Volume 2 - Opinions of Counsel SBEA No. 32
Service charge (state properties) (sewer and water rents) - Real Property Tax Law, §§ 102(13-a), 498:
The New York State Thruway and all other state agencies, as well as the State, are liable for sewer and water rents based on actual use of services or facilities; such rents are not taxes. The concept of the so-called service charge law authorized and defined by sections 102(13-a) and 498 of the Real Property Tax Law (Chapter 417, Laws of 1971) is the computation and levy of a tax on the real property specified to be subject to the service charge. The concept contained in Chapter 417, the effective date of which has been postponed until April 1, 1975 by Chapter 525 of the Laws of 1974, is distinct from that of a sewer or water rent or charge and will have no effect upon such rents or charges.
Our opinion has been requested as to the liability of the New York State Thruway Authority for sewer rents of the Oneida County Sewer District.
The sewer rents were imposed on users of facilities of the district pursuant to statutory authority contained in section 266 of the County Law and Article 14-F of the General Municipal Law. Sewer rents were based upon a percentage of the user’s water bill.
Apparently, facilities of the Thruway Authority are connected to and use the sewer services. A bill has been sent for sewer rents. (Since the rents are based on “water bills”, we also assume that bills exist for water consumed at these facilities).
Before we consider the provisions of the recently enacted service charge law, it is essential that the nature of “sewer rent” charges be understood within the context of New York Law.
The leading case in this area is Silkman v. Board of Water Commissioners, 71 Hun 37, 24 N.Y.S. 806, aff’d 152 N.Y. 327, 46 N.E. 612. Although this case involved water rents, sewer rents are charged on the same basis, i.e., formulas are designed to measure the amount of use of the service.
The issue in that case was whether due process had been violated because reasonable notice and an opportunity to be heard had not been accorded prior to the imposition of the water rents. In this regard, the court said (pp. 330-331):
“That there is a clear distinction between rents paid for water actually furnished by a corporation and used by an individual, and the payment of a sum in the nature of a tax for an anticipated benefit arising from the presence of water in the city, we have no doubt. Where an assessment for water is made upon a vacant lot, no use being made of the water by the person assessed, it may be that a sum thus assessed for a supposed benefit arising from the presence or public use of the water as distinguished from its private use by the individual, is in the nature of a tax, and that in such cases notice and an opportunity to be heard are essential to the validity of the tax. (Remsen v. Wheeler, 105 N.Y. 573; Matter of Trustees of Union College, 129 N.Y. 308.) If so, that principle has no application here.
“While it is not denied that as to the portion of the expense of constructing and maintaining the water works by the defendant which was raised by taxation, the plaintiff was entitled to notice and an opportunity to be heard before any tax was levied upon his property, still, it cannot be properly said that rents which are charged for water actually used are, in any just sense, taxes, so that persons against whom they are charged are entitled to notice and an opportunity to be heard before they are established. (Treadwell v. Van Schaick, 30 Barb. 444; Hill v. Thompson, 18 J. & S. 165; Reid v. Mayor, etc., 56 Hun, 156; Vreeland v. O’Neil, 36 N.J. Eq. 399; S.C., 37 N.J. Eq. 574; Provident Institution v. Jersey City, 113 U.S. 506, 514.)
“The authorities cited in effect hold that rents, which are charged for water actually used, are valid, although the rates are established without notice or opportunity to be heard by the person paying them. This is upon the ground of an implied contract between the parties, it being said that as the rates are known to persons applying for a supply of water, when the application is made, it is in effect an assent by the applicant to those terms, and constitutes a contract between the parties.”
Other cases which have made a distinction between taxes and assessments on the one hand and user charges based on implied contract on the other hand are N.Y. University v. American Book Co., 197 N.Y. 294, 90 N.E. 819 and Rupersam Realty Corp. v. Larpeg Realty Corp., 253 App. Div. 695, 3 N.Y.S.2d 840.
At this point it should be made clear that all of these cases distinguish between contract charges and charges which are defined to be “taxes”, “special assessments” and “special ad valorem charges” in section 102 of the Real Property Tax Law. In other words, the three latter charges are considered to be imposed in the exercise of the power of taxation. This imposition is made regardless of the consent of the property owner or of whether the service is actually used. However, user charges require the express or implied consent of the property owner and an actual use of the service or facilities. In this case, for example, the Thruway Authority may avoid future liability by disconnecting the sewer service and furnishing its own.
The aforementioned distinction has been made in numerous published opinions of the Attorney General and the State Comptroller, many of which state that all tax exempt properties (e.g., property of school districts, counties, the state and its agencies, and the Federal Government) are liable for user charges. See, 1966, Op.Atty. Gen. 118; 1953, Op.Atty.Gen. 119; 1939, Op.Atty.Gen. 238; and Op. State Compt. 70-695; 24 Op.State Compt. 308; 23 Op.State Compt. 539; 13 Op.State Compt. 222.
Thus, under the reasoning of these cases and opinions, we think the law unquestionably establishes that the Thruway Authority and all other state agencies as well as the State are liable for sewer and water rents based on actual use of services or facilities.
Now to consider whether the various amendments made by the so-called “Service Charge Law” (L. 1971, c. 417) will affect in any way the aforementioned principle of law should it become part of the Real Property Tax Law in April of 1975. We definitely think not.
First, the general concept of the service charge precludes a construction that it was intended to include water and sewer rents.
Although the literal wording of the definition of “service charge” in Real Property Tax Law, § 102, subd. 13-a would appear to include any charge other than a special ad valorem levy or special assessment imposed by or on behalf of a county, city, town or village (note that a “special district” is not included) to defray costs of sanitation and water supply systems, the way in which the service charge is computed is completely inconsistent with any construction other than that only a proportionate part of the general tax levy and sanitation and water supply costs payable from the tax levy were intended to be covered.
Service charges are imposed at a percentage of the regular tax rate levied on all taxable property other than property chargeable under this law. Under a formula set forth in the statute (Real Property Tax Law, § 498), this percentage is the ratio of the net cost of chargeable services to the net cost of all municipal services (other than those for which special assessments and ad valorem levies are imposed). The service charge rate is computed by multiplying the regular tax rate by this percentage. The service charge rate is levied on the assessed value of chargeable property.
Therefore, under this formula, the net cost of chargeable services must be calculated. Under one suggested interpretation of the law, sewer and water rents payable because of service to exempt properties would have to be separated from those others and would not be collected. This would mean that as the net cost of furnishing water and sewer services goes up, the percentage of the general tax rate goes up and the service charge goes up, but the service charge as computed would be levied on the assessed value of property subject to service charges. Thus, assessed value rather than the amount of use or consumption has been substituted as the measure for these charges. This seems illogical to us. (The result could be costly to the Thruway Authority. Instead of paying sewer charges based on the amount of water used in its service areas, it would pay a charge based on the assessed value of its roads, etc.) In addition, sewer and water rents imposed on behalf of county and town special districts are not covered anyway. This seems more than an insignificant oversight since water and sewer rents in large part are imposed for those districts.
For the aforementioned reasons, we believe no court would construe the service charge law as affecting a water or sewer user’s contractual obligation to pay a charge imposed for use. The Real Property Tax Law is concerned with charges that are in the nature of a tax, not contractual obligations.
October 11, 1972
Revised June 24, 1974
