California: Trial Court Rules for City of SF; Super-Majority Vote Not Needed to Approve City Tax Increases

On July 5, 2019, a California Superior Court judge rejected arguments that two ballot initiatives that raised City taxes had to be approved by a super-majority (i.e., 2/3 of voters) vote. In 2018, San Francisco voters approved two different versions of “Proposition C.” The November 2018 Proposition C imposes an additional gross receipts tax on persons, entities, or combined groups that are engaged in business in the City and have over $50 million of gross annual receipts sourced to San Francisco. The additional gross receipts tax has been dubbed the “Homelessness Gross Receipts Tax,” and revenues from the tax are earmarked to fund various services for the homeless. The June 2018 Proposition C imposes an additional “Early Care and Education Commercial Rents Tax” effective January 1, 2019 on each person that receives gross receipts from leasing or subleasing commercial real estate in the City of San Francisco. Both of these taxes are imposed in addition to the current San Francisco gross receipts tax.

Those measures were approved by a majority of the voters, but less than a super-majority, and opponents of the measures quickly acted to try to invalidate the new taxes. Specifically, the argument was that under California’s Constitution, an initiative placed on the ballot by voters that raises “special taxes” requires a 2/3 majority vote to pass. In a decision addressing the November 2018 Proposition C, the trial court concluded that a simple majority vote was all that was needed when the measure is placed on the ballot by citizens.  In contrast, a measure that is placed on the ballot by government officials would be required to be approved by a 2/3 vote. The court’s decision was largely based on an earlier case, California Cannabis Coalition v. City of Upland.  This decision is likely to be appealed.  With respect to the June 2018 Proposition C, the court likewise rejected arguments that the initiative was not a “real citizens” initiative and that the San Francisco City charter required a 2/3 vote. Please stay tuned to TWIST for additional updates on the San Francisco taxes.