Understanding Unlawful Municipal Short-Term Rental Fees
Quick Summary
Pennsylvania municipalities may charge short-term rental permit fees, but the fee must be commensurate with the actual cost of administering the program. A fee grossly disproportionate to that cost is not a lawful fee, it is an unlawful tax. This article outlines the governing Pennsylvania standard, the challenger’s burden of proof, and the declaratory judgment remedy available in the Court of Common Pleas. STR owners questioning whether a municipal fee is lawful may contact Eric B. Smith at Timoney Knox.
Without question, a municipality may impose permit fees, including for the operation of Short-Term Rentals (“STRs”). Typically, such fees are in relation to some form of inspection and administration of the matter being permitted, such as STRs. Unfortunately, some municipalities over-reach and charge a “fee” that is out of proportion to the costs of administration.
The Pennsylvania Supreme Court, in Mastrangelo v. Buckley, 250 A.2d 447, 464 (Pa. 1969), defined a license fee as follows:
A license fee is a sum assessed for the granting of a privilege. In most instances, where a license is granted the City invariably incurs expense such as the cost of registration and inspection; it is only proper that the one who seeks and receives a license should bear this expense. To defray the cost of a license a fee is charged to the licensee; however, this fee must be commensurate with the expense incurred by the City in connection with the issuance and supervision of the license or privilege.
Mastrangelo, 250 A.2d at 464 (footnote omitted) (emphasis added).
When Does a Municipal Fee Become an Unlawful Tax?
Under Pennsylvania law, a municipal short-term rental fee crosses into an unlawful tax when the fee amount is grossly disproportionate to the cost of administering the permit program. At that point, Pennsylvania courts treat the charge as revenue-raising rather than a legitimate exercise of the municipality’s police power. Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947).
A license fee is distinguishable from a tax which is a revenue producing measure characterized by the production of a high proportion of income relative to the costs of collection and supervision. Talley v. Commonwealth, 553 A.2d 518, 519 (Pa. Commw. Ct. 1989). A municipality cannot impose a tax upon a business under the guise of exercising its police power, and, therefore, a license fee will be struck down if its amount is “grossly disproportionate to the sum required to pay the cost of the due regulation of the business.” Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947). “The party challenging a license fee has the burden of proving that a fee is unreasonable.” Talley, 553 A.2d at 519. “All doubt must be resolved in favor of the reasonableness of the fee, since the municipality must be given reasonable latitude in anticipating the expense of enforcing the ordinance.” Id.
Because such a fee is presumed to be reasonable, the burden is on the challenging party to demonstrate that the fee charged is grossly disproportionate.
Such an unlawful fee may be challenged by a taxpayer by filing an action with the Pennsylvania Court of Common Pleas. An action for declaratory judgment is particularly applicable to allow the Court of Common Pleas to determine whether such a fee is, or is not, an excessive tax. County of Northumberland v. Twp. of Coal, 2022 Pa. Commw. Unpub. LEXIS 438*. See also, 42 Pa.C.S. §§ 7532; 7533.
Frequently Asked Questions
Can a Pennsylvania municipality charge fees for short-term rentals?
Yes. Pennsylvania municipalities may impose permit fees for short-term rentals, typically tied to the cost of inspection and administration of the permitting program.
When does a license fee become an unlawful tax under Pennsylvania law?
A license fee becomes an unlawful tax when its amount is grossly disproportionate to the cost of the due regulation of the licensed activity. Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947).
Who has the burden of proving a municipal fee is unreasonable?
The party challenging the fee. Pennsylvania courts presume municipal fees are reasonable and resolve doubt in favor of the municipality’s latitude in anticipating enforcement expense. Talley v. Commonwealth, 553 A.2d 518, 519 (Pa. Commw. Ct. 1989).
How can a taxpayer challenge an unlawful municipal fee?
A taxpayer may file an action in the Pennsylvania Court of Common Pleas. A declaratory judgment action is particularly suited to determining whether a municipal fee is, in fact, an excessive tax. 42 Pa.C.S. §§ 7532, 7533.
Are municipal short-term rental fees and homeowners association fees governed by the same law?
No. Municipal fees are governed by public law, the municipality’s police power and the fee-versus-tax distinction addressed above. Homeowners association fees are governed by private contract and the Pennsylvania Uniform Planned Community Act, which imposes separate statutory limits on the fees an association may charge STR operators. STR owners subject to both a municipal fee and an association fee should consider both bodies of law. Our related article on [limitations on association short-term rental fees](link to Article 8) addresses the standard that applies to HOA fees.
If you are facing a dispute involving short-term rental rights, association restrictions, municipal regulations, or rental fees, Eric B. Smith can help evaluate your legal options. As Chair of the Litigation Group at Timoney Knox LLP, Eric focuses on real estate, municipal, and commercial litigation matters throughout Pennsylvania. To discuss your situation, contact Eric directly at esmith@timoneyknox.com or 215.540.2653.
