Rev. Rul. 61-152

Advice has been requested whether charges imposed by the City of Wheeling, West Virginia, for the continuance, maintenance and improvement of the police and fire departments of that city are `taxes' within the meaning of section 164 of the Internal Revenue Code of 1954.

Section 504 of the West Virginia Code of 1955 as amended, provides, in part, as follows:

The governing authority of every municipal corporation that furnishes any essential or special municipal service, including police and fire protection, parking facilities on the streets or otherwise, recreational facilities, street cleaning, street lighting, sewerage and sewer disposal, and the collection and disposal of garbage, ashes or other waste materials, may by ordinance provide for the continuance, maintenance, installation or improvement of such service, may make reasonable regulations with respect thereto, may impose upon the users of such service reasonable rates, fees and charges to be collected in the same manner as municipal taxes are collected or in some other manner specified in the ordinance, and may provide penalties for any violation of such ordinance.

Under a similar provision in an earlier statute, the council of the City of Wheeling passed Ordinance No. 1812 on August 28, 1951, which provided generally for the continuance, maintenance and improvement of the fire department of the city as an essential municipal service. It imposed charges upon the `users of such service' and provided for the manner of collecting charges. The ordinance was amended by Ordinance No. 1942, of September 30, 1952, and was further amended and reenacted by Ordinance No. 2674, of August 18, 1959. A similar ordinance providing for like charges upon the `users' of services of the police department is currently imposed by Ordinance No. 2672, of August 18, 1959.

The current ordinances each provide that an annual charge of 20/100 of one percent of the value of all buildings, whether residential, commercial, or industrial, and all tangible personal property within the city is imposed upon the owner, or owners thereof. In each case the minimum charge is one dollar, the charge being payable to the city treasurer. Each year the municipal council of the City of Wheeling determines the value of the property. The funds collected are commingled with the general revenue funds of the city, to be disbursed as the municipal authorities direct. No earmarking or hypothecation of the funds collected takes place. All funds used for the operation of the two departments come from the general revenue funds of the city, and the amount used is not limited to, nor determined by, the amounts collected under the above-mentioned ordinances.

The `service charges' are exacted at a uniform rate from all owners of designated property, with the exception of property owned by the United States, the State, the County, the City, or by religious, charitable, fraternal or non-profit organizations exempt from payment of real and personal property taxes under the laws of the State.

Section 164(a) of the Internal Revenue Code of 1954 provides that except as otherwise provided, there shall be allowed as a deduction taxes paid or accrued within the taxable year.

Section 1.164-1 of the Income Tax Regulations provides, among other things, that except as otherwise provided, taxes imposed by the United States, any State, Territory, possession of the United States, or a political subdivision of any of the foregoing, are deductible for the taxable year in which paid or accrued.

I.T. 3511, C.B. 1941-2, 90, provides, in part, as follows:

In general, the term `tax' includes every burden that may lawfully be laid upon the citizen by virtue of the taxing power, but its application in statutory provisions varies with the intent and purpose of the particular provision. A tax is an enforced contribution, exacted pursuant to legislative authority in the exercise of the taxing power, and imposed and collected for the purpose of raising revenue to be used for public or governmental purposes, and not as a payment for some special privilege granted or service rendered. Taxes are, therefore, distinguishable from various other charges imposed for particular purposes under particular powers or functions of government. In view of such distinctions, the question whether a particular charge is to be regarded as a tax depends upon its real nature. If it is in the nature of a tax, it is not material that it may be called by a different name; conversely, if it is not in the nature of a tax, it is not material that it may be so called.

Nothing in the facts of the instant case supports the view that the charges are payments for a special privilege. Also, there is nothing which indicates any reasonable relationship between the `service charge' and the extent of the services provided to those on whom the charges are imposed, even though they are stated to be levied upon the `users of such service.' Intangible personal property, as well as individual citizens, are afforded protection, but neither is subjected to the `service charge.' The charges are imposed irrespective of whether an individual owner wishes or avails himself of such services, and even though he may have procured similar services from private sources.

Further, no variation is made in the rate of the charges to allow for properties subject to varying degrees of risk. Neither is there an adjustment in the rates although experience may have shown that particular kinds of construction, or certain areas, or activities demand a higher level of services than the average.

The instant situation is distinguishable from situations in which municipal charges for services are measured by the benefits which may be, or have been derived therefrom, as was the case in Benjamin Mahler v. Commissioner , 119 Fed.(2d) 869 (1941), certiorari denied, 314 U.S. 660 (1941), in which water charges were based on front footage of buildings, number of tenants, baths, hose connections, particular use, etc. It was there held that such charges on property owned and occupied as a personal residence, could not be deducted as taxes. Also, see O.D. 719, C.B. 3, 139 (1920).

Accordingly, it is held that the above-described charges imposed upon the owners of buildings and tangible personal property within the City of Wheeling, West Virginia, for fire and police department services are `taxes' within the meaning of section 164(a) of the Code, and are, therefore, deductible as such, notwithstanding their local characterization as `charges for services upon the users thereof.'