Tax Foundation Tax Counsel: California Budget Proposal Probably Unconstitutional

December 18, 2008

The California budget proposal suddenly brought to the floor by Democratic legislative leaders for a simple majority vote is probably unconstitutional, predicted Tax Foundation Tax Counsel Joseph Henchman.

“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,” Henchman explained. “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.”

Henchman says changing the terminology does not make the plan constitutional.

“California courts have ruled that a tax is imposed for revenue purposes, while a fee is imposed to recover costs of a service,” Henchman stated. “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.”

Henchman also warns that the precedent could undermine taxpayer protections.

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

Henchman’s legal analysis is located here:

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