Is it really "freedom, joy" for a municipality when setting a fee rate?

On June 30, 2017, the Supreme Court (link judgment: ECLI:NL:HR:2017:1174) ruled on the 2013 Fees Ordinance of the Municipality of Rotterdam, which included a so-called sawtooth system. Despite the fact that both the District Court of Rotterdam, the Court of Appeal of The Hague and the Advocate General at the Supreme Court ruled that this system in the ordinance leads to unreasonable and arbitrary taxation and the Fees Table was therefore non-binding, the Supreme Court ruled otherwise.

What was going on?

In these proceedings, an environmental permit for two housing projects in the municipality of Rotterdam had been applied for. As estimated construction costs for these housing projects, on which the fee rate is determined, the applicant submitted amounts of €1,375,000.00 and €1,875,000.00.

Pursuant to the Fee Table included in the Municipal Fees Ordinance, two fee assessments of €100,335.00 were imposed. This fee table concerned a so-called saw-tooth system, where depending on the specified construction costs, a certain fee class is arrived at, where a fixed amount of fees is levied.

Unreasonable and arbitrary taxation according to district court and court of appeals

Both the district court and the court of appeals had drawn a line under this system. Indeed, this system leads to unreasonable and arbitrary taxation. The district court(ECLI:NL:GHDHA:2016:2592) explained this by noting that

eny proportionality between the amount of the fees and the amount of the construction sum is lacking and no connection can be seen between the amount of the construction sum and the amount of the fees as a percentage thereof. For example, for a building sum of €15,400, the fees are 4% and for a building sum of €15,400.01, 9.25%. For a building sum of € 530,000, the fees are 4.81 %, for a building sum of € 530,000.01, 9.51 % and for a building sum of € 267,000, the fees are 4.88 %, while for a building sum of € 267,000.01, the fees are 9.56 %.

From category V to category X, the rate as a percentage of the construction cost almost doubles per transition. In absolute amounts per transition, the rate almost doubles or more than that from category V to category X. For example, the rate for category VIII is €50,378 and for category IX is €100,335.

The court then concluded that this fee system, whereby exceeding a fee category by €0.01 leads to a disproportionate increase in fees due, which is so substantial both in absolute and relative terms, is arbitrary and unreasonable. Thus, according to the court, the fee system is non-binding and the court puts a line through both fee assessments.

Supreme Court ruling: 'freedom, joy' for municipalities in levying fees?

The levy officer did not leave it at that and appealed to the Supreme Court. Despite the fact that the Advocate General at the Supreme Court shares the opinion of the trial court, the Supreme Court rules otherwise.

The Supreme Court points out that the legislature has given municipalities the power, subject to the prohibition of using carrying capacity as a measure of apportionment and subject to the limitations contained in the law, to choose for themselves the levy measures to be included in the tax ordinances for municipal taxes and duties. In principle, municipalities are free to include those tax measures that are most compatible with municipal policy and local taxation practice.

According to the Supreme Court, this means that municipalities may therefore make the rate for levying fees dependent on the construction sum, but another method of determining the rate is also permitted. According to the Supreme Court, there is only room for non-binding provisions if a regulation has been made that is contrary to the law or any general principle of law.

Since the legislature has left this freedom to municipalities, the Supreme Court rules that a "sawtooth system," as included in the 2013 Fees Ordinance of the Municipality of Rotterdam, is permissible. According to the Supreme Court, the differences in taxation made in the various fee classes are also not such as to violate the principle of equality or any other principle of law.

The consequence of this judgment is that both assessments of €100,335 must still be paid.

Legislator's move

Despite the fact that there is (very) much to be said for the judgment of the court of appeals, it follows from this ruling that it is apparently the legislature that must put a cap on municipal fees. It is clear that the Supreme Court will not intervene (quickly).