United States: A Distinction Without A Difference


On April 8, 2016, we posted a blog regarding the case of Quality Built Homes, Inc. v. Town of Carthage, ___N.C. App. ___, 766  S.E. 2d 897 (2015)(unpublished).  In this case, the Court of Appeals had held that the Town of Carthage (Town) possessed authority to charge "impact fees" for water and sewer services.

In our April blog post ( see here) we noted that the North Carolina Supreme Court had accepted Quality Homes case for review.  In our view, Quality Homes was different from prior zoning and subdivision cases where the North Carolina Supreme Court had affirmed the North Carolina Court of Appeals' decisions finding that local governments did not possess authority to impose school impact fees.  We noted that the case involved the business of water service, an activity very different from regulatory activities and suggested that this distinction should make a difference.  We were wrong.

On August 16, 2016, the North Carolina Supreme Court reversed the North Carolina Court of Appeals' decision and held that the Town did not possess authority to charge impact fees for water and sewer services.  ­Quality Homes v. Town Carthage, 2016WL 4410716 (August 19, 2016).

Quality Homes v. Town of Carthage


When a landowner sought and obtained final approval of a subdivision plat in the town, the landowner was required to pay water and sewer impact fees.  If the landowner failed to pay these fees, the Town refused to issue building permits.  These fees were due regardless whether this landowner ever connected to the Town's utility systems. 

The plaintiffs were companies engaged in residential homebuilding and had paid $123,000 in water and sewer impact fees to the Town.  These homebuilders contended that the General Assembly had not authorized the Town to charge water and sewer impact fees.  These homebuilders sought a refund, interest, reimbursement of attorney  fees and costs, monetary damages, and asserted equal protection and due process claims against the Town. 

The Town contended that the General Assembly had authorized it to charge water and sewer impact fees through the public enterprise statutes.  These statutes authorized the Town to establish water and sewer systems in the Town's discretion and to charge fees for these systems. 

The Superior Court entered summary judgment in favor of the Town and the Court of Appeals affirmed the Superior Court.  The North Carolina Supreme Court, in its discretion, accepted the case for review. 

The North Carolina Supreme Court's Decision

The North Carolina Supreme Court reasoned that "[f]rom the very formation of our State government, municipalities, in their various forms, have been considered 'creatures of the legislative will, and are subject to its control." p. 2.  The General Assembly granted powers to municipalities by adopting statutes and these statutes included "implied powers essential to the exercise" of express powers granted. p. 3.   The plain language of a statute determined the extent of legislative power conferred upon a municipality, and when the statute was clear and unambiguous, no room for judicial construction existed.  But when the statute is ambiguous, it was construed broadly.

After reading the public enterprise statutes, the North Carolina Supreme Court found that these statutes empowered the Town to charge fees only "for the contemporaneous use of its water and sewer systems."  p. 3.  Because the statute had not expressly authorized the Town to charge fees for future use of these systems, the North Carolina Supreme Court concluded that the Town lacked "the power to charge for prospective services." p. 4.  Accordingly, the Town's impact fee ordinances were unauthorized by the General Assembly and invalid.

The North Carolina Supreme Court bolstered its conclusion by noting that (1) the statutes enabling counties to establish and operate public enterprises included language "to be furnished" but this language was absent in the statutes enabling municipalities to establish and operate public enterprises and (2) the Town could have sought local legislation to authorize charging impact fees. 

Finally, the Court reasoned that the General Assembly had granted the Town authority "to charge tap fees and to establish water and sewer rates to fund necessary improvements...to its inhabitants, which [was] sufficient to address its expansion needs." p. 4.    

The North Carolina Supreme Court reversed the Court of Appeals and held that the Town's impact fee ordinances were "invalid" and remanded the case  to the Court of Appeals "for consideration of the unresolved issues." p. 5.


1. Based upon the North Carolina Supreme Court's reasoning in Quality Built, the fundamental distinction between municipal governmental/regulatory activities and proprietary activities is irrelevant to the question as to whether a statute authorizes charging impact fees.  In fact, the North Carolina Supreme Court never mentioned the distinction in its decision.

2. Unlike zoning statutes, the public enterprise statutes authorized municipalities to establish "rents, rates, fees, charges and penalties for the use of or the services furnished by any public enterprise." p. 3. (emphasis added).  Although the public enterprise statutes lacked an express limitation on charging impact fees, their broadness was insufficient to authorize impact fees.

Quality Built follows recent North Carolina Supreme Court decisions that address fees typically paid by the homebuilding industry for the impact of development on scarce public resources.  In these cases, the North Carolina Supreme Court has not found a general or local statute authorizing such impact fees. 

3. The North Carolina Supreme Court relied upon Town of Spring Hope v. Bissette, 305 N.C. 248 (1982).  In Bissette, the North Carolina Supreme Court stated that a municipality's "rate-making function is a proprietary function rather than a governmental one, limited only by statute or contractual agreement."  p. 250

The plaintiff in Bissette was an individual consumer of sewer services who had complained that the rate charged by the Town of Spring Hope included charges associated with construction of a new sewer treatment facility that was not serving him at the time he paid these fees.  The Supreme Court, in a divided decision, rejected the consumer's claim because he was receiving sewer services.

The difference between Bissette and Quality Built is that the homebuilders were not receiving utility services when the fees were due.   In other words, General Assembly intended, when it selected the words "the use of or the services furnished", to unambiguously authorize municipalities to charge only existing utility customers the costs for new utility system facilities and expansions and not charge non-customer landowners who benefit from the presence or availability of these services.  In short, the North Carolina Supreme Court must have concluded that "the use of or the services furnished" was unambiguous and meant only physical connection to utility systems.

4.  The North Carolina Supreme Court stated that the Town's impact fee ordinances "on their face exceed the powers delegated to the Town by the General Assembly." p. 4. (emphasis added).  This is puzzling. The public enterprise statutes do not contain an express prohibition against charging impact fees. Four other members of the North Carolina Judiciary - a Superior Court Judge and three judges at the North Carolina Court of Appeals - found that the Town had authority to charge impact fees.   

The North Carolina Supreme Court remanded the case for consideration of "unresolved issues." The Court identified some outstanding issues as being the Town's defenses of statute of limitations and estoppel.  Other issues identified by the North Carolina Supreme Court were the homebuilders' requests that the Town pay their attorney fees and legal costs, pay a refund of the impact fees plus interest and pay monetary damages for violation of equal protection and due process. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Womble Bond Dickinson
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Womble Bond Dickinson
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions