July 2, 2005

Update on the Dubious Legality of Nashville's "Wheel Tax" Increase

The Tennessean has a story today exploring whether the $20 "wheel tax" increase passed last week by Nashville's Metro Council was passed legally under state law. BillHobbs.com was the first news publication to raise that issue, two days ago in an article titled Nashville "Wheel Tax" Increase May Not Be Legal. That article led to a second publication, the Nashville Scene, to explore the wheel tax increase's legality in an online article by Bruce Barry that generated a very good discussion. Being a competing publication of news and commentary, The Tennessean chose not to credit its competitors with breaking the story first. That's understandable.

The Tennessean correctly notes that the question of the tax increase's legality revolves around how it will be spent: "The money from the vehicle fee can't, under Metro law, be spent on anything other than road improvements such as signs, signals, markings and promotion of traffic safety."

Various court cases cited by commenters, including Metro councilman David Briley, in the comments posted to Barry's article over at Pith, note that if the wheel tax increase is allocated to be spent on those things, it is a fee and not subject to the section of state law that requires a wheel tax increase be passed twice by a two-thirds majority of the county legislative body, and that gives the people the right to overturn the increase with a petition drive and referendum.

But if the money instead goes to the county's general fund for other purposes, it is a tax and is subject to those provisions of the law.

The wheel tax increase will raise about $9 million in new revenue for the city. So, the key question now is, did the new city budget passed last week by Nashville's Metro Council increase spending on road signs, signals, markings and traffic safety by at least $9 million?

If not, then the wheel tax increase was meant to raise money for the general budget, that makes it a tax, and that makes it subject to TCA 5-8-102, which means it was not legally passed.

The question then becomes if Metro insists on collecting an illegally increased tax, does TCA 5-8-102's right of petition/referendum still apply? Can Nashvillians force a referendum under TCA 5-8-102, or does TCA 5-8-102 only allow for the petition drive and referendum if the tax ha been passed by a 2/3rds majority in two successive meetings, as this tax increase was not?

Perhaps the best possible solution is for petitions to be drawn up and signatures to be gathered, and for Metro Council to either accede to a referendum on the wheel tax increase, or to refuse and have a court settle the issue.

The worst outcome would be for taxpayers to accede to a tax increase of dubious legality without a fight.