How high court ruling may lead to local tax mischief

California voters have fought long and hard over the past four decades to establish, affirm and reaffirm the right to vote on taxes. But the potential loophole created by the California Supreme Court's recent decision in California Cannabis Coalition v. City of Upland, 2017 DJDAR 8407 (Aug. 28, 2017), may have compromised this important constitutional protection.

This case did not directly involve taxes. Rather, it involved the CCC's initiative -- a law change proposed by the electorate -- proposing the adoption of regulations permitting the operation of marijuana dispensaries within the city of Upland and requiring each dispensary to pay the city an annual "fee." Having gathered the necessary number of signatures, the CCC requested the city council to order a special election to present the initiative to the voters under Elections Code Section 9214. The city council refused, concluding that the initiative's fee provision was in fact a disguised general tax, requiring voter approval at a general, rather than a special, election under Article XIII C, Section 2 of the California Constitution.

The court incorrectly framed the issue as whether "article XIII C also restricts the ability of voters to impose taxes via initiative." Instead, the issue should have been described as whether the constitutional right of local voters to approve general taxes may be circumvented under the procedures provided under Elections Code Section 9124 -- which allow not only for voter approval of a local initiative at a special election, but also enactment of a local initiative without a public vote at all -- by introducing the tax as an initiative rather than a resolution of the legislative body. The California Supreme Court affirmed the appellate court's decision that "article XIII C does not constrain voters' constitutional power to propose and adopt initiatives, and that under article II, section 11 and Elections Code section 9214, the initiative at issue should be submitted to the voters at a special election, not at a general election, as article XIII C would require."

The consequences of this decision could reach beyond elections law and into local taxation. The court did not limit its decision to just the timing of an election on local taxes proposed by initiative -- i.e., special vs. general election -- but held that the initiative power is not constrained by the constitutional taxpayer protection. This decision could impair the voter-approval requirement under the California Constitution and encourage the imposition of countless local taxes across the state without any public vote at all.

Unfortunately, this is not a scare tactic, but a very real possibility. A city looking to impose a new tax or increase an existing tax may try to use Upland to skirt the voter-approval requirements of Article XIII C, Section 2. This end run around the California Constitution is best demonstrated by the hypothetical presented in the case, in which a city council could conceivably collude with a public employee union to impose a tax as a means of raising revenue for a goal supported by both. Specifically, the city council would accept the union's contract proposal -- which will be funded by increasing a utility tax -- and the union could mobilize city employees to collect signatures on an initiative proposing the tax increase. Then, once enough signatures are collected, the city council could simply adopt the ordinance without a public vote. As demonstrated by this hypothetical, imposing local taxes under the court's decision without voter approval is at risk because of Upland and could result in numerous new local taxes and abuse of the initiative process.

The court sidestepped the issue by declining to consider questions not presented in the case before it. But it may be too late by the time the court takes up such a case -- assuming it ever does -- and California taxpayers could be forced to relive the same nightmare following the California Supreme Court's decision in Sinclair Paint Co. v. State Bd. of Equalization, 15 Cal. 4th 866 (1997). There, the court removed taxpayer protections by concluding that some tax-like "fees" could be approved by a majority vote instead of a two-thirds vote. The California Constitution requires enactment of state taxes by a two-thirds vote of the Legislature and of local taxes by two-thirds voter-approval. Soon after the court's decision in that case, the Legislature and local governments began imposing a multitude of hidden taxes labelled as "fees" to circumvent the stringent requirements of the California Constitution for new taxes.

Over a decade and billions of dollars in taxes later, California taxpayers were finally able to put an end to the proliferation of these taxes by approving Proposition 26 in 2010. History could be repeating itself and taxpayers may once again be faced with even more taxes that can only be curtailed by another statewide ballot measure.