California: 2017 decision triggers legislative proposals to clarify threshold for tax measures

According to President Donald Trump, California has the “highest taxes in the United States,” quoted a Washington Post article last week. Commentators may agree or disagree, but regardless an August 2017 California Supreme Court case, California Cannabis Coal. v. City of Upland, left many scratching their heads about what it would take should the Golden State want to increase those taxes.

In California Cannabis, the California Supreme Court affirmed the Court of Appeals’ judgment that Article XIII C of the California Constitution “does not constrain voters’ constitutional power to propose and adopt initiatives,” and more specifically, “does not does not limit voters’ ‘power to raise taxes by statutory initiative.’” The case addressed a popularly initiated proposal that sought to repeal an existing city of Upland ordinance banning medical marijuana dispensaries, among other things, which voters did not pass. At issue in the case was whether voters should have voted on the proposed law at a general or special election. We detailed the initiative and the court’s decision when it came out last fall.

A recent Bloomberg Tax piece, reporting on a March 7, 2018 California Legislative Panel, noted that the 2017 California Cannabis case has generated uncertainty, and prompted new legislation, ballot measures and litigation to establish whether it means that voters will now have an easier time passing local tax increases, by way of a lower, majority threshold, or whether the two-thirds vote required for government-backed tax measures remains in place.

In other words, citizen backed ballot measures in California may require only a majority vote to become law, whereas government backed measures require a two-thirds vote. In California Cannabis, the California Supreme Court pointed to its precedent contained in the 1991 case Kennedy Wholesale, Inc. v. State Bd. of Equalization, which held that “the constitutional requirement that the Legislature obtain a two-thirds vote before raising taxes…is a requirement that does not apply to voters’ initiative power.”

One legislator, Senate Governance and Finance Committee Chair Mike McGuire, told Bloomberg Tax that “[t]he [California Cannabis] decision is clear as mud,” and an attorney who attended the panel does not “see an end to this litigation.” Another lawyer, who represents a number of California cities, pointed to “an uptick in local groups drafting measures to place on the ballot with a 50 percent approval threshold.”

Two legislatively proposed constitutional amendments that were recently proposed would, in essence, reverse the California Cannabis case. The first, ACA 19, introduced on Sep. 6, 2017, would amend the state constitution to provide that “[a] local government shall not impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote.” According to ACA 19 “local government” includes the electorate exercising its initiative power, and a special tax is on that is “imposed for specific purposes” which goes into a general fund. By contrast to ACA 19, typically revenues raised through special taxes are earmarked for specific purposes.

The second, SCA 15, introduced a week after ACA 19, would also require a two-thirds vote by the electorate in order for a local government to pass a special tax, and likewise includes an electorate exercising its local initiative power in the definition of a local government.

Bloomberg Tax acknowledged that “[b]ecause they are proposed constitutional amendments, the bills would need voter approval if they pass the Legislature.”

In contrast, other proposed legislation, S.B. 958, introduced on Jan. 30, 2018, would “clarify that a school district ballot measure includes an initiative measure that may be placed on the ballot pursuant to existing provisions of law.” Consequently, school districts, which are authorized to impose qualified special taxes, defined as “taxes that apply uniformly to all taxpayers or all real property within a school district,” would only need majority voter approval.

Finally, Bloomberg posted a link to a ballot measure backed by the California Business Roundtable that would “impose a two-thirds vote requirement on citizen initiatives and invalidate any taxes imposed in 2018 without a two-thirds vote.” Submitted on Dec. 22, 2017, this could appear on the November 2018 statewide ballot if the Roundtable gets the 585,407 signatures it needs to qualify by July 25, 2018.