A municipal stormwater charge imposed by the Borough of West Chester (Borough) was determined to be a tax, and not a fee, by the Pennsylvania Supreme Court. The Borough of West Chester v. Pennsylvania State System of Higher Education, et al., No. 9 MAP 2023 (Pa. 2026). The case diverges from analysis in other jurisdictions that have treated similar charges as fees, not taxes.

The Borough imposed a stream protection fee upon the owners of all developed properties that the Borough deemed benefited by the Borough’s stormwater management system. This charge was calculated based on the amount of impervious area on a particular property. The charge was enacted by the Borough to comply with the Commonwealth’s Storm Water Management Act, which was enacted by the General Assembly to comply with the federal Clean Water Act. The Pennsylvania State System of Higher Education and West Chester University (collectively the University), both being tax-exempt entities, refused to pay said charge on the grounds that they believed that it constituted a tax.

There is over a century of Pennsylvania jurisprudence treating charges imposed by state or local government to support their general public burdens as taxes, opposed to fees for services. The Court described “taxes” as charges imposed by the legislature upon many, or all, citizens, to raise money that is spent for the benefit of the entire jurisdiction, and summarized the test that a municipal charge must meet to constitute a fee. Under this test, a court must first determine whether the municipality is performing the service in a quasi-private or public capacity; if the municipality is acting in its public capacity, the inquiry ends because the charge is a tax. However, if it is determined that the municipality is acting in its quasi-private capacity, then a court must determine whether the associated charge is measured by the service rendered. If there is no connection between the amount of the charge and the actual service being rendered, the charge is considered a tax. Here, the Court looked to the stated purpose of the Borough ordinance - imposing the fee as prompted by federal and state mandates to fund its expenses in complying with federal law, and to benefit the public safety, health, and welfare - and concluded that the Borough was acting in its public capacity for the general welfare of the community, not pursuant to a contractual relationship. Accordingly, the Court held that the charge was a tax and the University was exempt from payment.

The Court likely erred in oversimplifying what constitutes acting in a “public capacity.” The Sixth Circuit, undertaking a similar analysis, correctly stated that “[a]ll money collected by the Government goes toward defraying its expenses, and is used for public purposes.” In re Suburban Motor Freight, Inc., 36 F.3d 484, 488 (6th Cir. 1994). The risk of simply looking at whether a particular charge funds a municipal expense and benefits the greater good is that many, if not most, municipally-imposed charges would fit that criteria. 

If the Court had reached the second prong of its test, there is a strong basis to have found that the charge was a “fee” because it was measured by the service rendered. The stormwater charge was calculated based upon the amount of impervious area on a particular property, because the greater the amount of impervious area on a property, the greater the strain on the Borough’s system. Further, as Justice McCaffery pointed out in his dissent, the University voluntarily chose to develop its property with impervious surfaces that would require stormwater management, relying on the Borough’s system for such management. Other courts have treated similar charges as fees, not taxes, where the charge is triggered by a voluntary act to use a particular resource. See, e.g., Homewood Village, LLC v. Unified Government of Athens-Clarke County, 739 S.E.2d 316 (Ga. 2013 (holding that the stormwater charge imposed on residential and non-residential properties, calculated based upon impervious area, was a fee), upheld, 922 S.E.2d 90 (Ga. 2025); In re Lorber Industries of California, Inc., 675 F.2d 1062, 1066 (9th Cir. 1982) (holding that local sewer charge imposed to comply with the federal Clean Water Act was a “fee” because it was imposed only upon non-residential entities who voluntarily decided to use its sewer system, in an amount based upon their use); but see Lewiston Independent School Dist. No. 1 v. City of Lewiston, 264 Idaho 800 (Id. 2011) (holding that stormwater charge was a tax, where it was imposed upon all property owners regardless of whether they used the stormwater system, and revenue was used to fund maintenance to the stormwater system). 

The distinction between what constitutes a “fee” versus a “tax” is often a close call, and the factors considered vary between federal and state law, and among different jurisdictions, and may change over time as courts are persuaded by other jurisdictions’ analysis. Had the majority more closely honed its consideration of what it means for a municipality to act in its “public capacity” or for a “public benefit,” this case could have come out differently. In the future, where this tax or fee distinction is played out, aggrieved parties will likely need go to great lengths to show that municipalities are acting in a quasi-private capacity to support the position that a charge is a fee, not a tax, under Pennsylvania law.