Mutual Fund Sales Notice Fees: Are a Handful of States Unconstitutionally Exacting $200 Million Each Year

This article examines the constitutionality of notice filing fees in six states. Although almost every state requires such fees to be paid by mutual funds, six of these states require fees that are highly disproportional to the amount of shares traded within their states. The filing fees in these states, accounting for 50 percent of the total paid nationwide, are considered as either regulatory fees or state taxes. Regardless of whether these fees are categorized as regulatory fees or state taxes, they are unconstitutional under either the Due Process Clause or Commerce Clause of the Constitution. Not only would these funds be able to potentially recover nearly $600 million taken by these states, the elimination of these annual fees would prospectively save mutual funds between $2 billion and $4 billion