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California Court Rejects “Voluntariness” In Labeling 911 Charge as a Tax

3 min readBy: Joseph Bishop-Henchman

Many states have taxpayer protections applying to taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases. In North Carolina, for example, tax increases must pass three readings in the Legislature. In Virginia, taxes cannot be imposed by unelected officials without a public vote. And in California, Article XIII D, Section 4 of the state constitution requires that new taxes or increases to existing taxes must be approved by two-thirds of voters.

Judges in states with such protections must then confront the question of what is a tax, because politicians will often engage in definitional contortions to label what would otherwise be called taxes as fees, profits, surcharges, fines, and so forth. The Tax Foundation’s Center for Legal Reform helps educate judges about the importance of a rigorous and consistently applied definition of taxes.

Governments often try to use a “voluntariness” test to shield taxes from constitutional requirements, because it is a very lenient definition. In North Carolina, for instance, government officials argued that a 35 percent charge embedded in the purchase price of lottery tickets was not a tax because those who purchased lottery tickets did so “voluntarily.” Such a standard proves too much, of course, because any number of taxes are paid on items purchased voluntarily-gasoline taxes, liquor and tobacco taxes, sales taxes, and really, income taxes (we choose to work). If voluntariness is important, what should matter is whether the charge is voluntary, not whether the purchase of the good or service is voluntary. Otherwise, every charge other than a head taxA head tax, also known as a poll tax or capitation, is a flat or uniform tax levied equally on every taxpayer. Unlike an income tax, it is a fixed amount and not based on how much one earns, nor does it change based on any taxpayer circumstance or action. wouldn’t be a tax.

California’s courts can now be added to the list of states understanding this point. In Bay Area Cellular Telephone Co. v. City of Union City, the Court of Appeal on April 29 ruled that a city 911 access surcharge is properly labeled a tax. The city had argued that citizens “voluntarily” pay it when they sign up for phone service. The court rejected this standard:

“Nothing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied.”[…]

[The charge] is not imposed in exchange for the voluntary decision to seek a governmental service, but is instead imposed in response to the decision to seek telephone service from a private provider. Second, the Ordinance does not restrict the Fee to new telephone customers, but applies to all persons who maintain telephone service–many of whom presumably did not contemplate the fee when signing up for telephone service.[…]

The City points out that the revenues generated by the Fee do not exceed the cost of providing 911 services and that the Fee is not levied for general revenue purposes. Therefore, the City contends, the Fee is not a special tax. This argument misses the point.[…] The Fee must be paid by all nonexempt telephone service subscribers in the City–encompassing virtually all nonexempt households and businesses–whether or not they ever use 911 services. A fee for access to a governmental service is not the same as a fee for use of that service.

We would add only that to the extent a charge raises non-incidental revenue beyond that needed to pay for the service, it is tax revenue.

For a similar excellent decision in Louisiana, see here.