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California: Court upholds commercial rents tax approved by simple majority vote

Listen to a brief overview of state tax developments this week, including California, or read full California development below.

Detailed California Development

Recently, the California Court of Appeal for the First District held that a San Francisco voter initiative imposing an additional tax to fund early childcare education did not require a supermajority vote for passage. The initiative, entitled “Universal Childcare for San Francisco Families Initiative,” was supported through the initiative process by a local elected official, then garnered enough valid voter signatures to qualify for the ballot as Proposition C. The initiative passed with approximately a 51 percent approval rate. The petitioner, the Howard Jarvis Taxpayers Association, argued that the initiative required a two-thirds majority pursuant to: (1) Proposition 13, Article XIII A of the California Constitution; (2) Proposition 218, Article XIII C of the California Constitution; and (3) the San Francisco City Charter. As background, the relevant section of Proposition 13 requires that “any special tax imposed by a local government entity be approved by two-thirds of qualified electors.” Proposition 218 later added a requirement that local governments may not impose, increase or extend any (1) general tax without a majority vote of the electorate, or (2) any special tax unless approved by a two-thirds vote. In 2017, the California Supreme Court, in California Cannabis v. City of Upland, held that one requirement contained in Article XIII C of the State Constitution—that general taxes must be put on the ballot during general elections—did not apply to citizen initiatives. The court categorized taxes imposed by citizen initiatives as separate from taxes imposed by “local governments” and determined that the electorate (i.e., the voters) was not a local government for purposes of Proposition 13. The California Cannabis decision has resulted in much confusion— and litigation—over whether a special tax that was presented to voters by a citizen’s initiative requires two-thirds majority approval.

 An appellate court case from a different division of the First District, All Persons, rejected essentially the same arguments made in case at hand regarding a different Proposition C (imposing the San Francisco Homelessness Gross Receipts Tax) that was likewise approved by a simple majority of voters. In the instant case, the court rejected the Petitioner’s attempts to “cast doubt” on the reasoning in All Persons and concluded that the rationale in that case applied here. The Howard Jarvis Association further argued that this case was distinguishable from All Peoples because of the involvement of a local official in the furtherance of this Proposition C. Specifically, a member of the Board of Supervisors was a proponent of Proposition C, and similar ordinances were pending before the Board prior to Proposition C qualifying for the ballot. The court rejected this argument, noting that it was mindful of its obligation to narrowly construe provisions that would limit the exercise of initiative power. In the court’s view, none of the authorities cited to by the Petitioner compelled a different result when a member of the Board of Supervisors was a proponent of the measure. As such, the court ruled in favor of the City. For more information on Howard Jarvis Taxpayers Assoc. v. San Francisco please contact Gina Rodriquez at 916-551-3132. 

This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US