Oral arguments for Rhode Island truck toll suit questions definition of a ‘tax’

The American Trucking Associations and the Rhode Island Department of Transportation presented their oral arguments in a federal appeals court for ATA’s truck-only toll lawsuit. Arguments revolved around whether tolls are taxes or fees under the Tax Injunction Act.

On Tuesday, Oct. 8, the U.S. First Circuit Court of Appeals heard arguments from ATA and RIDOT. A district court had previously dismissed ATA’s lawsuit that claims Rhode Island’s truck-only tolls are unconstitutional.

At the heart of the case is the Tax Injunction Act of 1937. The act prohibits federal courts from suspending or restraining the collection of taxes at the state or local level, assuming a “plain, speedy and efficient remedy” can occur in a state court.

ATA argues that tolls are not taxes. Therefore, Rhode Island’s truck-only tolls are exempt from the Tax Injunction Act. RIDOT claims that tolls are taxes and cannot be restrained by the federal government.

Listen to an audio recording of oral arguments in the case here.

Tolls are “paradigmatic fees”

Representing ATA, Charles Rothfield argued that if Congress wanted tolls included in the Tax Injunction Act, they would have said so in 1937.

Historically, whenever something is not mentioned in a statue, courts defer to Congress’ intent at the time. Rothfield cited a late-19th century Supreme Court ruling that held that tolls are not taxes. Rather, “tolls are merely compensation for benefits conferred,” the high court said at the time.

Furthermore, taxes go toward a general fund. Conversely, fees are diverted to a more specific use. Rothfield argued that the truck-only toll falls under the latter, referring to tolls as “paradigmatic fees.”

Court invokes San Juan Cellular test for Tax Injunction Act

During RIDOT’s arguments, the judge panel asked RIDOT attorney Michael Field about the relevance of test that determines whether collection of money is a tax or fee. Known as the San Juan Cellular test, three factors are considered:

• The classic “tax” is imposed by a legislature upon many, or all, citizens. It raises money, contributed to a general fund, and spent for the benefit of the entire community.
• The classic “regulatory fee” is imposed by an agency upon those subject to its regulation. It may serve regulatory purposes directly by, for example, deliberately discouraging particular conduct by making it more expensive. Or, it may serve such purposes indirectly by, for example, raising money placed in a special fund to help defray the agency’s regulation-related expenses.
• For close cases somewhere in between, the focus should be on the ultimate use of the collected money, whether it is used for a general benefit or simply for defraying the cost of a regulation.

Field claims that the truck-only toll is a tax under the San Juan Cellular test, arguing a “general public purpose” for the tolls. However, the panel was not satisfied with that argument.

“Here’s the problem with that argument,” Judge Sandra Lynch said. “Every time the government raises money by any mechanism whatsoever, almost by definition it’s for a public purpose. That’s just impossibly broad. That cannot be the test. That is not what Congress said in the Tax Injunction Act.”

Judge Lynch pressed harder, asking Field about non-drivers or those who do not drive over bridges. Fields responded by pointing out that the general public benefits from transportation. Countering that point, Lynch said that is true for any fee, not tax, used toward improving a transportation system.

The San Juan Cellular test also requires a legislature to impose a so-called “tax.” Field argued that the state legislature is the entity administering the toll. RIDOT just sets the amount, which is guided by what the legislature says. When asked if revenue goes into a general fund, Field acknowledged that toll money goes to a specific fund administered by RIDOT.

Suggesting that tolls are neither a clear-cut tax nor fee, the panel referred to the test’s third point. Judge William J. Kayatta Jr. pointed out that the Tax Injunction Act and other statues were “in the books” well before RhodeWorks was written. Therefore, if Rhode Island decided not to call tolls a tax, “we’ll go with that,” Judge Kayatta said.

Essentially, Kayatta argued that Rhode Island could have avoided the “fuzzy middle” of the San Juan Cellular test by simply calling the toll a tax. However, potential political fallout leads lawmakers to avoid the term “tax.”

“So it may be that the price tag of not using ‘taxes’ but using ‘user fees’ is the federal courts can exert jurisdiction over these constitutional claims once the legislature has made that decision,” Judge Lynch said.

Lastly, Kayatta noted that there is no precedent regarding the Tax Injunction Act as it applies specifically to tolls. After 80 years, Kayatta argued, maybe it is assumed that the act does not apply to tolls. Field counterargued there is no precedent that saysthe reverse either.

“They can’t point to a single case that says a cat is not a dog either,” Kayatta replied. “Everyone’s presuming cats are cats. Everyone’s presuming tolls are not taxes.”

John Tarantino, attorney for the Rhode Island Turnpike and Bridge Authority, quickly noted that tolls are collected by the state tax administrator. Furthermore, legislation specifically states that RIDOT may enter into a memorandum of understanding with the tax administrator. However, the panel pointed out that legislation says RIDOT may team up with the tax administrator but it was not mandated to do so.

From here, the appeal awaits the panel’s final opinion, which could be several weeks or months away.