Ballot Initiative Withdrawn, Leaving Intact Local Authority to Impose Taxes, Fees and Charges
Last-Minute Deal to Withdraw Includes Moratorium on Certain New Taxes in California
The Tax Fairness, Transparency and Accountability Act of 2018, a ballot initiative that would have amended portions of the California Constitution to further restrict state and local agencies from imposing new or increased taxes, fees and charges, was withdrawn by its proponents Thursday. The proponent withdrew the ballot initiative, which was heavily supported by the California Business Roundtable and the beverage industry, after Assembly Bill 1838 passed. AB 1838, which placed a 12-year moratorium on new or increased soda taxes or taxes on other groceries, resulted from last-minute efforts by state legislators to reach a compromise with supporters of the ballot initiative.
The ballot initiative, which would have amended portions of the Constitution added by Propositions 13, 218 and 26, was previously certified to be submitted to voters in November. If adopted, it would have resulted in a much more challenging environment for local agencies considering new or increased taxes, fees and charges. For example, the initiative proposed eliminating the distinction between general and special taxes, thus requiring all taxes to obtain two-thirds voter approval. Local agencies would not have been able to submit taxes to the voters except by approval of two-thirds of the elected members of the agency’s governing body, and elections on such taxes would had to have been consolidated with general elections at which members of the governing body would be up for election. These restrictions would have created uncertainty for agencies without an elected governing board, such as certain joint powers authorities or transportation commissions. Many of these restrictions were also proposed to be made retroactive, invalidating otherwise legal taxes approved by the voters after Jan. 1, 2018 but before the ballot initiative was adopted.
The ballot initiative also threatened local fees and charges. If adopted, local agencies would have been required to demonstrate that fees and charges are not taxes by clear and convincing evidence, instead of the much lower evidentiary threshold that is currently required. Fees and charges for government services or products, or for regulatory costs of issuing permits, performing investigations, inspections and audits, would have been limited to the actual cost of such services, products or regulatory activities.
To avoid the consequences of the ballot initiative, Gov. Jerry Brown signed AB 1838 into law Thursday afternoon. This law establishes a 12-year moratorium on any new or increased taxes on groceries, with the term “groceries” defined to include carbonated and noncarbonated nonalcoholic beverages. This restriction applies to any “sales tax, gross receipts tax, business and occupation tax, business license tax, excise tax, privilege tax, surcharge, or any other similar levy, charge, or exaction of any kind on groceries or the manufacture, supply, distribution, sale, acquisition, possession, ownership, transfer, transportation, delivery, use, or consumption thereof.” The moratorium is retroactive and invalidates any taxes on beverages and other groceries that were adopted on or after Jan. 1, 2018.
Local agencies already face rigorous requirements in establishing new or increasing existing taxes, fees and charges. These requirements were created by a long line of voter initiatives, including Propositions 13, 62, 218 and 26. With withdrawal of the ballot initiative, local agencies avoided even more hurdles and challenges with potentially substantial financial consequences. This comes at the price of the ability to adopt any new or increased tax on beverages and other groceries — at least for now. While this law may be changed by future legislators, local agencies that were considering new or increased taxes on beverages or other groceries must put those plans on hold for the next 12 years.
If you have any questions about AB 1838 or this development or how it may impact your agency, please contact the authors of this Legal Alert listed to the right in the firm’s Special Districts practice group, or your BB&K attorney.
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