Democrats know that should their majority vote budget get signed into law, it’s going to be challenged in court and probably on the ballot.
The Howard Jarvis Taxpayers Association has already announced it will sue.
They’ll need to take a look at the state constitution first.
A good starting point is Article XIII A, a section of the constitution that should be familiar to the group since its namesake helped add it to the constitution as 1978’s Proposition 13.
The landmark measure is famous for limiting annual property tax increases to 1 percent but it does other things, too.
In Section 3, the association’s lawyers will find the following:
“Any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or change in methods of computation must be imposed by an act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature.”
What the Democrats do in their plan is eliminate the sales tax on gasoline and an 18 cent per gallon excise tax and replace it with a mix of other tax increases. Among those increase is a three-quarter cent boost in sales tax, a 2.5 percent personal income tax “surcharge” and a 9.9 percent tax on oil extraction.
By cutting gasoline taxes and replacing it with a like amount of other taxes Democrats contend their measure is “revenue neutral.”
In their view, trading one kind of tax for another but maintaining the same level of taxation does not “raise” revenue so the vote requirement of Article XIII A’s Section 3 doesn’t apply. All that’s needed is a majority vote.
A majority vote for revenue-neutral bills has been accepted as legislative custom and practice for many years on federal tax conformity issues. Federal changes increasing taxes are balanced with those reducing taxes so the net result creates no change in the level of taxation.
Jarvis et al will still argue that despite its alleged revenue neutrality the measure is still for the purpose of raising revenue and therefore should be subject to the super-majority vote.
However, before filing a court challenge, attention should be paid to Article XIII’s Section 32:
“No legal or equitable process shall issue in any proceeding in any court against this state or any officer thereof to prevent or enjoin the collection of any tax.”
In other words, a lawsuit can be filed but Californians are going to be paying the taxes until an appellate body renders a decision. If the tax is found to be illegal an action to recover the tax paid –with interest – can be undertaken, Section 32 concludes.
Perhaps rather than go through a tortuous court challenge, opponents of the tax levy want to nullify it by placing a referendum on the ballot. See Article II, Section 9:
“The referendum is the power of the electors to approve or reject statutes or parts of statutes EXCEPT urgency statutes, statutes calling elections and statutes providing for tax levies or appropriations for usual current expenses of the state.”
(Editor’s Note: Emphasis is California’s Capitol.)
Article II’s Section 8, which deals with initiatives, has no such restrictive language. Past court rulings have upheld the right to use an initiative to repeal a tax.
Voters approved one such measure, Proposition 163, in 1992 to rescind the 1991 extension of the sales tax to candy and snack foods — a move backed by lawmakers as a way to solve another massive cash shortfall.
The Howard Jarvis Taxpayers Association should be familiar with Proposition 163 since its membership roster was used by the initiative’s backers to raise seed money for their campaign.
Unlike a referendum, an initiative doesn’t stop the taxes being collected when it qualifies for the ballot – only when voters approve it.
The other big revenue raiser in the Democrats’ proposal is a 39-cent “user fee” on a gallon of gasoline. Total excise taxes on gasoline now are 36 cents, basically half of it state-imposed and half federal.
This revenue will be used for transit and highway projects as well as improvements to local street and road improvements.
A court challenge could be made that the fee is actually a tax. Under the law, there must be some nexus between the entity paying the fee and the purpose it’s used for.
The famous – or infamous in the eyes of the business community – court case in this area involves Sinclair Paint which had a fee imposed on it that was, in turn, used to support government programs to help limit the exposure to children of lead, which Sinclair’s paint contained.
Courts found there was a nexus and backers of the Democratic budget plan will argue that the nexus between drivers paying for improvements to the highways they utilize is far stronger than charging a paint company to help keep children away from lead.
In addition, a lawsuit contending the fee is a tax carries an additional procedural burden because the collection of tax can’t be enjoined. So the plaintiff must first ask the court to stop the fee from being collected and then seek to have the fee declared a tax.
There is no restriction on running a referendum on the gasoline fees. If the referendum qualified, it would immediately halt collection of the fees until voters decide its fate in the next general election.
Logistically, though, a referendum is tougher to do. It must be submitted with the proper number of signatures within 90 days of the enactment of the law it seeks to overturn. Initiatives have 150 days to turn in signatures.
A further complication is that it’s likely a goodly portion of the business community would oppose either an initiative or a referendum on the gasoline fees because it would halt highway improvements, which create jobs and improve the economy.
Finally, whatever legal issues are raised in a challenge on the taxes or fees or both is going wind up in the laps of the California Supreme Court, a body keenly aware of the nexus between a solvent state budget and a solvent judicial branch.
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