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.

On the City’s appeal, the Texas appellate court first explained the difference between a fee and a tax. If the purpose of an assessment is to reasonably cover the costs associated with a particular regulation, then the assessment is a fee. However, if the purpose of the assessment is to “raise revenue in excess of that reasonably needed for regulation,” then the assessment is a tax. The Court stated that the critical question in this case was whether the fee raised revenue in excess of “the City’s cost attributable to repairing damage caused by ESD’s garbage trucks.”

The Court concluded that the fee raised excessive revenue and, therefore, operated as an impermissible tax. According to the Court, the factual record indicated that, despite the ordinance’s statement of the fee’s purpose, the City “actually intended the fee to cover expenses unrelated to solid waste disposal.” In 2019, only $7 million of the revenue generated was allocated to street repair, and the remaining $1.9 million was placed in the general fund where it “could be spent on any City expense regardless of its relation to solid waste disposal.” For 2020, the City’s managing director of the office of management and budget testified that the purpose of the fee increase was to fund purchases of vehicles and equipment for the fire and police departments. The Court found that this evidence was “legally and factually sufficient to support the trial court’s findings that the [fee] is excessive and therefore a tax.”

Finally, the Court affirmed the trial court’s award of actual damages, rejecting the City’s claim of sovereign immunity and finding that “[b]ecause Pickett faced criminal penalties if he refused to pay the fee, he paid it under duress as a matter of law, and the City is not immune to damages in the form of a refund.” The Court also affirmed the trial court’s award of attorney’s fees, finding that the trial court reasonably determined that “an award of fees was equitable and just so that Pickett would not have to bear the brunt of litigating an issue affecting all residents.”

[1] On July 9, 2026, the City of El Paso filed a motion for rehearing.