Three times California voters have approved initiatives to limit the ability of local governments to impose new taxes without voter consent. The California Tax Revolt began in 1978 when voters adopted Proposition 13 to control property tax increases. On June 6, 1978, the largest turnout of California voters since 1958 resoundingly approved the measure by a margin of two to one.
In 1996, the voters approved Proposition 218 to close the special taxes/assessment loophole which local governments exploited after Proposition 13 was incorporated into the State Constitution. The Legislative Analyst explained that, “[i]n general, the intent of Proposition 218 is to ensure that all taxes and most charges on property owners are subject to voter approval.”
Finally Proposition 26 was adopted to expand voter protections and enable the people to vote on levies, charges, or exactions imposed by local government. Proposition 26 closed the loopholes in Propositions 13 and 218, which had allowed the proliferation of state and local taxes disguised as fees without a two-thirds vote of the Legislature or the voter approval.
The Fourth District Court of Appeal recently created a new loophole to get around Proposition 218. In the case of California Cannabis Coalition v. City of Upland, the court ruled that taxes imposed by an initiative–as opposed to those imposed by a local governing body–are exempt from the provisions of Proposition 218 (now Article XIIIC of the California Constitution). Under this ruling, local governments can circumvent the constitutional requirements applicable to new taxes–a vote of the electorate in a general election.
Here, the California Cannabis Coalition drafted and sponsored a medical marijuana initiative to repeal the City of Upland’s ban on medical marijuana dispensaries. The initiative would also adopt regulations establishing standards for the operations of the dispensaries, and would require each dispensary to pay the City an annual Licensing and Inspection Fee of $75,000. The fee is a general tax because it is about $60,000 more than the City’s costs to license and inspect the dispensaries. Thus, most of the money will go into the City’s general fund.
The Coalition obtained signatures of 15% of registered voters needed to qualify for a special election. Under the Elections Code, this is sufficient for a local government to either adopt the initiative or submit it to the voters in a special election. So, if the City were to simply adopt the initiative, it would violate Article XIIIC, by denying the voters the right to vote on the new law imposing new taxes. And it would not meet the requirement that taxes put into the general fund be approved by a majority of voters in a general election. If the City were to choose the second option under the Elections Code and submit the initiative to the voters in a special election, it would violate Article XIIIC by allowing the adoption of a general tax in a special election (which requires a higher approval rate than a general election).
The Howard Jarvis Taxpayers Foundation filed a petition for review in the California Supreme Court. PLF filed a letter brief in support of review, providing an overview of the three tax-cutting initiatives and explaining that taxpayers want the right to vote on all taxes, without regard to the method by which they are imposed. In fact, it is doubtful that the taxpayers understood or considered the distinction between taxes imposed by local government and those imposed by initiative. PLF could find no evidence that the distinction was raised in the voter materials for any of the tax-cutting initiatives.
The California Supreme Court will decide whether to take the case in the next few weeks.