Pennsylvania Supreme Court affirms Commonwealth Court Decision That ‘Special Assessment Fee’ is Actually an Improper Tax
06.18.26
In February 2023, we discussed the Commonwealth Court’s decision in Borough of West Chester v. Pennsylvania State System of Higher Education (No. 260 M.D. 2018 (Pa. Cmwlth. Jan. 4, 2023)), in which the court concluded that the Borough of West Chester’s (the Borough) stormwater charge imposed on the University constituted a tax, rather than a fee or special assessment. The Supreme Court of Pennsylvania has now affirmed that determination, holding that the Borough’s “stream protection fee,” assessed against developed properties based on impervious surface area, is properly characterized as a tax and not a fee. As a result, because the Pennsylvania State System of Higher Education and West Chester University (the University) are immune from local taxation, the Court concluded that they are not obligated to pay the charge.
The dispute arose after the Borough enacted an ordinance establishing a stormwater management program to comply with federal and state regulatory mandates, including obligations under the Clean Water Act and Pennsylvania’s Storm Water Management Act. The ordinance imposed a charge on property owners to fund the construction, maintenance and operation of the Borough’s stormwater system as well as related environmental and regulatory compliance efforts. Although the Borough characterized the charge as a fee tied to the use of its stormwater infrastructure, the University refused payment, asserting that the charge functioned as a tax.
In affirming summary relief in favor of the University, the Court applied longstanding Pennsylvania precedent distinguishing taxes from fees. The Court emphasized a two-part framework: first, whether the municipality is acting in a public (governmental) or quasi-private (proprietary) capacity, and second, if quasi-private, whether the charge is reasonably proportional to the value of the service rendered. The Court concluded that the Borough’s stormwater program was undertaken in its public capacity, as it was driven by regulatory obligations and intended to promote public health, safety and environmental welfare. The benefits of the program, such as flood mitigation and improved water quality, were deemed general in nature and shared broadly by the community rather than discrete benefits conferred on individual property owners.
The Court further found the absence of any voluntary, contractual relationship between the Borough and property owners, noting that the charge was imposed broadly on all developed properties regardless of actual use of the system. The availability of credits or appeals did not convert the charge into a voluntary fee. Because the Borough was acting in a governmental capacity and the charge funded ongoing public services rather than a discrete, individualized benefit, the Court held that the stormwater charge constituted a tax as a matter of law.
This decision has significant implications for municipalities across Pennsylvania that rely on stormwater fees to fund environmental compliance and infrastructure programs. The ruling clarifies that charges imposed to support broad public regulatory obligations, particularly where benefits are diffuse and not tied to a contractual exchange, may be deemed taxes, thereby limiting their enforceability against tax-exempt entities.
If your non-profit entity or educational institution has been charged any special fees or assessments by municipalities, you should consult with counsel to determine whether the fee may be an improper tax under the Borough of West Chester case.
Co-author Bill Matthews is chair of the education practice group at Klehr Harrison. Co-authors Doug Schleicher, partner, and Leonard Alieri, associate, are members of the Real Estate and Finance Department at Klehr Harrison