A divided state Supreme Court has sided with university officials who argued that they should not have to pay a sewer fee because the charge should be considered a tax and that, as a nonprofit, the college is tax-exempt.

The case centers on a stream protection fee that West Chester Borough enacted in 2016. Under the borough’s ordinance, the stream protection fee is based on the amount of impervious surface on a property. West Chester University balked at paying the stream protection fee, leading to the lawsuit at the heart of the decision.

There are reportedly about 50 municipalities in the state that levy similar fees.

In the decision issued Thursday, the majority said they recognize the difficulties facing municipalities in trying to manage stormwater. But those considerations did not sway them.

“The law is clear: Where a municipality is duty bound to provide a service for the public benefit and in the absence of a voluntary, contractual relationship between itself and those receiving the service, the associated charge is a tax,” according to the majority opinion authored by Justice Kevin Brobson and joined by President Judge Debra Todd and Justices Kevin Dougherty and Sallie Mundy.

Justices David Wecht and Dan McCaffery filed opinions that partially agreed with the majority and dissented on some portions of the decision. Justice Christine Donohue joined McCaffery’s opinion.

Dissenting opinion

McCaffery said that traditionally a “tax” is something that the government levies on many or all citizens to raise money for government operations to

benefit the entire community. A “fee,” on the other hand, is typically a measure used to cover the cost of administering a regulation or to provide a service.

McCaffery said the majority’s reasoning was “overly simplistic and ignores other relevant concerns.”

And as the municipal groups noted, the court’s decision will force other taxpayers to pick up the tab, he said.

“I cannot escape noting fairness would otherwise suggest that the University, as a user of the Borough’s Stormwater Management System, should contribute to the System’s operation and maintenance,” he wrote.

McCaffery pointed to a deposition by a university official who acknowledged that the university obtained its own stormwater permit, based on the assumption that it would be sending some of its stormwater into the municipal system.

Brobson’s opinion noted that the dispute had attracted interest from groups on both sides of the issue. Environmental groups, 20 municipalities and municipal authorities, along with trade groups representing local officials all submitted briefs in support of West Chester Borough. On the other hand, the Pennsylvania Chamber of Business and Industry, business groups and the Lehigh-Northampton Airport Authority and the Susquehanna Regional Airport Authority submitted briefs supporting the university’s position.

The municipal groups said in their brief that the Supreme Court’s decision could have dramatic implications, especially in cities and boroughs with large amounts of property owned by tax-exempt organizations.

“If stormwater charges are deemed taxes, non-tax-exempt property owners (residential, mostly) would be forced to subsidize the stormwater management costs of tax-exempt entities at scale. For example, in Philadelphia, roughly 23% of stormwater management revenue comes from customers that are likely tax-exempt. And in Harrisburg, roughly 41% of property is owned by the Commonwealth with more held by 28 other tax-exempt entities,” the municipal groups said in their court filing. “Then consider that tax-exempt entities commonly own properties with the largest amount of impervious surface area. Treating true, regulatory stormwater fees as taxes ignores the underlying purpose to curb unwanted conduct and allows the largest users of the system to shirk their responsibility to pay their fair share.”

Attorneys representing the Susquehanna Area Regional Airport Authority, which oversees Harrisburg International Airport, said in their filing that the West Chester fee is part of a strategy being employed by local officials to describe taxes as fees, specifically so they can collect revenue from tax-exempt entities. They argued that the General Assembly should step in to clear up the confusion.

“It is for the General Assembly to determine prospectively, not local municipalities or the courts, whether an exception to such exempt status should exist relating to costs associated with stormwater management programs,” they wrote.