internal Revenue Code of 1986 caps the total annual charges an issuer can collect at 0.125% of the outstanding bond balance. Howard County Bill No. 26 amended the county's existing flat-fee schedule (a $500 or $1,000 charge depending on bond size) by adding a new, separate 0.125%-of-face-amount fee specifically for refunding bonds, including MIDFA refunding bonds, payable partly at application and partly at closing.

The opinion framed the question in two parts: whether the charge was really a "fee" or a "tax," and if a tax, whether Howard County had authority to impose it. Citing Campbell v. City of Annapolis for the principle that the purpose of a charge, not its label, controls its legal character, the opinion catalogued the type of charges recognized elsewhere as genuine fees (court costs in Crocker v. Finley, landfill charges tied to landfill costs in Barnhill Sanitation Service, Inc. v. Gaston County, insurance examination charges in Leggett v. Missouri State Life Insurance Company) against charges found to be disguised taxes because they bore no reasonable relation to actual service costs (a graduated probate fee in Smith v. Carbon County, a marriage-license surcharge funding a retirement fund in Gunby v. Yates). Applying that framework, the opinion identified four specific problems with Howard County's refunding-bond charge: it did not distinguish the county's own bond-issuer costs from the far smaller costs of merely processing another issuer's resolution; it charged more for refunding bonds than new bonds despite identical county services; it scaled with bond size even though the county's work did not; and its likely yield (illustrated with a $10 million bond generating $12,500) vastly exceeded any plausible processing cost, especially given the flat $1,000 fee already charged for new bond issue applications.

Having concluded the charge was a tax, the opinion turned to whether Howard County, a charter home rule county under Article XI-A, §2 of the Maryland Constitution, had authority to impose it. Citing Griffin v. Anne Arundel County for the rule that a county's taxing power is not inherent but must be delegated by the State, the opinion found that the Express Powers Act's broad grant of legislative power to charter counties (Article 25A, §5(S)) does not include a general power to tax, per Montgomery County Board of Realtors, Inc. v. Montgomery County, and that Section 5(O) of the Express Powers Act grants only the power to levy a property tax, per Montgomery County v. Maryland Soft Drink Association, while the charge here was an excise tax rather than a property tax, per Weaver v. Prince George's County. Finding no other statute granting Howard County authority to impose an excise tax on bond issuance, the opinion concluded the 0.125% charge could not be applied to MIDFA's refunding bonds, while noting the General Assembly remained free to authorize such a charge by statute if it chose to.

Citations and references

Statutes:

• §13-138 of the Financial Institutions Article
• FI §13-138(e)
• Maryland Economic Development Revenue Bond Act, Title 14, Subtitle 1 of Article 41
• Section 147(h) of the Internal Revenue Code of 1986
• Section 148 of the Internal Revenue Code of 1986
• Howard County Bill No. 26
• §22.600(a) of the Howard County Code
• Article XI-A, §2 of the Maryland Constitution
• Article 25A, §5(S) of the Maryland Code
• Section 5(O) of the Express Powers Act

Cases:

• Portsmouth Stove & Range Co. v. Baltimore, 156 Md. 244, 249, 144 A. 357 (1929)
• Reinhardt v. Anne Arundel County, 31 Md. App. 355, 356 A.2d 917 (1976)
• Griffin v. Anne Arundel County, 25 Md. App. 115, 333 A.2d 612 (1975)
• Campbell v. City of Annapolis, 289 Md. 300, 305, 424 A.2d 738 (1981)
• Crocker v. Finley, 459 N.E.2d 1346, 1350 (Ill. 1984)
• Barnhill Sanitation Service, Inc. v. Gaston County, 362 S.E.2d 161 (N.C. App. 1987)
• Leggett v. Missouri State Life Insurance Company, 342 S.W.2d 833, 875-76 (Mo. 1961)
• United States v. State of Maryland, 471 F. Supp. 1030, 1036 (D. Md. 1979)
• Smith v. Carbon County, 63 P.2d 259 (Utah 1936)
• Foreman v. Treasurer of Oakland County, 226 N.W.2d 67 (Mich. 1974)
• Gunby v. Yates, 102 S.E.2d 548 (Ga. 1958)
• Hagerstown v. Startzman, 93 Md. 606, 609-11, 49 A. 838 (1901)
• Gould v. Baltimore, 59 Md. 378, 380 (1883)
• Montgomery County Board of Realtors, Inc. v. Montgomery County, 287 Md. 101, 107, 411 A.2d 97 (1980)
• Montgomery County v. Maryland Soft Drink Association, 281 Md. 116, 337 A.2d 486 (1977)
• Weaver v. Prince George's County, 281 Md. 349, 357, 379 A.2d 399 (1977)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1988/Volume73_1988.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Local Government—Charter Counties—Bonds—Maryland Industrial Development Financing Authority ("MIDFA")—Fees—Taxes—Howard County May Not Impose a Charge of 0.125% of the Face Amount of MIDFA Refunding Bonds.

November 28, 1988

Mr. Benjamin L. Hackerman
Executive Director
Maryland Industrial Development Financing Authority

You have requested our opinion concerning the validity of legislation recently enacted by Howard County that requires an entity applying to the County for approval of the refunding of industrial development revenue bonds, including bonds issued by the Maryland Industrial Development Financing Authority ("MIDFA"), to pay a charge of 0.125% of the face amount of the refunding bonds issued. The legislation refers to the charge as a "fee" for the "advertising, processing, and review" of such bonds "whether or not Howard County, Maryland is the issuer" of the bonds. Specifically, you have asked whether Howard County has the authority to impose this charge when MIDFA issues refunding bonds for a project in Howard County.
For the reasons given below, we conclude that the charge may not be imposed on refunding bonds issued by MIDFA.

                              I
                        Background

A. MIDFA Bonds

MIDFA issues and sells bonds to finance or refinance facilities by authority of §13-138 of the Financial Institutions Article ("FI Article") and in accordance with the Maryland Economic Development Revenue Bond Act, Title 14, Subtitle 1 of Article 41 of the Maryland Code. MIDFA may issue either tax-exempt or taxable bonds and may refinance existing bonds issued by MIDFA or any other issuer.
FI §13-138(e) requires that, prior to the issuance and sale of MIDFA bonds, the county or municipality in which the financed facility is to be located must adopt a resolution describing the facility and the public purpose that it will serve. Also, Section 147(h) of the Internal Revenue Code of 1986 requires that a public hearing be held in the local jurisdiction before bonds are issued. Generally, a county or municipal government need only perform these two functions when MIDFA issues bonds.
When MIDFA determines to issue bonds for a facility in a particular county or municipality, MIDFA's bond counsel prepares a resolution and a public hearing announcement, known as a TEFRA notice, which are submitted to appropriate officials of the county or municipality with a request for enactment of the resolution. The county or municipal officials forward the resolution, TEFRA notice, and request with background information for review by legal counsel and the members of the county or municipal legislative body. After review, MIDFA's bond counsel arranges to have the TEFRA notice properly published and prepares an appropriate number of original resolutions for presentation to the legislative body. The resolution is then formally presented at a regular meeting of the body and voted on for approval. This meeting often serves to satisfy the public hearing requirement of the federal tax law. If not, a separate hearing is held. Finally, a formal written resolution is signed and delivered to MIDFA.
Often, the county or municipality will charge a fee to cover its costs for processing the request for the resolution and holding the public hearing. The fee is ultimately paid by the developer of the facility. Section 148 of the Internal Revenue Code of 1986 limits the total amount of annual charges and fees an issuer of bonds can take, including the county's fee, to 0.125% of the outstanding balance of the bonds.

B. Howard County Bill No. 26

Howard County Bill No. 26 (effective August 8, 1988) amends §22.600(a) of the Howard County Code. The former text of §22.600(a) read as follows:

  The following fee schedule shall apply for the advertising, processing and review of industrial development revenue bonds and Maryland Industrial Development Financing Authority loans or bonds ... whether or not Howard County, Maryland is the issuer of the related bonds or other obligations:

(1) A fee of $500 shall be levied and collected against each industrial development revenue bond or Maryland Industrial Development Financing Authority loan or bond in any amount up to $500,000.
(2) A fee of $1,000 shall be levied and collected against each industrial development revenue bond or Maryland Industrial Development Financing Authority loan or bond of over $500,000.

Bill No. 26 revised §22.600(a) to provide that the former fee schedule shall apply only to new industrial development revenue bonds or MIDFA bonds, and added a separate fee schedule for "re-funding" bonds, as follows:

(3) A fee of 0.125% of the aggregate amount of the re-funding bonds or loan shall be levied and collected with respect to each issue of re-funding industrial revenue bonds or re-funding Maryland Industrial Development Financing Authority loan or bond. The fee shall be paid as follows:
        A non-refundable fee of $1,000 shall accompany all applications for the issuance of re-funding industrial development revenue bonds or re-funding Maryland Industrial Development Financing Authority loans or bonds. The remainder of the fee, 0.125% of the aggregate amount of the re-funding bonds or loan minus the $1,000 application fee, shall be paid at the closing for the bonds or loan.
      Notwithstanding the provisions of this paragraph, the fee collected pursuant to this paragraph shall not exceed the amount which may be collected by the County with respect to such re-funding bonds or loans under the provisions of the Internal Revenue Code.

                                 II
                             Analysis

   A. Introduction

      You have asked whether Howard County is authorized by law to impose the charge provided in Bill No. 26 when MIDFA issues refunding bonds. Under Article XI-A, §2 of the Maryland Constitution, a charter home rule county like Howard County possesses only those powers granted by the General Assembly.

Charter home rule counties have broad police powers. Article 25A, §5(S) of the Maryland Code. We do not doubt that a charter county may charge fees as compensation for services provided within its enumerated powers. See Portsmouth Stove & Range Co. v. Baltimore, 156 Md. 244, 249, 144 A. 357 (1929). See generally 9 McQuillan, Municipal Corporations §26.15, at 35 (3d ed. 1986).
However, the Maryland Constitution prohibits local governments, including charter counties, from imposing taxes to raise general revenues without express authorization from the General Assembly. Reinhardt v. Anne Arundel County, 31 Md. App. 355, 356 A.2d 917 (1976); Griffin v. Anne Arundel County, 25 Md. App. 115, 333 A.2d 612 (1975). Your question, then, involves two issues: (1) whether the charge is a "fee" or a "tax"; and (2) if it is a "tax", whether Howard County has authority to impose it.

B. "Fee" vs. "Tax"

In determining whether a governmental charge is a fee or a tax, the purpose of the enactment, rather than the term used to refer to the charge, is dispositive. Campbell v. City of Annapolis, 289 Md. 300, 305, 424 A.2d 738 (1981). A "fee" is a charge fixed by law for the services of a public officer that is regarded as compensation for the services rendered. Black's Law Dictionary 553 (5th ed. 1979); 36A C.J.S. Fee at 248 (1961).
For example, court charges imposed on a litigant to defray the expenses of the litigation are fees. See Crocker v. Finley, 459 N.E.2d 1346, 1350 (Ill. 1984). A charge imposed on commercial, industrial, and municipal haulers for the use of a county landfill qualified as a "fee" when used to fund the landfill costs. Barnhill Sanitation Service, Inc. v. Gaston County, 362 S.E.2d 161 (N.C. App. 1987). Charges imposed by a state insurance department against an insurance company were fees for services performed in connection with the examination of the operations of the particular company when imposed to defray the expenses of the inspection. Leggett v. Missouri State Life Insurance Company, 342 S.W.2d 833, 875-76 (Mo. 1961).
On the other hand, a "tax" is a charge or burden imposed by legislative power on persons or property to raise money for public purposes. Black's Law Dictionary 1307 (5th ed. 1979); 84 C.J.S. Taxation §1.b., at 34-35 (1954). A tax is imposed for the purpose of raising general revenue for the benefit of the public and not merely particular parties. See United States v. State of Maryland, 471 F. Supp. 1030, 1036 (D. Md. 1979).
For example, statutes imposing a graduated probate fee based upon the value of the estate, where no reasonable relationship between the size of the estate and the amount of services required in its administration is shown, have been held to be taxes. Smith v. Carbon County, 63 P.2d 259 (Utah 1936). Cf. Foreman v. Treasurer of Oakland County, 226 N.W.2d 67 (Mich. 1974). A statute requiring dissolution-of-marriage petitioners to pay a $5.00 charge, in addition to a court filing fee, where the $5.00 collected goes to the state treasury to fund a domestic violence program, imposes a "tax." Crocker v. Finley, 459 N.E.2d 1346 (Ill. 1984). Likewise, a $1.00 charge collected with other marriage license fees is a tax because the $1.00 was not used to compensate the county ordinary for services rendered but went toward an ordinaries' retirement fund. Gunby v. Yates, 102 S.E.2d 548 (Ga. 1958). Special benefit assessments for particular public improvements are levied as an exercise of the taxing power. Hagerstown v. Startzman, 93 Md. 606, 609-11, 49 A. 838 (1901); Gould v. Baltimore, 59 Md. 378, 380 (1883).
We derive from these definitions and examples this guiding principle: A charge bearing a reasonable relation to the services rendered is a fee; a charge having no relation to the services rendered, "assessed to provide general revenue rather than compensation," is a tax. Crocker v. Finley, 459 N.E.2d at 1350. Cf. 67 Opinions of the Attorney General 307, 311 (1982).
Applying this principle to the charge in question, we conclude that the charge imposed under Bill No. 26, although referred to as a fee, is in reality a tax.
First, Bill No. 26 adds charges to a fee schedule that applies "whether or not Howard County, Maryland is the issuer of the bonds." When the county is the issuer of the bonds, its costs and expenses will be much greater than if it is merely approving a resolution and holding a public hearing for a MIDFA bond issue.1 The schedule fails to account for the difference between the cost of services provided when the county is the issuer and the costs of its services when MIDFA is the issuer.
Second, Bill No. 26 establishes a fee for refunding bond issues that is different from the fees for new bond issues. However, the same services are being provided by Howard County whether MIDFA

1
These costs will include services rendered by staff, bond counsel, and the county attorney for, among other things, drafting and reviewing documents, negotiating with developer's counsel, advertising, printing, mailing, and the like.

issues new bonds or refunding bonds for a project in the county.
Third, Bill No. 26 bases the charge for MIDFA's refunding issues on the amount of the bonds issued. However, the services provided by Howard County for these issues are the same regardless of amount.
Fourth, and perhaps most telling, the amount of the charge imposed on MIDFA's refunding issues is greatly disproportionate to the value of the services rendered by Howard County. A typical refunding bond issue may amount to $10 million; a charge of 0.125% of this amount would provide Howard County with $12,500. Even assuming that $1,000 is an appropriate fee for processing a bond resolution and holding a public hearing, the charge imposed by Bill No. 26 will generate far more revenue than is needed to cover Howard County's costs.
In addition, one other aspect of Bill No. 26 suggests to us that this is not a fee but a revenue-generating measure. The legislation provides that the fee is to be paid in two parts: initially, a non-refundable "application fee" of $1,000 payable with the application; later, the balance of the charge at the closing of the bond issue. The $1,000 application fee is commensurate with the fee levied for new bond issues and is collected at the time that the county's services are actually rendered. The remainder of the charge is not paid until some time later, when the bond issue is closed, an event at which the county has no involvement. This later payment is so far removed in time from the performance of the county's services as to be inconsistent with the notion that the charge is compensation for these services.
It is evident from all of these factors that the charge under Bill No. 26 bears no reasonable relation to the services rendered by Howard County. The potential amount of monies it will produce for the county suggests that it is imposed as a general revenue-raising measure and therefore is a tax.

C. Taxation Power

"[I]t is fundamental that the power of a County ... to tax is not inherent but is a delegated power and exists only when and to the extent granted by the State." Griffin v. Anne Arundel County, 25 Md. App. 115, 126, 333 A.2d 612 (1975). The General Assembly has not granted Howard County the power to tax in the manner provided by Bill No. 26.
While the Express Powers Act, Article 25A, §5 of the Maryland Code, endows charter home rule counties with a wide array of legislative and administrative powers over local affairs, it grants no general taxing power. Montgomery County Board of Realtors, Inc. v. Montgomery County, 287 Md. 101, 107, 411 A.2d 97 (1980). Section 5(O) of the Express Powers Act grants only the power to provide for a property tax. Montgomery County v. Maryland Soft Drink Association, 281 Md. 116, 337 A.2d 486 (1977). The charge imposed under Bill No. 26 is in the nature of an excise tax, not a property tax. See Weaver v. Prince George's County, 281 Md. 349, 357, 379 A.2d 399 (1977).
We have reviewed other State statutes relating to State and local taxing power and are unable to find any authority granted to Howard County to impose an excise tax on the issuance of bonds. We conclude, therefore, that the tax on MIDFA issues imposed by Bill No. 26 was enacted without necessary legislative authority and may not be enforced. If the General Assembly believes that this revenue source ought to be available to Howard County or other jurisdictions, it may of course enact an appropriate law.

                                   III
                              Conclusion

In summary, we conclude that the 0.125% charge on MIDFA refunding bonds imposed by Howard County under Bill No. 26 is a tax, levied without authorization from the General Assembly. Accordingly, Bill No. 26 may not be applied to MIDFA refunding bonds.2

         J. Joseph Curran, Jr., Attorney General
         Arthur S. Drea, Jr., Assistant Attorney General
         Thomas P. Carbo, Assistant Attorney General

Jack Schwartz
Chief Counsel
   Opinions & Advice

2
This opinion is limited to Howard County's charge for MIDFA refunding bonds and should not be viewed as calling into question charges by local governments that are reasonably related to the costs associated with other bond issues.