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Blazing a Trail for More Local Taxes by Ballot Initiative

(This article originally was published by Law360 on September 7, 2017.)

On Aug. 28, 2017, in California Cannabis Coalition v. City of Upland, the California Supreme Court held local taxes imposed by taxpayers via initiative are subject to less stringent requirements than taxes imposed by local governments pursuant to Proposition 218.[1] This opinion has far-flung ramifications on how local taxes can be imposed in California.

The facts and procedural history of the case are briefly as follows. In 2014, the California Cannabis Coalition (CCC) circulated a taxpayer initiative petition that would replace existing provisions in the city of Upland’s municipal code prohibiting medical marijuana dispensaries, with regulations to permit and establish marijuana dispensaries in the city upon payment of a $75,000 “licensing and inspection fee.”[2]

CCC collected sufficient signatures (15 percent of the city’s registered voters) for the initiative to qualify for a special election.[3] The city adopted a resolution finding that the initiative’s $75,000 “fee” was truly a “tax” because it exceeded the actual licensing and inspection costs, and the initiative did not specifically provide any legally binding mandate for use of the excess revenue.[4]

The total excess revenue (estimated at $84,480 per year) would, by default, be deposited into the city’s general fund used for general governmental purposes.[5] The city adopted a resolution to submit the initiative to voters at the (next) general election (November 2016).[6]

CCC then filed a petition for a writ of mandate arguing that the city erred in not submitting the initiative to the voters at a special election.[7] The trial court denied the writ petition, and CCC appealed to the California Court of Appeal, which reversed the trial court decision and ordered the city to place the initiative on the ballot for a special election.[8]

In June 2016, the city then filed a petition for review with the California Supreme Court, which accepted the case.[9] While the case was then pending before the California Supreme Court, on Nov. 8, 2016, the initiative was defeated with a 64.38 percent “no” vote. Nevertheless, the Supreme Court exercised its right to address the issues despite the case itself being technically moot.[10]

This case involves the interplay of two articles in the California Constitution. First, sections 8 and 11 of article II grant the people initiative power.[11] Second, article XIII C, added by Proposition 218 in 1996, provides that “[n]o local government may impose, extend, or increase any general tax” until the matter is “submitted to the electorate and approved by a majority vote.”[12]

The issue before the court was whether article XIII C (Proposition 218) “restricts the ability of voters to impose taxes via initiative.”[13] The court answered in the negative, reasoning that a “contrary conclusion would require an unreasonably broad construction of the term ‘local government’ at the expense of the people’s constitutional right to direct democracy, undermining our longstanding and consistent view that courts should protect and liberally construe it.”[14]

By its terms, article XIII C applies only to actions taken by “local governments.” Does the term “local governments” include the electorate? The court’s majority concluded the answer was “no,” after considering, among other things, the common understanding that the term refers to “a locality’s governing body, public officials, and bureaucracy,” not the electorate; the ballot pamphlet language for Proposition 218 (“This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers”); and the omission of any limitations of the initiative power anywhere in the article.[15]

A concurring and dissenting opinion by Justice Leondra Kruger joined by Justice Goodwin Liu took exception to the majority analysis that local taxes enacted by voter initiative are exempt from the requirements of article XIII C.[16] The dissent argued that a “tax passed by voter initiative, no less than a tax passed by vote of the city council, is a tax of the local government. … [A] local government tax is a local government tax, no matter how it may have been legislated into being.”[17]

One issue not addressed by the opinion involves the issue was whether the $75,000 “fee” was truly a “tax.” This is a significant issue because Proposition 218 applies only to general or special “taxes,” but not to measures to impose “fees.” “‘Tax’ has no fixed meaning, and [] the distinction between taxes and fees is frequently ‘blurred,’ taking on different meanings in different contexts.”[18]

For example, California courts have held that (1) a Los Angeles county ordinance prohibiting retail stores from providing plastic carryout bags and requiring stores to charge customers 10 cents for each carryout bag provided was not a tax;[19] (2) a charge levied against real property in the city of Orland for the maintenance of public parks was not a tax;[20] and (3) a charge imposed by the Legislature on manufacturers and others contributing to environmental lead contamination was not a tax.[21]

The Court of Appeal did not address the issue because of its ruling that Proposition 218 did not apply in any event because of its “local government” holding. Likewise, because it reached the same ruling as the Court of Appeal on that issue, the California Supreme Court did not address whether the $75,000 “fee” was in reality a “tax.”[22]

What are the consequences of the opinion?

One consequence was described by the city of Upland in its petition for review to the California Supreme Court. There, the city argued that “the gigantic loophole created by the Court of Appeal … makes it easy now for any public agency to impose a new tax, or increase an existing tax, with no fear that the voters will turn it down because the voters will never get to vote on the tax.”[23]

As the city argued in its petition, assume a city wishes to fund an unpopular raise on employees’ salaries and to double the city’s existing utility tax in order to fund it. Once a mere 10 percent of the city’s registered voters sign an initiative to increase the utility tax, and the Registrar of Voters then verifies the requisite number of signatures, the city council can either (1) adopt the initiative as a city ordinance, without alteration; or (2) submit the ordinance, without alteration, to the voters.[24] By choosing the first option, the city council can adopt the tax itself in lieu of holding an election.

The majority was certainly aware of the city’s concern over this “kind of loophole” and how such a “city council could effectively skirt article XIII C, section 2’s command that ‘[n]o local government may impose, extend or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote.’”

However, instead of addressing this concern head on, the majority determined “these facts are not presented here, and we decline to take up what would happen should they arise.”[25]

Another consequence of the opinion, and a potentially far more serious one, is set forth in the proposed[26] amicus curiae brief filed in this case on behalf of the San Diego Chargers Football Company.[27] That issue involves the requirement of a two-thirds vote for special taxes imposed by initiative.

The Chargers were one potential beneficiary of Measure C, a ballot initiative qualified by San Diego voters that would have raised funds for a new convention center and sports stadium by imposing a surcharge on San Diego’s hotel tax.[28] The Chargers in their amicus brief questioned whether local Measure C could be passed by a simple majority (i.e., like an initiative) or whether it would require a two-thirds supermajority vote (i.e., like a special tax proposed by a local government).[29]

Indeed, if the supermajority tax imposition requirements of Proposition 218, found in article XIII, do not apply to taxes imposed by initiative (because the term “local government” does not include the electorate, as held by the majority), such local taxes would require only a majority vote. Common sense dictates a tax will be more easily approved by a majority vote than by a supermajority vote.

Reacting to the opinion, the Howard Jarvis Taxpayers Association, which had represented the city of Upland, blasted the opinion as “a blow to taxpayers” and emphasized that “if local initiatives are exempt from critical taxpayer protections, the public agencies could easily deny taxpayers their rights by colluding with outside interests to propose taxes in the form of an initiative, then submitting a tax under a lower vote threshold than that currently mandated by the constitution.”[30]

The dissent also picked up on this crucial point, commenting that “[i]f a local tax enacted by voter initiative is not a tax ‘impose[d]’ by ‘local government,’ as the majority insists, then from here on out, special taxes can be enacted by a simple majority of the electorate, as long as proponents can muster the necessary quantum of support to require consideration of the measure,” and that “[i]t is unlikely that Proposition 218’s enactors, who deliberately chose a supermajority requirement for the imposition of special taxes, intended such a result.”[31]

A driving theme of the majority’s opinion was the importance of the initiative process in California, which the majority acknowledged as “one of the most precious rights of our democratic process.”[32] However, in a concerted effort to grant great deference to that right, the court erred in the opposite direction by adopting an overly narrow reading of Proposition 218.

As a result, the troubling issue that Proposition 218 was meant to protect against—“local governments [subjecting] taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economic security of all Californians and the California economy itself”—is effectively renewed by this opinion.[33]

This controversial opinion has already spawned a legislative response. On Aug. 30, 2017, California Assembly Republicans announced they will introduce a constitutional amendment to make clear that a supermajority of voters must approve any local tax increase that is placed on the ballot, including those by initiative.[34]


[1] (Cal., August 28, 2017) Case No. S234148, — P.3d. — (“Slip Op.”).

[2] Slip Op. 1.

[3] Slip Op. 2.

[4] Id.

[5] Slip Op. 3-4.

[6] Slip Op. 2.

[7] Id.

[8] Id.; also California Cannabis Coalition v. City of Upland (2016) 245 Cal. App. 4th 970 (COA Opinion).

[9] Slip Op. 3, also 372 P.3d 903 (granting review).

[10] Slip Op. 3.

[11] Id.; also Cal. Const., art. II, sec. 8.

[12] Slip Op. 5 (emphasis added); also Cal. Const., art. XIII C.

[13] Slip Op. 1 (emphasis original).

[14] Id.

[15] Slip Op.

[16] Concurring and Dissenting Opinion by Justice Kruger (C&D Opinion), 4.

[17] C&D Opinion, 2, 4.

[18] Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866, 874.

[19] Schmeer v. County of Los Angeles (2013) 213 Cal. App. 4th 1310.

[20] Knox v. City of Orland (1992) 4 Cal. 4th 132.

[21] Sinclair Paint, supra.

[22] COA Opinion, 814-815; Slip Op. (generally).

[23] California Cannabis Coalition v. City of Upland, Petition for Review, 2016 WL 3342290, 5-6.

[24] California Elections Code sec. 9215.

[25] Slip Op. 26.

[26] The brief was ultimately withdrawn.

[27] California Cannabis Coalition v. City of Upland, Proposed Amicus Curiae Brief of the Chargers Football Company, 2016 WL 7667913 (Chargers Brief).

[28] Chargers Brief, 1.

[29] Id., 1. As a consequence of the passage of time, Measure C and Measure D — a measure to raise hotel taxes to pay for a downtown San Diego convention center annex while allowing educational facilities at the Chargers’ Qualcomm Stadium—were both voted down in November 2016 before the California Supreme Court issued its opinion. Neither measure received a majority vote (44 percent and 41 percent, respectively) much less a two-thirds vote. Nevertheless, the Mayor of San Diego has called this opinion “a game-changer” for considering new revenue streams for convention center expansion, homelessness and road repair. “California Supreme Court Suggests Lower Bar for Passing Tax Increases Through Ballot Initiatives,” Joshua Stewart, San Diego Union-Tribune (Aug. 29, 2017).

[30] Howard Jarvis Taxpayers Association News Release, “Supreme Court Ruling a Blow to Taxpayers,” Aug. 28, 2017.

[31] C&D Opinion, 12.

[32] Slip Op. 1.

[33] Proposition 218 sec. 2, Findings and Declarations.

[34] “Assembly Republicans Want to Close ‘Loophole’ for Local Tax Proposals Written by Citizen Groups,” Mina Corpuz, Los Angeles Times (Aug. 30, 2017).

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