The Georgia Supreme Court has ruled that a fire protection fee imposed by Chatham County was actually an illegal property tax, upholding a lower court ruling requiring the county to refund more than $30 million to property owners.

The case arose from the county’s efforts to fund fire protection services in unincorporated areas. Prior to July 2024, Chatham County did not operate its own fire department. Instead, fire protection was provided through municipal fire departments, volunteer fire departments, and private organizations.

One of those organizations, Chatham Emergency Services (CES), provided fire protection to several unincorporated districts through fees paid by property owners. When approximately one-third of the property owners stopped paying, CES experienced financial difficulties that threatened its ability to maintain services.

The county responded by contracting with CES to continue providing fire protection and establishing a special fire service district to fund the arrangement. Initially, the county funded the services through a fire protection tax. In 2022, however, it repealed that tax and replaced it with what it called a Fire Protection Service Fee. In June 2024, CES became financially unable to continue providing services, and the county established its own fire department in July.

Under the original ordinance, property owners were charged a flat $100 fee for their land, plus an additional amount based on the square footage of structures on the property. The charges ranged from $75 for smaller structures to $10,000 for structures measuring 50,000 square feet or more.

In 2023, the county revised the fee structure to impose a $100 charge on vacant parcels and a charge of $0.14 per square foot on structures, with a minimum charge of $100. Payment was mandatory. Property owners who failed to pay faced penalties, collection costs, and potential legal action.

Two property owners, Damon and Sebrell Smith, filed a class action lawsuit challenging the ordinance. They argued that the fire protection fee was actually a property tax and that Georgia law required such taxes to be based on property value rather than square footage.

The trial court agreed, ruling that the county had imposed an illegal tax. It ordered refunds totaling $26,852,778.90, plus $3,274,595.33 in prejudgment interest.

Chatham County appealed to the Georgia Supreme Court.

The Supreme Court affirmed the lower court’s ruling, explaining that the distinction between a tax and a fee as follows (internal quotation marks and citations removed):

• The Georgia Constitution protects taxpayers by limiting the methods and means by which Georgia governments can impose taxes.
• The distinction between a tax and a fee is not one of names but of substance.
• While fees are a charge for a particular service provided, based on the payer’s contribution to the problem, a tax is an enforced contribution exacted pursuant to legislative authority for the purpose of raising revenue to be used for public or governmental purposes, and not as payment for a special privilege or a service rendered.
• Drawing from [earlier decisions, we have] identified four factors that Georgia courts should consider in determining whether a governmental fee or charge is in substance a tax.
• The factors to be considered are that a tax is (1) a means for the government to raise general revenue based on the payer’s ability to pay (i.e., income or ownership of property), without regard to direct benefits that may inure to the payer or to the property taxed, that the tax is (2) mandatory, that it is (3) not related to the payer’s contribution to the burden on government, and that the tax does (4) not result in a special benefit to the payer different from those to whom the charge does not apply.

Applying those four factors, the court concluded that Chatham County’s fire protection fee was a tax. First, the fee funded the general availability of fire protection services, regardless of whether an individual property owner ever needed those services. Second, the charge was mandatory and enforceable through penalties and legal action.

Third, the amount charged was based on property ownership and building square footage rather than the actual use of fire protection services or the burden a particular property placed on the fire department. The court noted that county officials acknowledged the square footage calculations were based on “common sense” rather than fire service data.

Finally, the court found that paying the fee did not provide property owners with any special benefit unavailable to others. The county’s fire protection services were provided throughout the district regardless of whether property owners had paid the fee. Tenants, motorists, and other individuals who had not paid the fee received the same emergency services as those who had.

The county argued that property owners received special benefits from fire protection, including reduced risk, increased property values, and lower insurance premiums. The court rejected that argument, noting that those benefits were not limited to the property owners who paid the fee.

The court concluded:

• Because the Fire Fee was imposed on property owners to fund the general availability of fire protection without regard to their use of the services or any direct benefits they might receive, was mandatory in nature, did not track their burden on the system, and did not result in a special benefit to them, we conclude, based on these relevant factors, that the Fire Fee was enacted to raise revenue for public or governmental purposes rather than to provide a particular service to the property owners and was, therefore, a tax.

Having determined that the fee was actually a tax, the court then considered whether it complied with Georgia law.

The county argued that the Georgia Constitution authorized special service districts to fund services through fees, assessments, or taxes, without requiring property taxes to be based on property value.

The Supreme Court disagreed, concluding that while Georgia’s Service Delivery Strategy Act permitted fire protection services to be funded through fees or taxes, because the county’s particular fee was actually a property tax, it had to be ad valorem, meaning based on property value. The Supreme Court affirmed the trial court’s judgment in favor of the property owners.

Ironically, the county had already abandoned the disputed fee system. When CES became financially unable to continue providing fire protection services in June 2024, Chatham County assumed responsibility for fire protection in the affected district and shifted funding to the district’s property tax millage rate. Nevertheless, the ruling leaves intact the trial court’s award of more than $30.1 million in refunds and prejudgment interest for fees collected during the two-year period from July 2022 through June 2024.