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Bentivenga v. City of Delavan

Court of Appeals of Wisconsin
856 N.W.2d 546, 2014 WI App 118, 358 Wis. 2d 610 (2014)
ELI5:

Rule of Law:

A government charge, regardless of its name, is a tax if its primary purpose is to raise general revenue rather than to cover the expense of a specific service or regulation. A municipality cannot impose such a tax without explicit legislative permission from the state, even if the charge is established through a contract.


Facts:

  • In May 2005, the City of Delavan and a developer, Delavan Resort Holdings, entered into a development agreement for the Lodges at Lake Lawn Resort Condominium.
  • The agreement required the condominium declarations to mandate that certain units be available for public rental.
  • The agreement stipulated that an owner who chose not to rent their unit to the public would be required to pay a 'fee in lieu of room tax' to the City.
  • The fee was set at a base of $250 per month, with future increases linked to the consumer price index or the average room tax collected from rented units at the resort.
  • A condominium declaration recorded in January 2006 codified this fee requirement.
  • The Owners purchased their condominium units with notice of this declaration in place.
  • The Owners chose not to rent their units to the public and subsequently paid the fee to the City via the Condominium Association.

Procedural Posture:

  • The Owners sued the City of Delavan and the Lodges at Lake Lawn Resort Condominium Association in the circuit court, a court of first instance.
  • The Owners sought a declaratory judgment that the fee was illegal and requested a refund of fees already paid.
  • The Owners moved for summary judgment on their claim.
  • The City filed a cross-motion for summary judgment, arguing the fee was a valid contractual term.
  • The circuit court granted the City's motion for summary judgment and denied the Owners' motion.
  • The Owners (appellants) appealed the circuit court's decision to the Court of Appeals of Wisconsin, with the City (appellee) defending the lower court's ruling.

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Issue:

Does a 'fee in lieu of room tax,' imposed by a city via a development agreement on condominium owners who choose not to rent their units to the public, constitute an illegal tax when its primary purpose is to generate general revenue?


Opinions:

Majority - Reilly, J.

Yes. The 'fee in lieu of room tax' is an illegal tax because its primary purpose is to generate general revenue for the City. A tax is defined as an 'enforced proportional contribution' levied to support a government's needs, and the purpose of a charge, not its name, determines its character. The court found this fee was enforced proportionally against certain unit owners, and the revenue was not dedicated to any specific service or regulation but was intended to supplant room tax revenue for the City's general fund. The City's argument that it is a valid 'contractual penalty' is unpersuasive; unlike a true penalty meant to recoup a specific public investment, this fee is a perpetual revenue generator imposed on individuals who were not parties to the original development agreement. The fact that the fee is imposed by contract does not alter its fundamental nature as a tax, and because the City has no statutory authority to levy such a tax, it is illegal.



Analysis:

This decision reinforces the critical distinction between a legitimate user fee and an unauthorized tax, preventing municipalities from circumventing state law requirements for levying taxes. By looking past the 'fee' label and contractual context to the charge's actual purpose, the court affirmed that municipalities cannot use development agreements as a tool to create new, unauthorized revenue streams. The ruling protects property owners from being subjected to taxes disguised as contractual obligations passed down from developers. Consequently, municipalities must now exercise greater caution in structuring such agreements, ensuring that any financial impositions are genuinely tied to covering service costs or recouping specific investments, not generating general revenue.

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