In Dalton Enterprises v Dalton Township, the Michigan Court of Appeals affirmed a Michigan Tax Tribunal Decision upholding a special assessment levied to defray the cost of a sanitary sewer improvement project in Muskegon County.

Petitioner Dalton Enterprises argued the special assessment was invalid because the assessment amount was not reasonably proportionate to the benefit derived from the sewer improvement.  A special assessment will be declared invalid when "the party challenging the assessments demonstrates that there is a substantial or unreasonable disproportionality between the amount assessed and the value which accrues to the land as a result of the improvements."

Here, the only evidence submitted by Petitioner regarding the proportionality of the assessment was a property owner's lay opinion that the value of his property decreased due to the sanitary sewer improvement.  The Court found the property owner's testimony insufficient to demonstrate a "substantial or unreasonable disproportionality" between the amount assessed and the value accrued to the property as a result of the improvement.

The Petitioner further argued that the special assessment and connection charge violated the Headlee Amendment, Article 9, Section 31 of the Michigan Constitution.  The Headlee Amendment prohibits the levying of a tax by a unit of local government without voter approval; however, Michigan courts have recognized a distinction between a special assessment and a tax.  A special assessment defrays the cost of a specific project while a tax serves a general revenue raising purpose.  Because a special assessment is not a tax, a special assessment does not violate the Headlee Amendment.

To determine whether the connection charge is a valid user fee or an unauthorized tax, the court applied a three part test as outlined by Bolt v City of Lansing, 459 Mich 152 (1998) that reviews: 1) whether the fee serves a regulatory, rather than revenue raising purpose; 2) whether the fee is proportionate to the costs of the service, and; 3) whether the fee is voluntary as opposed to compulsory.

Here the court found that the connection charge clearly satisfied the first two criteria because the project served a regulatory purpose by protecting the public health, safety and welfare and, based on expert testimony, its costs were proportionate to the benefit derived.  However, the third factor was not in dispute, connecting to the system was mandatory.  Nevertheless, the failure to satisfy all three Bolt criteria does not mandate a conclusion that the connection charge constitutes a tax.  The Michigan Supreme Court has held that the three Bolt criteria are not to be considered in isolation.  Considering all the criteria together, the court concluded a connection charge was a valid user fee.