Government is always hungry for revenue. But when cash-strapped lawmakers are looking to cover a budget deficit, they have limited options. To be sure, they could cut spending. But that’s often as difficult as raising taxes. So, it is sometimes tempting for government to pursue inventive schemes for exacting revenue. And unfortunately, the small business community is often viewed as a cash cow.
As we’ve discussed in the past, one common ploy is to impose supposed “fees” on small business to bring in extra cash. But just because the government labels an exaction as a “fee” doesn’t mean that it is acting legitimately. For example, in Colorado NFIB is currently suing the Secretary of State over business licensing “fees” that in actuality amount to illegally imposed taxes—which are levied for the purpose of funding state elections and other government activities wholly unrelated to the provision of services to Colorado businesses. And now, in our latest lawsuit, we challenge a Montana enactment in which the State Legislature seeks to cover unexpected expenses by charging a supposed “fee” to take private monies that small businesses have paid-in to fund the state’s workers compensation program.
The Montana State Fund (MSF) was created as a public corporation to provide an option for Montana businesses to obtain necessary workers compensation insurance. By law, the employer’s premiums are held in trust by the Fund for injured employees; however, all funds held by the Fund remain private and are to be redistributed to those businesses paying-in to the system if the Fund should ever be dissolved. So, when the Montana Legislature decided to take funds directly from the MSF, it was picking a fight with small business. To be sure, in raiding private assets held in trust by the Fund, the Legislature greatly increases the odds that MSF will have to raise workers compensation premiums to remain financially secure—just as a private insurer might raise premiums to ensure a necessary cash flow.
Though the Legislature says that it is imposing a “fee” on the MSF, it is providing no new service to the Fund that might justify such an appropriation. Nor is the State providing any new service to those businesses paying workers compensation premiums—or, for that matter, any benefit to injured workers. Indeed, to be legitimate, a fee must be imposed only as may be necessary to cover the reasonable costs of enforcing a regulatory program, providing a service or mitigating some adverse impact that business might have on the public. By contrast, this supposed “fee” is nothing more than a compelled transfer of private assets into the government’s hand. Accordingly, our lawsuit argues that this amounts to an unconstitutional taking of private property without compensation.
Of course, our most immediate goal is to protect small business owners in Montana who have paid into the Fund, and their private property rights. But more broadly, we are hoping to extend recent Supreme Court decisions to make clear, once and for all, that government cannot simply legislate away previously recognized private property rights. More specifically, where an authority seeks to appropriate private assets, it must prove that it is imposing a legitimate tax or fee—neither of which Montana can demonstrate here. To be sure, not only does this exaction fail the constitutional test for a legitimate fee, but it cannot be defended as a tax either. This is because the Montana state constitution guarantees that funds held by the MSF are to be held in trust exclusively for the benefit of injured workers and those employers paying into the system—and therein strictly prohibits the Legislature from appropriating MSF funds for any unrelated purpose. In other words, this exaction can only survive constitutional muster if it is a legitimately imposed fee.
For more on this case, check-out NFIB’s January 22, 2018 press release.