About 15 years ago I started a consulting business. I went down to the county government building, created a fictitious name for my business, and got a business license. Because I only had one employee (myself) I only paid $39 for my business license.
Each year I had to pay the $39 but in 2004 the city added a $25 collection "fee" in order to compensate themselves for taking my $39. This applied to landlord licenses, business licenses, etc. They charged us for the work of taking our money, nothing else.
$39 x 1.64 = $64 or a 64% increase over the existing charge!
Outraged small business persons protested and eventually sued the city. The first judgement was in favor of the city, but an appeals court over-ruled and overturned the fee. Click here to read the entire judgement, or skip that and read my summary in plain English:
We must decide whether a 2004 levy imposed by the City of San Diego, without a vote of the electorate, for the purpose of recovering the cost of collecting and administering a general "Business Tax," is a fee or is a special tax that should have been approved by a vote of the electorate. We specifically hold the levy is not a fee, but is a general tax that is subject to voter approval, and is void because it was levied by the city council without approval by a majority vote of the qualified voters as required by the California Constitution. Accordingly, we reverse the summary judgment granted in favor of the City.
We learned that the difference between a tax and a fee is based upon the purpose of the charge:
- A charge that covers the cost of providing a service to the payer or regulates the payer's conduct is a fee.
- A charge that raises revenue for general spending without conferring any exclusive benefit to an individual payer is a tax.
- Federal 7.5 percent excise tax on the base ticket price
- Segment tax of $3.70 per person per segment (a single takeoff and single landing)
- International facility tax of $8.20 per person for flights that begin or end in Alaska or Hawaii
- A 6.25 percent tax on the amount paid for transporting property (freight, pets) by air
Compared to the airlines, we have an easy time in the book publishing business - but we still have to keep track of the 6000+ municipal and state tax rates in the USA!