As we have covered previously in the BR State + Local Tax Spotlight, Texas localities may not impose impermissible taxes under the guise that they are simply charging permissible regulatory fees. A recent decision by a Texas appellate court reaffirms that Texas courts will strike down a purported regulatory fee imposed by a Texas locality if the regulatory fee functions, in practice, as an impermissible tax. City of El Paso, Texas v. Pickett, No. 08-24-00405-CV (Tex. App. June 9, 2026).[1] Significantly here, the Texas appellate court affirmed the trial court’s decision to award the plaintiff his attorney’s fees. The case is a reminder to taxpayers not only that they should always consider whether local regulatory fees are lawful, but that a taxpayer who successfully stands up to a taxing authority may be entitled to attorney’s fees.
In 2014, the El Paso City Council passed a budget resolution authorizing the City’s Environmental Services Department (“ESD”) to charge “a franchise fee in the amount determined by the City Council for the wear and tear on the City’s right[s]-of-way due to the use of City sanitation vehicles engaged in the collection, transportation and disposal [of] municipal solid waste to an authorized municipal solid waste facility.” For 2015 through 2018, the fee was set at $1.10 per month per residence. In 2018, the City Council adopted an ordinance codifying the 2014 budget resolution. In 2019, the fee was raised from $1.10 per month to $4.00 per month. In 2020, the fee was raised again to $6.00 per month.
In October 2020, Pickett, an El Paso resident who was being charged the monthly franchise fee, filed a lawsuit against the City seeking a declaratory judgment that the fee was an impermissible tax and that he was entitled to his actual damages, attorney’s fees, costs, and interest. The trial court ruled for Pickett, issuing a declaratory judgment that the fee constituted an impermissible tax and awarding Pickett the fees he paid, his attorney’s fees, plus additional attorney’s fees if the City appealed the decision…