Business Complaints Lead City to Reconsider Tax Disguised as Fee

The administrative state operates largely under the radar. Yet every once in a while the public gets a peek at the way things really work, how regulations written by anonymous agencies lead to higher costs for businesses in the form of taxes disguised as fees that ultimately get passed on to consumers.

The latest example involves the cost of compliance with an obscure new environmental rule in a case covered by the Duluth News Tribune.

The city of Hermantown is continuing to discuss its proposed stormwater utility fee after experiencing pushback from the city’s business community, which argues the fee disproportionately affects them.

The fee is expected to fund the city’s maintenance of ditches, culverts, bridges and stormwater ponds, as required by the Minnesota Pollution Control Agency, according to City Administrator John Mulder. It balances funding, the city’s maintenance needs and protecting the environment, he said.

The so-called fee came out of the blue, amounting to an overnight tax increase of several thousand dollars for some companies. The local Chamber of Commerce opposes the runoff tax, partly on the grounds it would disproportionately cost businesses.

Tim Herstad of United Truck Co. questioned the city’s need for the revenue when it’s spending money on projects such as building a softball field. He estimates his company would pay between $3,400 and $4,000 if the fee were implemented.

“It is an unjust fee. It is unreasonable. There’s no requirement by law for them to administer a fee. They are creating this fee as an additional tax, or (as) they call it, a revenue stream,” Herstad said.

City officials claim other nearby cities have already imposed similar fees on businesses and residents. But many in the community evidently still have no idea about the new “fee” coming their way.

Eric Hoglund, president of Northern Exposure Manufacturing, said he believes most of the community doesn’t know about the proposed fee.

“They were showing the normal property owner paying about, I would say, not even a tenth of what the business owner is going to end up paying. … Some of us guys heard about this by word of mouth. Nothing was sent out,” Hoglund said.

Then there’s the question of whether the city even has control over the runoff from the state highway where most local businesses are located.

In addition to the concern that the fee would disproportionately affect businesses in the city, the majority of businesses in Hermantown are located along U.S. Highway 53, whose right of way isn’t within the city’s jurisdiction, Davis said. Hoglund also questioned why businesses along the highway should pay a fee, which would likely total thousands of dollars annually, when the city doesn’t maintain the highway on which the business is located

As a result of the business backlash, the city appears to be reconsidering the proposal. But it could simply be the calm before the stormwater tax surfaces again.