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Tax Law

Strike Two: Another California Court of Appeal Holds Voter-Initiated Local Special Taxes Not Subject to Constitutional Two-Thirds Supermajority Voting Requirement

On December 17, 2020, a California Court of Appeal in the state’s Fifth Appellate District reversed a Fresno trial court decision, which held the California Constitution’s requirement that local taxes be approved by a supermajority vote applies to taxes imposed by voter initiative.  The Fifth District followed in the footsteps of the First Appellate District, which reached a similar conclusion in June.  For background on these and related cases, see our special local tax edition of the Eversheds Sutherland SALT Scoreboard.
Drawing heavily on the First District’s June 30, 2020 opinion in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C, the Court stated “[w]e fully agree with and endorse the holdings and reasoning of All Persons, and find that case controls the outcome here.”  Consequently, following the First District, the Fifth District Court held that Article XIIIA, section 4 of the Constitution, which provides that “Cities, Counties and special districts” may impose certain special taxes “by a two-thirds vote of the qualified electors of such district,” does not “impose[] a supermajority voting requirement on the electorate for passage of voter initiatives.” Next, the Court likewise found that Article XIIIC, section 2(d) of the Constitution, which precludes a “local government” from imposing, extending or increasing a special tax absent approval by a two-thirds vote, does not apply to taxes proposed by voter initiative. Again following its sister district’s lead, the Court applied the reasoning of the California Supreme Court in California Cannabis Coalition v. City of Upland (a case interpreting a similar provision of the state Constitution) to conclude that the text of Article XIII, section 2 applies only to actions taken by local government and “does not constrain the people’s initiative power.”  Finally, the Court rejected “the notion that all initiative petitions are transmuted into local government ‘impositions’” by virtue of the election process itself.
This is the second published appellate court decision applying the reasoning in Upland to validate a local special tax passed by only a simple majority.  With two appellate districts now reaching the same result, and with the California Supreme Court already passing on the opportunity to review the First District’s decision, the chances of the state’s highest court granting review here are slim to none.  While there are other “Upland” cases currently pending before the appellate courts, a proverbial third strike seems inevitable at this point.  We will keep watch on California localities and how they respond to what looks to be a lower threshold for enacting special taxes going into 2021.