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Is it a fee or a tax?

By The Blog Team

That was the question in a ruling issued Monday by the State Intermediate Court of Appeals in a case regarding assessments imposed by the State executive branch. The State Insurance Commission has been imposing assessments on insurance companies to pay for the cost of regulating them.

If the assessments were deemed "fees," they'd fall within the executive branch's jurisdiction and be legal.

If the assessments were deemed "taxes," they'd be outside the executive branch's authority and unconstitutional.

The court applied a three-part test (the Medeiros test):

"whether the charge (1) applies to the direct beneficiary of a particular service, (2) is allocated directly to defraying the costs of providing the service, and (3) is reasonably proportionate to the benefit received."

If those questions are answered in the affirmative, an assessment will be deemed a fee.

In this case, the questions were answered in the negative, and State failed the test. So, the assessments were deemed unconstitutional taxes. As a result, the State stands to lose more than $1 billion.

Here's Judge Foley's majority opinion:
http://www.state.hi.us/jud/opinions/ica/2008/ica27840.htm
(Excerpt: "The assessments . . . do not survive scrutiny under the first prong of Medeiros because the regulation of the insurance industry directly benefits the public-at-large -- not the insurers who pay the assessments.")

Here's Judge Watanabe's concurring opinion:
http://www.state.hi.us/jud/opinions/ica/2008/ica27840con.htm
And here's a Star-Bulletin article:
http://starbulletin.com/2008/04/16/news/story03.html

Full post as published by Supreme Court of Hawaii Blog (Unofficial) on April 16, 2008 (boomark / email).