Rev. Rul. 77-29

Advice has been requested whether certain fees imposed by a county on real property are deductible as real property taxes under section 164 of the Internal Revenue Code of 1954.

The county imposes an annual fee upon all residential and commercial real property situated in the county for the collection and disposal of refuse. The assessed value of the property determines the amount of the fee that is imposed on such property. All property assessed at more than $20,000 is subject to the maximum fee. Additional fees, at an hourly rate, are imposed by the county on single-unit residential property for special collections at the residence and for optional back-door collections. The county also imposes additional fees on commercial property and multiple-unit residential property serviced by the county. The amount of these fees is based on the amount of refuse collected and the type of container used for the refuse.

Under the state law, the fees are deemed assessments against the property served and, as such, are enforceable in the same manner and to the same extent as county ad valorem taxes and are collected by the county tax commissioner in the same manner as county ad valorem taxes. However, the fees are specifically earmarked for sanitation services and ordinarily fully fund the county sanitation department.

Section 164(a)(1) of the Code allows as a deduction state and local, and foreign, real property taxes paid or accrued within the taxable year.

Section 1.164-3(b) of the Income Tax Regulations defines the term "real property taxes" as taxes imposed on interests in real property and levied for the general welfare, but it does not include taxes assessed against local benefits.

Section 1.164-4(a) of the regulations provides, in part, that deductible real property taxes are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction.

A tax is an enforced contribution, exacted pursuant to legislative authority in the exercise of the taxing power, and imposed and collected for the purpose of raising revenue to be used for public or governmental purposes. Taxes are not payments for some special privilege granted or service rendered and are, therefore, distinguishable from various other charges imposed for particular purposes under particular powers or functions of government. Ordinarily, when amounts are paid into a specific fund or earmarked for a specific purpose, they are treated as imposed as a regulatory measure or as a charge for a privilege or service rendered. See Rev. Rul. 61-152, 1961-2 C.B. 42, and Rev. Rul. 71-49, 1971-1 C.B. 103.

In this case, the fees are for sanitation services rendered by the county, are specifically earmarked for the sanitation department, and are not levied at a like rate against all property in the county.

Accordingly, the sanitation fees imposed by the county are not deductible as real property taxes under section 164 of the Code.