The First District Court of Appeal ruled April 29 that Union City's monthly assessment on telephone customers – described by the City Council as a "fee" to fund the 911 emergency call system – is an illegal tax because it was not approved by the public on a two-thirds vote, as required by the state constitution.
In a 3-0 ruling that upheld a trial court decision, the court said "the Fee is a special tax, and as such is subject to Proposition 218."
The ruling rejected the city's contention that the $3.22-per-line monthly charge, enacted by the City Council in 2003 without a public vote, was a fee because it raised money for a specific purpose and did not produce revenue for the city's general fund. "This argument misses the point," the court stated, noting that the assessment did not pay for regulatory activities or government services – two uses that could keep the charge from being defined as a "special tax" under the 1979 law cited by the city (Revenue and Taxation Code Section 50076).
The court wrote: "(T)he City has not suggested any regulatory purpose it might serve. Nor is the Fee imposed for 'service[s].' 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."
In a footnote to the latter comment, the court added: "Indeed, if it were, Proposition 218 could easily become meaningless. Taxes paid by the public to fund police or fire services available to all could be renamed 'public safety access fees' and be exempt from the voter approval requirements. Taxes paid to maintain city streets could be renamed 'road access fees.' The list of possibilities is endless."
"This is a victory for taxpayers, and should be a lesson to all local governments that are moving forward with illegal taxes," said John Cmelak, chair of the Cal-Tax Board of Directors. "Californians enacted Proposition 218, the Right to Vote on Taxes Act, to keep government officials from raising taxes without their consent, and this ruling rightfully upholds that principle."
The Union City Council has not revealed whether it will appeal the ruling.
The case is Bay Area Cellular Telephone Company, et al., v. City of Union City. Plaintiffs included Verizon Wireless, AT&T Wireless Services, Cingular Wireless and two individual taxpayers.
The San Francisco Chronicle noted that 20 to 25 other cities in California, including San Francisco, have similar assessments "that could be vulnerable under Tuesday's ruling, if it stands." Many other cities are considering taxing utility users to pay for their 911 systems, and most have signaled that they intend to do so without submitting the taxes to the voters.
In Ventura, the city's 911 tax-like fee is scheduled to take effect next week. City Attorney Ariel Calonne said the assessment will survive legal challenges because the city included a provision allowing residents to opt out of the monthly $1.49-per-line charge, and to instead pay $17.88 every time they call 911. "The element of customer choice has proven to be a significant and winning distinction in my opinion," Mr. Calonne said. "By adding a per-call choice and being upfront and clear about it, the city has followed the constitution."
Cal-Tax Director of Communications David Kline told the Ventura County Star that the opt-out clause is not enough to turn the assessment into a fee that can be enacted without voter approval, and added, "We think the Union City case demonstrates that the courts and the public are not confused at all; that this is a tax."
(Cal-Tax: The ruling had an immediate impact. On May 1, the day a similar "fee" was to take effect in Santa Clara County, the county's communications director sent a letter to telephone service providers telling them not to collect the assessment. The letter said Santa Clara is "reconsidering the implementation date" for the charge, which would range from 20 cents to $1.01 per line, and told phone companies, "Please do not collect the … Fee until further notice.")
(Sources: Court of Appeal opinion, April 29; San Francisco Chronicle, April 30; and Ventura County Star, May 1.)
Cal-Taxletter May 2, 2008
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