Always Gray

The difference between a tax and a fee or charge is not always clear. A tax in its pure form is paid by citizens based on some criterion such as income, assets, or consumption spending in general or for particular items. There is no connection between the tax paid and the taxpayer’s use of any particular public service. A fee in its pure form is a business transaction, a quid pro quo, between a government and a resident in which one receives a specific service in exchange for voluntary payment. Those who do not choose to use the service do not normally pay. But there are many payments to government that fall into a gray area. For example, the fee charged for a driver’s license is a fee rather than a tax because one voluntarily chooses to apply for a driver’s license, and those who do not drive do not have to pay. But the revenue goes into the general fund and does not fund any specific services in exchange. The gasoline tax, on the other hand, is clearly a tax just like the tax on tobacco and alcohol. The revenue in this case, however, goes into the state’s highway fund and is used to maintain the roads used by buyers of gasoline.