State Supreme Court reverses appellate ruling on San Francisco parking fees for state university lots

San Francisco's parking tax applies to state university lots, the state Supreme Court ruled Thursday, ending an eight-year battle that has far-reaching implications for municipal taxes in California.

The unanimous, 36-page opinion reverses the 1st District Court of Appeal's 2-1 finding that the city can't force universities to collect the tax because it can't regulate state entities performing government functions.

Describing the municipal interests at stake as "weighty" and the state's interest as "less compelling," Justice Leondra R. Kruger said the city's parking tax requirement for state universities "does not violate principles of state sovereignty embodied in the California Constitution" because it doesn't infringe on a university's mission and operations.

"Levying taxes to raise revenue is an archetypal municipal affair, and a power secured by the home rule provision of the state Constitution," Kruger wrote. "Requiring public parking lot operators to collect municipal taxes along with parking fees, and to remit the taxes owed, represents no more than a de minimus administrative burden on the state agencies."

Peter J. Keith, the deputy San Francisco city attorney who argued before the high court in April, said Thursday he was "glad to see the decision."

"This is a case that, from our standpoint, has always been about fairness," Keith said. "Everyone who parks in a parking lot owes the city parking taxes, and the universities haven't been collecting it. As a result, you essentially have a tax burden that's not being shared by everyone." City and County of San Francisco v. The Regents of the University of California, S242835 (Cal. 2019).

Keith said the ruling affects jurisdictions statewide that levy taxes on state entities.

"Pretty much any city that's got a parking tax or a hotel tax or utility tax, this decision is going to be relevant," Keith said.

Michael G. Colantuono of Colantuono, Highsmith & Whatley PC said the ruling is "helpful in understanding all of the points of friction among all types of government, federal state, local and tribal.""In a certain way, it's just a tax case. But in another way it really lends insight into how the court views interactions among all governments," Colantuono said.

Colantuono authored an amicus brief for the League of California Cities in support of the city. Benbrook Law Group wrote one for the California Constitution Center at Berkeley Law Center in support of the state.

The defendants were the Regents of the University of California, which oversees UC San Francisco, the Board of Directors of Hastings College of Law, as well as the Board of Trustees of the California State University, which operates San Francisco State University. They were represented at oral arguments by Janill L. Richards, a principal deputy state solicitor general. She could not be reached for comment on Thursday.

Keith said the city estimated in 2014 it could gain $4 million annually if university parking lots collected the city tax, and the figure likely is larger now.

A split appellate court in May 2017 affirmed now-retired San Francisco County Superior Court Judge Ernest H. Goldsmith's denial of a writ petition to force the universities to collect the tax, saying the home-rule provision that exempts state entities from local regulation applies here. At 17 pages, the opinion written by Justice James M. Humes, with Justice Sandra L. Marguiles concurring, was nearly half the length of Justice Kathleen M. Banke's dissent, which said the ruling "leaves the law in some disarray."

"It is time for our Supreme Court to squarely address this issue and to state clearly whether or not a state entity can be asked to collect a local tax imposed on third parties doing business with the entity, particularly where, as here, the entity will be reimbursed its costs of doing so," Banke wrote.

The Supreme Court did just that in the new opinion, and justices sided with Banke's assessment that the collection of the city parking tax is a minimal burden on state agencies.

"Any municipal tax will produce economic ripples that reach every significant market participant," Kruger wrote. "If state agencies could invalidate municipal taxes based on these indirect effects on their operations, little would be left of the city's revenue power."

Chief Justice Tani G. Cantil-Sakauye and Justices Ming W. Chin, Carol A. Corrigan, Goodwin H. Liu, Mariano-Florentino Cuéllar, and Lamar W. Baker sitting on assignment from the 2nd District Court of Appeal, concurred. A court spokeswoman did not respond to a question about why Justice Joshua P. Groban did not hear the case.