California Activists File Suit Seeking to Nullify Tax Plan

January 7, 2009

I noted last month that a rush budget package rammed through by the California Legislature was probably an unconstitutional way to get around the two-thirds requirement:

The first phase of the two-phase plan involves eliminating the gas tax and raising other taxes, the idea being that because the two taxes zero each other out, it’s not a ‘tax increase’ and can pass the legislature with a simple majority. The second phase involves reinstating the gas tax but calling it a ‘fee’, again requiring just a majority vote. So first it’s a tax and then it’s a fee.

California courts have ruled that a tax is imposed for revenue purposes, while a fee is imposed to recover costs of a service. There is no doubt that the purpose of the gas tax is to raise money for government, as demonstrated by the constant borrowing of transportation money for the General Fund and the tax’s total divorce from costs. Changing who pays the gas tax doesn’t change the fact that it’s a tax under California law and needs a two-thirds vote.

More importantly, if the thinking behind this plan succeeds, it would be a huge loophole through Propositions 13 and 218. You could raise taxes by just first cutting them and then renaming them fees. Everything would become a fee.

The Howard Jarvis Taxpayers Association, in conjunction with every Republican in the Assembly, has filed a lawsuit seeking to nullify the plan:

But even if the governor signed a revised version of the plan into law, it could still unravel in court because of the untested legislative maneuvers Democrats employed to pass the tax increases without a two-thirds vote of lawmakers.

They used a complex strategy that hinges on the legal difference between taxes and fees, and passed the package on a simple majority, without any of the Republican votes they typically would have needed.

Every GOP legislator joined a lawsuit Tuesday intended to nullify the package, which they said violated the provision in Proposition 13 that prohibits a simple majority of the Legislature from passing broad-based tax increases.

“This dishonest effort to raise taxes without a two-thirds vote is a dagger at the heart of Proposition 13 and every California taxpayer,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn., which filed the lawsuit in a state appeals court in Sacramento.

The lawsuit is here. More on California here.

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