On Matters Relative to
Licences and Their Values

Artificial Licence Values

On Taxi-List, a number of observations relating to licence values and fees....

In all States licences are worth between $250,000 and $300,000 and in Melbourne alone it would cost taxpayers around $1 billion to buy all the

Is there something written in the law that says the authority cannot change issuing rules?

I have seen numerous cities change regulations on a whim with no compensation to anyone.

cities in the US would have no problem with issuing more licenses.

The issue of licence values emerges quite often, but is rarely discussed openly, most particularly in an open forum, almost like forbidden territory.

Many, if not most, regulatory authorities back in antiquity failed to recognize the most fundamental economic principle of Economics 101 - Make something scarce, and it will immediately begin to acquire a value.

Licence holders long since recognized this basic law of economics, and in many jurisdictions managed to persuade our naive regulatory ancestors to impose a quota to sorta "protect" the existing level of business. What was overlooked was the need to simultaneously impose a prohibition against licence transfers.

As a consequence of this most basic regulatory oversight back in antiquity, we have a situation today where in many jurisdictions, licence have acquired an informal value out there on the street of some considerable magnitude. Money changes hands, very often with regulatory knowledge, but not officially.

Some regulatory authorities to this day flatly state a standard caution to all new transferees to the effect that the amount paid for "goodwill" is not recognized.

In common law, a "licence" is not an asset. A "licence" is simply an intangible regulatory authority to operate a taxicab for hire for a fixed period of time, at end of which it automatically expires with no guarantee of continuance, no guarantee the licence may be automatically renewed, no guarantee the licence may not be revoked for cause, and no guarantee that the regulatory environment might change one day in the unknown future.

By regulatory failure back in antiquity, compounded by regulatory inability to deal with this problem of their own making, in the face of intense political pressure, any attempt today to "fix" this problem would most likely have the effect of extinguishing this informal asset.

It is arguable that by letting this problem go unresolved for such a long time, that a new common law has emerged by custom and usage. This concept has yet to be tested in court.

Sometimes, a regulatory authority need not be the instrument of defeat of licence values. In recent years, we have seen 2 highly visible cases where the courts have effectively erased licence values as a consequence of a minor court challenge opposing issuance of a couple of new licences.

In Dublin Ireland, such a court case stunned the taxicab industry there when the court ruled that the regulatory authority never had the legal authority to set a quota. In an instant, licence values of thousands of taxicabs were erased, but their companion mortages to pay for them were not. Just recently in Calgary, Canada, a minor opposite court challenge resulted in an equally stunning declaration that the regulatory authority there never had the legal authority to set a quota.

In Dublin, the court decision stuck, was not appealed, and numerous stories of severe financial hardship continue to emerge almost daily. In Calgary, the City has served notice that it is filing an appeal, if necessary to the Supreme Court of Canada, effectively blocking "deregulation" for now.

I believe it is terribly unfortunate that in Australia, licence values somehow have become recognized and imbedded in law. It would be most interesting to find some research on this topic to determine how it ever happened, in opposition to fundamental common law.

If, ala New York City, the city sells the license for a large amount

If, as in most cities, the city has offered a license to operate a taxicab at a few hundred dollars a year, where would the "debt" to the current license holders come from?

Universally, in administrative law, a "fee" imposed by a regulatory authority must have a legal basis in law, and that fee must bear a reasonable resemblance to the true administrative cost behind that fee. Effectively, this principle in administrative law gives a taxicab regulatory authority the authority, if not mandate, to operate on a "cost recovery" basis.

Vast majority of regulatory authorities do have the legal authority to set "fees" and publish those fees in the form of a Schedule to a Regulation. In administrative law, a "fee" cannot ever be a "tax". Only governments have the legal authority to impose taxes.

If a regulatory authority imposes a huge tax, for example $235,000 (US) for a new licence, but calls it a "fee", they stand to be held liable in court for having exceeded their authority, for that fee is crystal clear far in excess of the administrative costs behind it. A number of cities have been doing this routinely, but for whatever reason, have never been challenged. Perhaps the reason for the absence of a challenge lies with the fear that a successful challenge would erase mammoth informal licence values.

The legal principle of fees vs taxes has been challenged numerous times, and there is ample case law supporting a prohibition by a regulatory authority to impose fees so high as to be in fact a tax. However, in the world of taxicab licences, I have never seen specific case law.

(From an InterNet discussion 27 June 2002)

Performance Standards

A participant on Taxi-List observed:

The concept suggest is that Growth should be made conditional on meeting performance targets for availability. I wonder how others on this list feel about these ideas.

In 1989, an interesting document appeared on the internet as if by magic, unsigned, undated, called "EQUITABLE TAXICAB QUOTA DEREGULATION". It may be seen on TAXI-L at:


With universal deep regrets, regulatory authorities in many jurisdictions, now realize a fundamental error of their ancestors, who many years ago caved in to local industry demands for a cap on the number of licences out there on the street. Many did so, imposed a quota, but simultaneously failed to also impose a prohibition on transferring those same licences.

Overlooked by many regulatory authorities back in antiquity was a fundamental law of basic economics 101 - "Make something scarce and it will immediately acquire a value of its own out there on the street."

Today, regulatory authorities universally recognize the error of their ancestors as licence values have crept ever higher, often to obscene heights. Numerous attempts over the years to fix this problem have been universally met with howls of protest from existing licence holders fearing shrinkage of the value of their licences.

The presence of informal street values has been in place so long now that even banks are beginning to take back such licences as collateral on the loan extended to buy the licence. This really strange, for in common law, a licence is not real property.

In common law, a licence is nothing more profound than official authority to do something for a fixed period of time, in payment of an approved regulatory fee, with no guarantee of continuity year to year, no guarantee it will not be revoked for cause, and no guarantee that the regulatory environment might change at some unknown time in the future. It is a true intangible having no value at all.

However, that informal street values have been in existence for so long now, it is arguable that by custom and usage, a new common law has been formed that supersedes the former. Any attempt now by regulatory authorities anywhere to fix this problem would effectively extinguish an asset, something clearly very unfair.

In recent times, the only known instance of a jurisdiction that changed the regulatory environment to open entry without regard to informal licence values out there on the street was Dublin, Ireland. Basically, that did not come to pass by regulatory initiative. A handful of licence holders went to court to oppose issuance by the Dublin Authority of a few new licences. To everybody's surprise, the court determined that the Dublin Authority never did have the legal authority to set a quota in the first place, and at that moment of time, full deregulation emerged instantly.

The moral of that story is, "Be careful of what you wish for........."

Almost unbelievably, Dublin failed to seize the opportunity to simultaneously impose a new regulatory framework based on performance standards. Had that happened, the principles as defined in Adam Millard-Ball's report about the San Francisco taxi industry would have immediately taken effect in Dublin, possibly preserving a portion of existing licence values by simply requiring all new applicants to meet new standards of vehicle quality, driver training, driver dress and deportment, dispatch turnaround time, response time, et al..... Every new licence would have required an investment not too different from the then existing informal street values of existing licences.

As it is now in Dublin, hundreds if not thousands of licence holders now have in their hands a licence that is a true intangible, basically having no value at all. It matters not that many still have huge mortgages to pay as a consequence of transferring the licence at some time in the past, without regard to the possibility the regulatory environment might change one day.

The principles expressed in Adam Millard-Ball's report about the San Francisco taxi industry are not new. Virtually every regulatory authority is very much aware of them and are sorely tempted to adopt them. However, it is also no secret that licence holders have huge political clout when it comes to anything that threatens the value of their licences. Regulatory authorities are basically civil servants who are all directed by their political masters.

(From an InterNet discussion 8 April 2002)

Purpose Built Taxicabs

The licence system as we know it in many jurisdictions is a major impediment to the development and introduction of purpose built taxicabs because so much of the revenue stream is diverted into paying off insane mortgages instead of being reinvested back into the industry and its much needed infrastructure. This situation was rather documented in the March 1990 Report "Winnipeg Taxicab Service and Regulation", currently posted on the InterNet.

The fact remains that in common law, a licence is simply official government permission to do something for a fixed period of time in return for payment of a prescribed fee. It was never intended or perceived that a licence might one day acquire a real property value of its own out there on the street.

All the recognized financial models hold this to be true, considering only the capital cost of equipment, and not the insane mortgages currently the norm. It is incredibly unfortunate that regulatory authorities in most every jurisdiction failed to recognize a fundamental law of economics when they imposed licence quotas without simultaneously prohibiting transfers. The minute something is made scarce, it acquires a value if commercial trading allowed.

Now regulatory authorities are faced with a serious dilemma in trying to deal with these unforeseen licence values, a product of their own inattention, if not ineptitude. Any attempt now to deal with the problem is quite correctly seen as a threat to these licence values, potentially having the effect of extinguishing an asset that the regulatory authority allowed to happen by tacit silence.

It is absolutely correct that as a direct consequence of licence values draining off the lion's share of the cash flow, there is little or nothing left to acquire purpose built taxicabs. It's a horrific problem that regulatory authorities seem now to be powerless to deal with.

Montreal, Canada tried a buy-back scheme that attempted to shrink back the numbers of licences, by using increased annual licence fees to fund the buy-back. All reports suggest not very successful, and had the side effect of official confirmation of licence values.

New York City about a year ago actually autioned off 100 licences, officially declaring a minimum bid of something like $125,000. One wonders under what legal authority the city was able to do this. As if this wasn't bad enough, Boston is considering the same thing. I understand that Ottawa, Canada is considering something similar.

It all started with a fundamental oversight of basic economic principles by regulatory authorities, who seem now to be doubling back on their own perception of what's fair, all aimed at capturing for themselves an ever larger share of that licence revenue to the detriment of the industry. This is fundamentally wrong, for a fee, in common law, must bear a reasonable resemblance to its companion regulatory effort, else common law views it as "revenue generation" for its own sake. There is absolutely no way that the regulatory effort involved in issueing new licences is approximating $125,000. One wonders if such action would stand the test of a court challenge.

What's interesting here is that getting back to common law, a licence is nothing more than an intangible permission to operate a taxicab for hire for a fixed period of time, at end of which the licence fully expires, with guarantee of continuance, no guarantee of acquiring the same licence next year, no guarantee that the licence will not be revoked for cause, and no guarantee that the regulatory environment might not change one day.

On this fragile platform is built the awesome licence values we see today. Is it any wonder any threat is greeted with fierce response? Do you think that New York City will ever have the political courage to change the regulatory environment, wiping out licence values in a single stroke of a by-law pen?

From an InterNet discussion 30 October 1997

Licences and Their Values

Due to regulatory inattention back in antiquity, licences have been allowed to acquire a real property value, something quite contrary to common law. A Permit is just that - official government permission to operate a vehicle for hire. A "permission" is an intangible which in accordance with common law, should not ever acquire a real estate value of its own out there on the street.

The reality is that such values do exist today, and any attempt to issue additional licences in response to public demand and market opportunity is immediately greeted with aggressive, fierce opposition, largely through political and media pressure. Quite understandable.

The regulatory authority is placed in a very difficult situation where licence values having acquired tacit approval [albeit through gritted teeth] by custom and usage, should not be threatened by regulatory action having the effect of extinguishing that asset. The numbers of licences out there on the street should be a function of public demand and market opportunity, not licence value speculation.

So long as licences continue to be held in check by artificially imposed quotas, and values are allowed to be attached to the licence, there will not ever be a solution. A concept that holds some promise is an exchange of value from the licence to shares in the company, having comparable values at valuation day.

All taxicab business licences have a hard expiry date, at the end of which is no guarantee of continuance, no guarantee that the licence holder will get the same licence year to year, no guarantee that the licence will not be terminated for cause, and no guarantee that the regulatory environment might not change one day.

A simple mechanism to make it all happen has always been within the authority of virtually all regulatory agencies. The regulatory authority may simply terminate the annual "renewal". All licence holders simply pay the same fee for a new licence stating the holder has permission to operate a vehicle for hire for one year. The value then is in the company, not the licence.

The "company" then, perceiving public demand and market opportunity, develops a business plan which is presented to the regulatory authority seeking additional licences. Such an application has a high probability of approval, helping the company grow, expanding customer base, and ultimately making it fashionable once again to take a taxi. Everybody wins!

From a TAXI-L InterNet discussion 20 September 1997

Time For a Change!

In common law, the holder of a taxicab business licence has imbedded care and control responsibilities for the actions of that taxicab and its driver(s). Unfortunately, as a consequence of regulatory inattention back in antiquity, the leasing system crept in unnoticed. Abuses of that leasing system are now commonplace and the regulators seem powerless to act in the face of powerful lobbies imposing regulatory capture. Licence values have emerged in clear defiance of common law, of such awesome magnitude, that licence holders are no longer in the taxicab business, they are in the licence finance and speculation business. How much of this diverted revenue stream can the travelling public be expected to shoulder?

Perhaps the transportation economists would care to comment on the proportion of revenues that go to paying for inflated licence values as a consequence of speculation. If the only way that someone can get into the business is to buy an existing taxicab for $x,xxx plus speculative 'goodwill' of $xx,xxx, the money has to come from somewhere - fares.

Through regulatory inattention back in antiquity, licences have been allowed to acquire real property values of their own out there on the street, completely contrary to common law. As licence holders left the industry, they took with them these speculative proceeds that can only be paid for by excessive, ever higher fare structures.

How anyone can get into the business with current speculative licence values in many cities escalating to such awesome, obscene levels? What New York City did was bad enough, now Boston appears to be following along the same path. One wonders under what legal authority they can hang a mammoth real property value on an intangible 'permission' to do something that expires at the end of the licence period.

How high would fares be if a substantial portion of that fare revenue did not have to go towards repayment of such huge debts?

No question that leasing is simple to administer, but I fear that the economics of the taxi industry have been knocked askew by historic regulatory inattention allowing speculative values to creep into the equation. The possibility of restoring some kind of economic balance seems mighty distant.

From an InterNet discussion 28 July 1997

Nature of the Business

By whatever name it goes under - permit, licence, or whatever - a licence in common law is nothing more profound than official permission to do something for a fixed period of time in return for payment of a prescribed fee. Upon expiry, there is no imbedded right of continuance, no guarantee the licence holder may acquire the same licence from one period to the next, no guarantee that the licence will not be terminated for cause, and no guarantee that the regulatory environment might one day change.

A typical licence says the holder is authorized to operate a taxicab for hire for the transportation of passengers. Most that I have seen say words to this effect, even in jurisdictions where licence holders, authorized to "operate" a taxicab, often do not do so. Rather, they enter into a business relationship not authorized by the licence, something commonly called leasing.

Regretably, when regulatory authorities established quotas as a means of controlling entry into the industry, many failed to realize a fundamental law of economics - scarce items acquire a real property value of their own outside the regulatory environment. As a consequence, many regulatory authorities failed to simultaneously prohibit transfers. In the twinkling of an eye, licences acquire a real property value all of their own out there on the street and become the focus of investment rather than public service.

Having failed to prohibit licence transfers simultaneous with imposition of quotas, regulatory authorities are now faced with the dilemma of having been the inadvertant author of insane real property values, yet unable to do anything about it. For to do so would have the effect of extinguishing an asset for which it can be held accountable, a most inappropriate action.

In common law, the critical ingredient behind a licence is something called imbedded care and control. A licence holder has mandatory care and control over the vehicle and the driver, something that comes into sharp legal focus in the event of determination of liability. Who is in charge should not ever be a mystery.

This becomes an interesting anomoly when considering some forms of Co-Op's, where a group of independent owner-operators band together to form a dispatch company to serve their need for admin and dispatch support services. They truly operate their own taxicabs, do have care and control over their vehicle and off-shift drivers, and properly hold their licences in their own names.

However, the Co-Op is typically called "ABC Taxi", thereby leading the general public to perceive that ABC Taxi is in the taxicab business. In fact, ABC Taxi is in the dispatch business, it is not in the taxicab business. It is the shareholder owner-operators who are in the taxi business providing transportation to passengers. ABC Taxi's revenues are basically fixed by dues imposition on all shareholders equally, regardless if the end customer service is good or bad.

So, in the eyes of the travelling public, who is in charge? When a customer phones ABC Taxi for a taxi, and a taxi shows up at the door bearing on the door, the name ABC Taxi, with whom has the customer entered into a contract for exclusive personalized transportation? ABC Taxi, or the independent owner-operator behind the name on the door? In some jurisdictions, the issue becomes even more cloudy where the owners are not required to stencil on the front fenders, "Owned and Operated by John Doe".

In the event of lost or damaged property, assault inflicted on the passenger, accident causing injury or death to the passenger, who is in charge? Where is the liability? How do insurance companies view this situation? How do law enforcement agencies determine upon whom to lay charges? In the event of a lawsuit filed by the beneficiaries of a murdered driver, how do the courts determine liability?

'Leventy-7 years ago, the industry tended to be organized along generally accepted traditional corporate organizational structures where the companies held the licences which were then nothing more than official authority to operate a taxicab, owned the taxicabs, employed the drivers, trained the drivers, supervised, disciplined and rewarded the drivers; closely monitored customer satisfaction; agressively marketed their services; and were ever watchful for new business opportunities to exploit excess capacity and corporate skills and talents.

Now we seem to have an industry tending to be characterized by i/c's, leasing and insane licence values completely external to the regulatory environment. Where will the industry be in the next 'leventy-7 years? Is this a regulatory problem, or an industry opportunity?

From an InterNet discussion 1 April 1997

Licence Transfer Values

From time to time, accusations emerge that regulatory authorities are solely responsible not only for creating the artificial real property value in the first place, but also for maintaining it into perpetuity. There is some considerable truth in these accusations for licence values have basically crept into the equation as a consequence of tacit silence by regulatory authorities in many jurisdictions.

In Winnipeg, the Manitoba Taxicab Board requires full disclosure of financial details - down payment, mortgage principle, interest rate, lender, value of the hard assets and its attachments, value of goodwill, etc., in fulfillment of its obligation to monitor the economic heath of the industry.

These licences have no value and all expire annually at the government's fiscal year end. They may be renewed for payment of a prescribed fee, else licence truly expires and evaporates. The transfer document contains a disclaimer to the effect that the regulatory agency takes no responsibility for the amount paid, as this is an amount negotiated between a vendor and a purchaser outside the regulatory environment, in consideration of among other things that the regulatory environment might one day change. The amount paid is not a factor or even a consideration in the actual transfer approval process in an open public hearing.

All licence transfer applications are published 14 days prior to a public hearing, and if no opposition has been filed by 7 days prior to the hearing, then the application ordinarily receives approval.

Currently, the sum of hard assets and goodwill values attached to a licence transfer are hovering around $69,000 (Can $$).

I would be very interested in how licence/goodwill values are dealt with by regulatory authorities in various other jurisdictions as part of the transfer process.

From an InterNet discussion 6 February 1997

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