What the heck is a franchise fee anyway?

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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