When a “Fee” Becomes a Tax: The Pennsylvania Supreme Court Draws a Hard Line on a Home Rule Municipality’s Stormwater Charges

Daniel C. Conlon, dconlon@tuckerlaw.com, (412) 594-3951

A municipal stormwater charge is an unenforceable local tax against Commonwealth instrumentalities and other tax-exempt entities when the enabling ordinance bases the charge on governmental regulatory duties and public health and welfare concerns and imposes it on all developed property without a voluntary service relationship.

Borough of West Chester v. Pennsylvania State System of Higher Education (PASSHE) & West Chester University of Pennsylvania of the State System of Higher Education, 2026 Pa. LEXIS 775 (Pa. 2026).

1. The Supreme Court of Pennsylvania affirmed the Commonwealth Court and held that West Chester Borough’s “stream protection fee” is a local tax from which PASSHE and West Chester University are immune as tax-exempt entities. Applying a two-step framework grounded in over 150 years of Pennsylvania precedent, the Court found that the West Chester Borough provided stormwater management in its public governmental capacity, acting out of NPDES (National Pollutant Discharge Elimination System) regulatory duty and for public welfare.  As a result, the Court concluded that the stormwater fee was a tax, not a fee, and therefore could not be imposed on tax-exempt entities.

Summary and Factual Background:

West Chester Borough, a home rule municipality in the suburbs of Philadelphia, owns and operates a small municipal separate storm sewer system (MS4) and a broader stormwater management network encompassing underground pipes, catch basins, detention ponds, public streets, natural areas, and related infrastructure. Federal and state law impose significant regulatory obligations directly on the Borough as an MS4 permit holder.

The Clean Water Act’s National Pollution Discharge Elimination System (NPDES) requires the Borough itself to obtain and comply with a permit governing stormwater discharge. The Pennsylvania Department of Environmental Protection had separately designated the Borough’s streams as impaired, triggering additional state-level management requirements on the Borough as a governmental entity.

In 2016, the Borough Council enacted Ordinance No. 5-2016 imposing a “stream protection fee” (Stormwater Charge) on every developed property deemed to benefit from the Borough system, directly or indirectly, calculated by the amount of impervious surface on each parcel. All revenues flowed into a dedicated stormwater management fund.

West Chester University’s north campus is within the Borough’s jurisdictional limits. The Borough invoiced the University for the stormwater charge in 2017, 2018, and 2019. The University asserted immunity from local taxation as a Commonwealth instrumentality. The Borough filed a petition for review in the Commonwealth Court, which unanimously held that the stormwater charge is a general tax from which the University is immune as a tax-exempt entity. The Supreme Court granted review and affirmed.

II. Discussion:

The Supreme Court applied a two-step test to determine whether West Chester Borough’s “stream protection fee” was a fee or a tax.

A. Step One

At step one, a court must determine whether the municipality provides the service in a quasiprivate or public capacity. A municipality acts in a quasiprivate capacity —and may charge a fee— when it provides a discretionary service for the private advantage and convenience of those customers it serves, within the scope of a contractual relationship, like a private utility. 

However, a municipality acts in a public capacity — and may only tax — when it performs a service out of governmental duty, for the public benefit, in the absence of a voluntary contractual relationship. If the court finds a public capacity at step one, the charge is a tax and the inquiry ends.

At step one, the Court applied two sub-inquiries: (i) the purpose underlying the municipality’s participation in the service, and (ii) the nature of the service relationship between the municipality and those it charges.

Under the first sub-inquiry, the Court found that the Borough’s own ordinance undermined  its litigation position. Section 94A-2 of the ordinance declared the program “fundamental to the public health, safety, and general welfare of the residents of the Borough.” Section 94A-5 defined the stormwater charge as an assessment levied in part to fund “expenses related to the Borough’s compliance with PADEP (Pennsylvania Department of Environmental Protection) NPDES permit requirements under applicable state law.” And Section 94A-9 charged the stormwater fund with paying for “other functions or duties authorized by law.”

The Court held that the ordinance’s text established that the Borough’s stormwater program was driven by its own governmental regulatory obligation and public welfare concerns. A public service, the Court explained, is “coupled with a municipal duty” that “cannot be abandoned” or “escaped by lease or other form of delegation.” As a result, the Court concluded that the Borough’s stormwater management program fits that description precisely.

On the service relationship sub-inquiry, the Court identified four independent grounds on which no voluntary contractual relationship could be found, each of which independently supported characterizing the charge as a tax.

First, stormwater management is not a service property owners would voluntarily seek out. Unlike water, sewer, or trash collection, stormwater is inherently transient.  The property that generates the most runoff often receives the least benefit, while the downhill neighbor bears the damage. As the Court observed by reference to DeKalb County, Georgia v. United States, 108 Fed. Cl. 681 (Fed. Cl. 2013), “the burden imposed on the system by the runoff from the property, and the benefits conferred upon that property by the system are not the same thing.” That structural disconnect precludes the voluntary contractual relationship on which a fee must rest.

Second, no affirmative act by the property owner instigates each use of the stormwater system. Instead, rain simply falls. The Borough argued that maintaining impervious surfaces constitutes voluntary assent to the charge, but the Court rejected this on two grounds: most structures predated the Borough’s stormwater charge by decades or a century, making it impossible to infer a contract to pay a charge that did not yet exist; and refraining from new construction would not have relieved the University of the charge, because it would still owe for existing impervious surfaces.

Third, the Ordinance’s definition of “developed property” was so broad it captured virtually every habitable or commercial parcel in the Borough. The only way a resident could avoid a stormwater fee would be by removing all impervious surfaces, installing an approved private stormwater system, or leaving the Borough. A charge that functionally extends to all property owners in a jurisdiction bears the hallmark of a general tax, not a bilateral service agreement, for which the municipality can charge a fee.

Fourth, the Ordinance imposed the charge on properties “benefitted by the [Borough] System, either directly or indirectly,” requiring no showing of actual use whatsoever. Citing its earlier decision in In re Petition of City of Philadelphia, 16 A.2d 32 (Pa. 1940), the Court reaffirmed the fundamental distinction between “actual use of” a system and “the privilege of using” it: a charge imposed without regard to the extent or value of any service renders it a tax.

B. Step Two

At step two, a court must determine whether the charge is reasonably proportional to the extent of use or the value of the services rendered. A charge that fails step two — because it lacks the necessary or likely connection between the amount charged and the services rendered — is, in legal effect, also a tax.

 The West Chester Court did not reach step two because it concluded at step one that the Borough acted in its public capacity when it imposed the stormwater fee.  Accordingly, the proportionality inquiry remains open for a future case involving a properly structured quasiprivate fee.

III. Practical Advice

Municipal elected officials and managers should audit existing stormwater fee ordinances before a challenge arrives. The West Chester Court decision applies directly to municipalities with taxing powers — not municipal authorities. An argument could be made that because a stormwater authority does not have any taxing powers, it can only charge fees, which tax-exempt entities are not immune from paying. However, a counter argument is that an authority’s corporate status and lack of taxing powers will not prevent a court from classifying its stormwater fee as a tax if the fee mirrors the substance of West Chester’s charge.

Specifically, if a stormwater authority’s fee resembles the fee in West Chester Borough, a court could find that the fee is a tax that tax-exempt entities are exempt from paying, regardless of the authority’s lack of formal taxing power. The two-step analytical framework the Supreme Court applied in West Chester Borough asks whether the charge is a tax or a fee in substance, not merely in form. An authority’s corporate status and the label placed on the charge do not answer that question.

If a court finds that a stormwater fee is a tax rather than a fee, the municipality or stormwater authority cannot collect it from tax-exempt entities and could face demands for restitution of amounts paid under protest. In communities with substantial concentrations of tax-exempt property financial exposure could be significant. Officials should not wait for an appeal to assess their vulnerability.

For questions regarding stormwater utility fees, municipal taxation, or the impact of the West Chester decision on your organization, please contact Daniel Conlon at dconlon@tuckerlaw.com or at (412) 594-3951.