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Environmental Surcharges: A Sure Thing?

10.31.2012

This article was originally published in the Oct. 2012 issue of Carolina Clean.

From time to time, dry cleaners and other businesses, aware that prices the of the goods and services they sell are increased by the costs of environmental compliance, ask me whether this increased overhead can be passed on directly to their customers in the form of "environmental surcharges." Let me try to answer that question in this short article.

Some electric utilities are allowed by State statue to impose an environmental surcharge upon ratepayers for the cost of complying with the Clean Air Act, which can be staggering. Generally, this is a cost-recovery mechanism for the retrofitting of infrastructure or the large-scale purchase of new control technology.

In addition, the State of North Carolina imposes a surcharge on the sale of "white goods," by which is meant appliances such as refrigerators, freezers, washers, dryers, dishwashers, and stoves. White goods are not allowed to be disposed of in North Carolina landfills. When these appliances are replaced by the consumer, the retail seller of the replacement appliance is allowed to charge the consumer a surcharge to compensate the seller for the cost of recycling the old appliance.

The practice has percolated down to smaller companies with smaller, more frequent environmental expenses. For example, many States specifically allow sellers of automobile and truck tires to charge their buyers a surcharge for the disposal of used tires, which either cannot be disposed of in landfills or which must be treated in some way before disposal. In North Carolina, whole tires have been banned from landfill disposal since 1990, and tire retailers collect a special sales tax - 2% in most instances, and you could call it an environmental surcharge - that is later distributed by the State to the counties to help finance their scrap tire disposal programs.

As a NCALC member, you are certainly aware that North Carolina imposes, similarly to retail tire sales, a special tax on dry-cleaning services and on the sale of certain solvents. Since these taxes constitute, in practical effect, the State's environmental surcharge on dry-cleaning, and because they are not generally called by that label, the question becomes whether the individual dry-cleaner may add to the customer's bill a separate line item to compensate the dry-cleaner for its expenses in the lawful disposal of spent solvent and related costs of environmental compliance.

Reportedly, many dry-cleaners do. A Colorado dry-cleaner advises its customers:

You may have noticed that an "Environmental Fee" is assessed to our dry-cleaning services. The Environmental Fee is intended to cover the increasing cost faced by our company in complying with Federal, State and local regulations involving the storage, transportation and disposal of regulated materials used in the cleaning of your garments. This amount is an estimate of the compliance cost, which may vary by service, geographic area and time. This charge is not a Federal, State or local tax and is not required by any governmental authority.

And in 2011, the comptroller for the State of Texas opined:

In 2003, the Texas Legislature established the Dry Cleaner Remediation Program. The program, administered by the Texas Commission on Environmental Quality, establishes registration requirements, fees and performance standards for dry cleaning facilities and distributors. Some dry cleaners have chosen to pass along the costs of this program to their customers in the form of higher rates for services while others have decided to separately state a line item charge on the invoice or receipt given to their customers for 'Environmental Fees' or something similar.

Obviously, dry-cleaners must recover all costs of doing business operation before they can hope to make a reasonable profit. The Texas opinion correctly states the choice: absent a prohibition on a line-item environmental fee, a dry-cleaner may elect either to charge its customer a specific fee for the cost of environmental compliance or it may incorporate that cost into its general fees for dry-cleaning services.

Doing the latter may subject the dry-cleaner to price-undercutting by its competitors. But choosing the first course of action may also subject the dry-cleaner to competitive criticism. In Internet advertising, an Arizona dry-cleaner denounces environmental surcharges in the following five paragraphs:

Does your cleaner add an environmental surcharge (a.k.a. EPA tax, ADEQ tax, environmental fee, ticket charge, waste surcharge, disposal fee, etc.) of 3% to 9% to each invoice? Allegedly to cover the cost of drycleaning solvent permits and drycleaning solvent waste removal?

Unfortunately, the term "environmental surcharge" has led many consumers to believe that this surcharge is a tax that must be collected by cleaners and forwarded to a federal, state or local agency. Truth is, there's no such tax in Arizona. It's merely a "stealth mechanism" designed to generate additional revenue - all in the hope that you won't understand the nature of the surcharge, tax, fee or charge.

An ethical cleaner would never add an environmental surcharge to your bill. That's because they view compliance with federal, state and local environmental laws and regulations as another business expense, not an additional revenue source.

In addition to using the environmental surcharge as a revenue increasing mechanism that adds nothing to the quality of the final product, here's what gets my goat: Some of the biggest offenders are cleaners who claim to be "green", "organic", "non-toxic" and "environmentally friendly". This begs the question: if your drycleaning solvent is so green, so organic, so non-toxic and so environmentally friendly, why is there a need for an environmental surcharge? And why do you charge an environmental surcharge on shirt laundry and linen laundry?

Adding an environmental surcharge to your cleaning bill is like a bar adding a restroom usage fee to your bar tab.

Ouch! The bolded language, above, is shown as it appears on the dry-cleaner's web site. Although it is entirely possible to quibble with the Arizona dry-cleaner's characterization of his competitors' environmental surcharges, I don't think that I would enjoy discussing the matter with irate customers.

I have searched the North Carolina General Statutes and no specific prohibition against a line-item charge for dry-cleaning environmental compliance appears. So, ladies and gentlemen, the choice is yours.

If you choose to consider adding a line item for environmental compliance to your customers' invoices, I would offer the following advice:

  • Apply the surcharge only to dry-cleaning services, and not to laundering charges.
  • Make a good-faith effort to price your environmental surcharge as accurately as you can with respect to your actual costs of environmental compliance.
  • Make it clear, through a note on the invoice, a sign at the pick-up station, or otherwise, that the surcharge is not required by State or federal law, is not a tax that will be delivered to the government, and is merely your attempt to recover the specific cost to your business of environmental compliance.

Finally, an additional bit of street-corner legal advice: because deciding whether to charge your customers a separate line-item fee for your environmental compliance costs is a component of pricing, it is a subject that should not be discussed with your fellow dry-cleaners.

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