Submitted by Suanne Z. Thamm

City Attorney, Tammi Bach

Reporter – News Analyst

People understand terms like sales tax, gas tax and property tax better than they understand the term franchise fee.   In general, a municipal franchise fee is the “rent” that a utility company pays the city to use the right-of-ways (ROW) for its lines, pipes, poles, etc.  While the utility company collects this fee, it is turned over to the city, which uses it as a revenue stream.  Laws governing municipal franchise fees vary from state to state.  The Fernandina Beach City Attorney helped clarify the situation in Florida to better help Fernandina Observer readers understand the recent budget controversy over the role of franchise fees in the city of Fernandina Beach.

According to Fernandina Beach City Attorney Tammi Bach, “First, it is important to understand the difference between franchise fees and utility taxes.  Utility taxes are taxes on utilities [like electric] that cap at 10% and can only be applied to certain parts of the sale.  (Click here for the  link to Florida Statutes.)

Local and state communications services taxes are taxes on telecommunications based upon Florida state law, not municipal law, and replace municipal franchise fees on telecommunications.”

So what about franchise fees?  Bach added, “Franchise fees are entirely different and are not a tax but a fee negotiated by electric utilities (no cap) by agreement with municipalities for the right to use the public rights-of-way.  Cable and telephone franchise fees are no longer allowed in Florida (Click here for further information.)   Franchise fees are required to be “passed through” to customers since 1976 based upon a court case involving City of Plant City, FL.”

August 23, 2012 8:56 a.m.

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John Carvalho
John Carvalho (@guest_1106)
10 years ago

Franchise fees, like taxes, still amount to an indiscriminate raise in costs to citizens, do they not?

Dave Lott
Dave Lott(@dwlottbellsouth-net)
10 years ago

We often pay franchise fees when we do business with a merchant that is operating a franchise store. That merchant generally pays the parent company granting the franchise an annual franchise fee to cover the parent company’s support through marketing, product development, etc. The difference is that the franchisee builds that cost into the final cost of the product to the customer, it just isn’t explicitly listed like it is for utility franchise fees as required by law.
The best argument against the franchise fee not being a tax is that governmental agencies such as Nassau County and the City of Fernandina Beach are exempt from taxes, but they are not exempt from franchise fees.

John Carvalho
John Carvalho (@guest_1111)
10 years ago
Reply to  Dave Lott

Forgive my ignorance, but how does the city/county not being exempt from franchise fees help anything? You mean the city must pay it’s own franchise fee with it’s electric bill, and then recollect it from the utility company?

Dave Lott
Dave Lott(@dwlottbellsouth-net)
10 years ago
Reply to  John Carvalho

Yes, from one pocket to the other in the case of the City since the City collects the franchise fee. However, for other governmental agencies in the City (county, school board, federal government) they pay the franchise fee (while not paying property or other taxes) to the City. Same is true throughout the US.

Len Kreger
Len Kreger (@guest_1117)
10 years ago

It is a cost to the consumer which goes to the city. It is regressive, and basically with the same result of a tax.

Dave Lott
Dave Lott(@dwlottbellsouth-net)
10 years ago
Reply to  Len Kreger

From an economic definition standpoint, it is not a “regressive” fee as the percentage rate is flat regardless of the amount of energy used. In the case of the City’s water usage fee, that is a progressive fee as the more water used the higher the per gallon rate charged to the user. Yes, end result is an amount added to the bottom line of the bill paid by the customer; but you could make that same argument for such things as the 911 fee added to your phone bills, etc.

tony crawford
tony crawford (@guest_1118)
10 years ago

Someone has to tell me what the difference is between a fluke and a flounder. They are both fish.
That same person could then tell me what the difference is between a franchise fee and a tax. I have honestly never thought about this till reading so much about it. I made some calls and gathered as much information as I could to try to understand it. We all can agree or disagree on whether this fee should be increased, fair enough. This being said, if the increase comes out of our pockets most must agree it’s a TAX. Call it a fee if you like, but then we are back to the fluke and flounder issue.

The best way I can think about this is to use a simple analogy. You are renting a house and paying monthly rent. Your landlord– (the City/taxpayer)– knocks on your door one day and informs you–( the electric company)–we are raising your rent– ( the franchise fee). The landlord —(the city/taxpayer–) tells you, not to worry about it as you won’t be responsible for the increase. The City/taxpayer will cover it. I am not debating the need for the increase, or how the system works. I am just trying my best to understand it.

For those who doubt a fee isn’t a tax, ask yourself “why are we taxpayers and not fee payers”

Elmo
Elmo (@guest_16022)
9 years ago

I understand franchise fee is not a tax, is a fee that utilities companies has to pay the cities to operate in there territory.
But why the consumer has to pay the franchise fee, utility companies make enough money charging for their services. I think if they want to operate they have to pay the price of operation, no passing those charges to the consumer.
Perhaps if the cut the salaries to

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