by Terry Smythe
November 1990


During their annual budget exercise, most taxicab regulatory authorities are directed to review all revenue sources to either adjust existing fee schedules, and identify activities for which no fees are charged. The objective is to attain and sustain full cost recovery on the fundamental principle that a regulated industry, being a protected industry, must bear the full cost of that regulation.

Care must be taken in establishing a viable fee structure, for if the objective is simply to generate additional revenue, there is a risk of a successful court challenge. If the objective is to recover costs, as it should be, it is important that all costs be carefully considered, as it is easy to overlook significant contributors.

By custom and usage over the years, most jurisdictions now have a policy in place that agencies responsible for regulating an industry, should have a fee structure providing for full cost recovery. In common law, all fees, under whatever label they are carried on the books, must bear a reasonable relationship to the cost of related administration, regulatory, inspection, investigation, and enforcement activities. The costs need not necessarily be carried in the budget of the regulatory agency. i.e., vehicles inspections conducted another government fleet vehicle agency.


All fees must have their roots in legislation. Typically, enabling legislation establishes the continuing existance of the regulatory agency, establishes its fundamental regulatory authority, provides authority to make regulations, and includes a single permissive clause authorizing the agency to establish fees by regulation. The enabling legislation rarely includes the words "full cost recovery" because this is a fundamental element of common law.

Some jurisdictions have enabling legislation from antiquity that establishes in law only the types of fees that may be charged, with authority to set the amount of those fees by regulation. Such jurisdictions are severely hobbled in their ability to attain full cost recovery, for the few fees they are allowed to charge would have to be so high as to preclude their survival in a court challenge, because they would no longer bear a reasonable relationship to their companion administrative and other actual costs.

No fee may be charged for which there is no enabling authority in law. i.e.:

These are frequently encountered situations as a consequence of historic oversight. Of course hindsight is always 20/20.

Fundamentally, a "fee" is simply a charge for official government permission to do something for a fixed period of time. The document that emerges from payment of that fee is only proof that a required fee has been paid. It in itself is not an item of saleable property as it may be revoked at any time for cause, and in any case will always expire at some defined future date with no imbedded right of continuance, no guarantee that the same licence will be issued to the same person in subsequent years, nor any guarantee that the regulatory environment will not change at some unknown future date.

As a consequence of historic oversight, most jurisdictions allow a transfer of licences from one person to another. This, coupled with a fixed quota of licences, creates a "scarcity value". As a consequence of this phenomena, licences acquire a real estate value of their own, commonly referred to as "street value". That a licence is not a legally saleable item of property seems to consistently elude the attention and realization of both vendors and purchasers, and some lenders are known to take back the licence as collateral. This could be particularly hazardous for a lender as the Goverment has the authority to revoke a licence at any time for cause, or if a licensee allows it to lapse for simple failure to renew.

It is arguable that not all activities of a regulatory agency are directed to regulation of a target industry. It is entirely possible that some activities may well have no relationship to regulation. Caution must be exercised in identifying costs for which fees may be charged to the regulated industry.

In the zeal of cost recovery imposition, an often overlooked consequence is an industry perception that if they are to bear the full cost of regulation, then they have a right to vet the authority's annual budget. An extremely sensitive situation then emerges provoking tense public hearings that need never happen given a modicum of simple foresight.

There is a legitimate need for a separation of revenues from expenses, such that the regulatory authority is proportionatly funded from the industry through fees, charges, fines, etc., and partly funded through general tax revenues as it is a undeniably a public utility. It is a balancing act that recognizes the need for some tax support relative to public safety, convenience and service.

Additional guidance may be gleaned from "Rogers, The Law of Canadian Municipal Corporations, section 132.4 Fees", (there is likely companion guidance in some similar U.S. publication) wherein in part it states:

on page 730:

on page 732:



Most jurisdictions have their enabling legislation out of antiquity before leasing became imbedded following changes in the tax laws in the early 70's. As a consequence of the emergence of the 'independent contractor', many agencies are now faced with a need for regulation over a segment of the industry for which there is no legislative authority.

It is arguable that leasing a taxicab, or even worse, leasing just the licence, is not in the public interest nor even legal. In law, a licence to conduct a public utility (i.e., transportation of people), may only be issued to the person who has 'care and control' of the vehicle. In antiquity, that was true when taxicab companies were organized along traditional corporate structures, owned the vehicles, employed the drivers, and properly held the taxicab licences (medallions) in their own names because they properly had 'care and control' in an employer-employee relationship.

Unfortunately, regulatory authorities are now all too often still issuing taxicab licences to the same licence holders, but they are no longer in the taxicab business. They are in the car rental business, and often go to extraordinary lengths to ensure with absolute legal clarity that they (the lessor) do not in any way exercise any care and control over either the driver (lessee) or the vehicle.

In such conditions, we now have a situation where the person who has care and control of the vehicle and the public utility service, does not hold a licence to do so. The licence to do so is now held by someone who does not prive the service nor has care and control.

As a consequence of historical oversight, the regulatory authority is caught in a dilemma. The leasing environment is inconsistent with fundamental common law, but by long standing custom and usage, could be argued has now migrated into "grey" legality by virtue of the regulatory authority's failure to deal with this situation when it first emerged in antiquity. Any attempt now to establish associated fees and bring the leasing environment under the regulatory net will infect leasing with the aura of respectability, expose embarrasing historic failures, and ensure perpetuation of this unhappy situation into perpetuity.

Dispatch Companies

Some jurisdictions do not now embrace taxicab dispatch companies because they evolved subsequent to and outside the initial perception of enabling legislation. They are not regulated and no fees are charged because there is no authority to do so.

In these instances, there is considerable concern because the quality of service is directly affected by these critical elements in the provision of a public transportation utility. These companies, through which independent owner/operators function, and their companion dispatch system, not necessarily under the same management, should be the focus of ultimate regulatory control.

Caleche (Horse Drawn Carriage)

The regulatory concerns here must focus not only on the vehicle and its safety and stability, but also on the skill and knowledge of the driver, and the care, health and treatment of the animal. In most jurisdictions, only a few of these vehicles appear from time to time seasonally, typically in summer.

However, all it takes is one accident emerging from out of "spooking" of the horse by some innocent unforeseen incident, and the local regulator will be the focus of enormous "heat" from the media, animal rights groups, from City Hall, and from wherever else you can imagine.

These are undeniably vehicles for-hire, and as such the general public has a fundamental right to expect they be regulated if for no other reason than for public safety.

Pedicabs (Rickshaws)

A phenomena of contemporary marketing, emerging from out of Far Eastern antiquity, pedicabs (aka rickshaws) have in recent years started appearing in ever increasing abundance on our crowded downtown streets during high tourist season in mid-summer. They are clearly vehicles for-hire for the transportation of people, they do so on city streets, and their numbers are not likely to shrink. The actual numbers on the street are unknown, for these vehicles are often unlicenced. While it may be true that their numbers may be considered modest, the risk and liability they present would seem to warrant full regulatory attention.

Water Taxis

Theoretically, because water taxis do not operate on roads and city streets, there is a perception that local taxicab authorities do not have jurisdiction. Notwithstanding the desire to let someone else do it, like perhaps the Coast Guard, the fundamental purpose of water taxis is a vehicle for hire for the transportation of people as a public utility.

The expertise for regulating water taxis best lies with the taxicab regulatory authority. Perhaps a joint responsibility can be negotiated in most jurisdictions. The critical issue is of course public safety, and water taxis should be regulated no differently than any other taxi services. The cost of the regulatory effort should be reflected in an oppropriate fee structure.

Small Sightseeing Vehicles

These are fundamentally vehicles for hire for the transportation of people. Many taxi regulators do not now embrace them within their regulatory net, but they should be. If these services are currently regulated no more profoundly than a simple business licence from City Hall, consider for a moment the impact of a single accident and outcome of a public inquiry that will emerge with absolute certainty.

Meter Inspections

For a taxicab to be in business on city streets, their meters should be periodically inspected for accuracy against locally approved fares. This is a service that does have a cost and imposes considerable consumption of resources. A reasonable fee should be charged. It is interesting to note that scheduled meter inspections typically reveal few discrepancies, and one wonders how many would emerge if the process was switched from predictable scheduled inspections, to unpredictable random on-street inspections.

Vehicle Safety Inspections

Many, if not most jurisdictions require all taxicabs to a pass a rigorous safety inspection, hopefully in well equipped facilities independent of the industry and of required repairs. This is a costly process, and an appropriate fee should be charged even if the inspection is conducted by some other government agency.

Licence Transfers

In most jurisdictions, transfer of a taxicab business licence from one to another is permitted, principally by an absence of prohibiting legislation. Typically, such transfer applications must be submitted to the regulator for approval in a scheduled public hearing, where formal opposition if any may be filed. Full disclosure of financial details are typically required as part of the documentation. All too often, the disclosed financial information is a photocopy of what somebody else has filed earlier.

Care must be exercised here to make it absolutely clear that what is approved is the simple transfer to someone who passes a 'fitness' test. While the amount paid is revealed in the companion financial documentation, the approval process does not and cannot embrace the "street value". The "street" or real estate value that a taxi licence acquires is the result of a vendor and a buyer striking a deal totally independent of and external to the regulator. The regulator must not and cannot comment in any way on the merits or otherwise of the amount paid.

It must also be made abundantly clear that the regulator has no responsibility to recognize, protect, or nourish that street value in any way. Part of the buyer's decision making process must be in recognition that there is no guarantee into perpetuity that conditions out of which street values emerged will be maintained in legislation, regulations, by-laws, ordinances, etc.

Returned N.S.F. Cheques

The banking system does not look kindly upon NSF checks, and many banks are merciless in their own fee structure. There is no reason why a regulator should not only pass on bank charges, but also add an appropriate fee to cover the cost of its own administration.

Periodic Licence Auction

The issue of additional new taxi business licences has been the focus of considerable attention over the past 3 years. Notwithstanding that an independent market survey may confirm that public convenience and necessity would be served by additional licences, the industry continues with a course of litigious confrontation in its efforts to prevent the issuance of new licences. A potential method of dealing with this situation is to transfer the initiative to the large array of independent owner operators within the taxi industry by periodically offering a limited number of new licences at a public auction.

This is undeniably a controversial consideration as it does not generate any benefits for the industry, although substantial sums of money are involved. As these monies flow only into a municipality's general revenues, it is argueable that the city is the only beneficiary in such situations.

Vancouver's experience is interesting as there is a basic expectation that anyone wishing to voluntarily bid on one or more of these new licences has done considerable market research and is knowledgeable not only of the current real property value of a licence, but also the revenue potential. At time of the last auction in Vancouver, real property values hovered around $95,000-100,000; and currently trading on the streets at approximately $120,000.

A major concern about the auction process is that a new owner will inflict upon himself a debt load so huge as to leave no room for service improvements. Furthermore, all the monies paid to the city for these licences go directly into general revenues, and do not contribute in any way to taxi service improvements. While there is recognition that a public auction is a revenue source, the disadvantages are so ominous as to preclude this as a serious consideration.

Notwithstanding that an auction carries with it a voluntary payment, that which is being bought - a taxi business licence - is not a legally saleable product, particularly at these very high prices. In common law, a licence is ordinarily only a permission to do something for a specified period of time. The fee paid for that permission (the licence) must in law bear a reasonable relationship to the true cost of administration, compliance, investigation, enforcement, and regulatory attention. The amounts of monies voluntarily bid clearly exceed these costs by a wide margin, and would not likely stand the test of a court challenge. In any case, the licence is not a piece of collateral property and its disposition, including revokation, is solely within the purvue of the regulator.

A fundamental requirement of issuing new licences by whatever method, including public auction, is that the numbers of additional new licences must be determined in accordance with public convenience and necessity. A recent landmark legal decision by the Massachusetts Supreme Court upheld the authority of the Boston Hackney Bureau to issue additional licences, but cautioned the Bureau to determine the actual number of new licences in accordance with public convenience and necessity by the use of some reasonably reliable formula emerging out of qualified research and analysis.


A review of a number of other jurisdictions reveals that most establish their fee structure and operate under the principle that "A regulated industry, being a protected industry, shall bear the full cost of its regulation." Most jurisdictions operate on full cost recovery aiming for zero balance, a few are free to earn well in excess of their costs through a generous fee schedule.

Because each determines and establishes fee structures unique to their situation, the variations in fees are totally lacking in consistency as to type and description, but are consistent as to their cost recovery objective. Only Anchorage in addition to Winnipeg, publishes pro-rata part year fees.


All municipalities in Ontario are guided by the provisions of the Ontario Municipal Act and Rogers, The Law of Canadian Municipal Corporations. Municipalities may set fees to raise revenues and these fees shall be comensurate with associated costs. This is interpreted to mean full cost recovery. The same applies to other Ontario municipalities contacted in this survey - Ottawa, Brampton, Toronto, Hamilton, and St. Catherines.


Section 305(1) of the Nova Scotia Motor Vehicle Act limits fee to licences only in the amounts of $50 for cities, and $25 for towns and municipalities. As a consequence, revenues are quite modest compared to budget. The Halifax Taxi Commission has recently directed the Police Department (their host) to conduct a study of costs vs revenues to determine the feasibility of migrating to a full cost recovery situation.


Regina's fee schedule provides for modest fees that come nowhere near full cost recovery. City Council has demonstrated a remarkable reluctance to raise fees more than simple inflationary increases. Provincial legislation is in place that prohibits costs of licences and fees from exceeding direct regulatory costs. What City Council has done is to direct that a study be done to determine the feasibility of establishing an independent Taxi Commission, modeled somewhat on the Calgary Taxi Commission. The Commission would be required to fund itself totally from licences and fees.


Saskatoon receives only $14,000 in revenue from taxi related fees, representing a cost recovery of less than 10%. No revenue/cost analysis has been done and none is contemplated.


The City of Montreal requires that the Taxicab Board recover not less than 100% of its costs, is currently running about 105% revenue over budget, earning about $60,000 for the city's consolidated revenue fund.


Until recently, the Calgary Taxi Business By-Law contained the following provision:

This has been generally interpreted to mean that the Calgary Taxi Commission must be totally self-sufficient, working solely with funds received through the sale of licences and related fees. However, lest there be any doubt, Calgary City Council recently passed:

An unfortunate by-product of this process has been to place the Commission in an adversarial relationship with the industry which has come to perceive it "owns" the Commission. Annual budget review process has become a content of wills.


Vancouver's fee schedule does not by itself recover the full cost of its taxi regulatory and enforcement activities. However, its Vehicles For Hire By-Law was amended in 1984 so that the city "...may issue each year, until there are 1.2 taxicabs per 1000 population, 10 additional taxicab licences.". Since then, the average new licences per year has been 10, although in some years none have been issued.

These new licences are offered at public auction, and sold to the highest bidder. The last auction was in 1989, at which time 20 new licences were auctioned off at an average price of $92,000, netting to the City of Vancouver a revenue of $1.8 million into its consolidated revenue fund. Some 82 people offered bids ranging from $32,503 to $96,107, reflecting the then "street" value of taxi licences of approximately $85,000.

At this time, Vancouver's taxi licences have acquired a street value of approximately $120,000. Another public auction may be offered for late 1991, but no firm decision has yet been made. On the average, the annual contribution of these auctions earns revenues substantially greater than the cost of regulation and enforcement.


Florida State Statutes (below) limit the fees that a municipality may charge to "reasonable" charges necessary for the conduct of government.

A policy interpretation emerging from this legislation requires that taxi industry fees should come as close as reasonably possible to a zero balance. An internal cost accounting system tracks not only the actual budget costs of the taxi regulatory unit, but also additional contributory costs such as his own time when so applied. In FY 89/90, taxi related fee revenues were $165,000 versus taxi regulatory expenses of $147,000, netting a ratio of 112%.


Nevada has a statewide Taxicab Authority that regulates the taxi industry throughout the State. It is governed by a single piece of legislation aimed at "For-Hire Vehicles" that includes anything from public service trucking to taxicabs.

That legislation established a unique "Taxicab Authority Fund" under the jurisdiction of the State Treasurer. The full cost of operating the Nevada Taxicab Authority must be borne within the revenues deposited into that fund. Relevant clauses in their legislation:

To make such a fee structure feasible, the Nevada legislation has built into it a comprehensive accounting system that must be adhered to by all taxicab operators, along with companion periodic performance and financial reporting to the Taxicab Authority. The base for all files, records and reports is mandatory meter reading at shift and period ends. Regretably, simultaneous mandatory odometer readings were overlooked, and to this day not required by regulation.

From this legislation, the Nevada Taxicab Authority is under a full cost recovery system in such a manner that its elderly citizens are the beneficiaries. They may purchase "taxi script" at $.50 on the dollar from the Taxicab Authority which reimburses taxi operators on the difference to the full dollar.


Section 11.10.160 (Fees) of the Anchorage Taxicab By-Law provides for an array of fees, and includes the following clause:

This clause has been interpreted for many, many years to mean "full cost recovery", and the Anchorage Transportation Office is currently operating at approximately 105%.


The Dallas Department of Transportation is required maintain a full cost recovery revenue position. While its revenues flow into general revenues, they are identified as to source and appropriate credit entries maintained. Their approach to determining fees as related to budgets emerges from a 1984 legal opinion as follows:

I have been advised that in Dallas, the expression "police regulation" does not refer to regulations associated with the Dallas City Police, but rather more broadly embraces the full array of administrative, regulatory, and enforcement activities required to support the regulation of an industry, business or occupation.

Dallas and Fort Worth jointly administer ground transportation at DFW International Airport. This is a large 24 hour/day operation employing 28 full time staff with a total expense budget in excess of $1 million. DFW has its own fee structure entirely separate from those of the two cities, and it too is required to maintain a full cost recovery position. By chance and extentuating circumstances, it is currently in a modest surplus position.


Falardeau & Parklane Trailer Court (Hinton) Ltd. v. Town of Hinton. CCH DRS 1984 P80-568, A., Alberta (Q.B.), October 20, 1983. Hinton By-Law 463 imposed a $100 per year business licence fee on each developed stall of a mobile home park occupied by a mobile unit, such fee being payable monthly. The fee was passed on by trailer park owners through increased lot rental charges. Plaintiff applied to the court to have By-Law 463 quashed for illegality as it constituted a tax under s. 108 of the Alberta Municipal Government Act, R.S.A. 1980.

The Town had previously imposed a tax on mobile home owners under s. 236 of the MG Act, which provides for the imposition of the fees based on the value of the mobile home, assessed in accordance with a formula provided. It was only practical to calculate the tax using the previous year's mill rate, and limits were imposed on the amount of fees which could be collected. Without conducting a study or survey of the cost of providing services, Town Council concluded that due to the one year lag in mill rates, mobile home owners contributed proportionately less to town revenues than did owners of other types of residential property, although equal services were supplied to all. S. 16(a) of By-Law 463 was passed to reduce the disparity between taxes paid by mobile home owners and other property owners, and from failure to find another resolution to the problem.

The application was dismissed. A municipality is authorized to impose a business licence fee by s. 224 of the M.G. Act. The Court's jurisdiction is strictly limited to consideration of issues of good faith, unfair dicrimination, or a confiscatory or prohibitive effect. The choice of the scheme of taxation is entirely within the discretion of the Council, irrespective of whether the scheme is founded on sound economic principles. The absence of a supporting cost study did not make the fee imposed unreasonable, as Council acted on its own knowledge and best information available in reaching that conclusion.

The Court refused to hold that the increase in fees was so great as to be unreasonable, as it is not the funcyion of the Court to place a limit on the amount by which Council may increase taxes or actual revenues. Business licence fees need not be related to actual administrative costs of a licencing scheme, but they may be imposed in order to raise an amount of revenue determined by Council. A Court may only find an amount of tax unreasonable if it is prohibitive or confiscatory, and in this case, there is no evidence that this tax placed such a burdon on mobile park operators or mobile home owners.

C.R. Aggregate Sales Ltd. v. District of Squamish, CCH DRS 1981 P27-873, B.C., (1980) 115 D.L.R. (3d) 81 British Columbia (S.C.) 1980. By By-Law 605, the District of Squamish raised to 7.65 cents from 2 cents, a permit fee to remove soil. The Plaintiff challenged the validity of the By-Law on 3 grounds and demanded return of the fees paid:

  1. It duplicated certain provincial legislation and was therefore inoperative.

  2. The By-Law was ultra vires both the municipality and the province since it imposed an indirect tax.

  3. The By-Law was invalid in that rather than imposing a regulatory scheme, improperly delegated decision making powers to the building inspector.

The action was dismissed. There was no duplication of provincial legislation. Although the By-Law dealt with some of the same subjects as the provincial legislation, the fields were different and the provisions could co-exist. The increase in the fee from 2 cents to 7.65 cents per cubic yard was not simply a colourable attempt to impose a tax. Although substantial, the increase could be explained by inflation and was not so great as to transform the the p[ayment from a licence fee to a tax.

Considered as a whole, the By-Law did establish a regulatory scheme. The required "approval" of the building inspector was merely an administrative matter and not a delegation of authority which would invalidate the By-Law. In any event, since the Plaintiff had not shown that payment was made under protest, the claim for return of fees could not be allowed.

Teamsters Housing, Inc v. City of East Cleveland, 521 N.E.2d 4 (Ohio App. 1987). The City amended its ordinance of requiring $5.00 per dwelling unit in apartments to $10.00 per dwelling unit. The plaintiff paid this amount for the years 1982-1986 under protest, and then filed a declaratory judgment. The trial court found in favor of the plaintiff by ruling that the fee that the City could charge had to bear a reasonable relationship to the burden imposed by the activity being licensed and by the licencing process itself upon the governmental entity involved. The evidence presented showed that the increased fees were charged solely to raise general revenue, and not related to the regulatory costs.

A&H Vending Services v. Village of Schaumburg, 522 N.2d 188 (Ill. App. 1 Dist. 1988). The court upheld a regulatory fee on vending machines as being reasonably related to the cost of regulation, even though the evidence showed that the cost resulted in a 5 to 1 ratio of revenue to cost of enforcement. The court based this on a broad interpretation of "reasonable relation" of previous cases and broad powers given to home-rule cities in Illinois. The court also found it important that the ordinance look like a regulatory, as opposed to a revenue ordinance, and was being enforced.

Talley v. Commonwealth, 553 A.2d 518 (Pa.Cmwlth. 1989). An automotive repair shop was prosecuted for doing business without obtaining a license. He was convicted, and on appeal argued that the $100 yearly license fee was invalid because it was not commensurate with the expense incurred by the City in connection with issuing and supervision of the license. The Court agreed and invalidated the ordinance finding that proof was not shown that the $100 cost was commensurate with the cost of administration and enforcement.

Originally published in the July 1991 issue of The REGULATOR, journal of the International Association of Transportation Regulators.

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