State law permits local regulation of tow truck companies and drivers. In Cal. Tow Truck Ass'n v. City of S.F. (2014) --- Cal.App.4th ---, the Court of Appeal held that the City and County of San Francisco ("City") is only authorized to regulate those tow truck companies and drivers who maintain their principal place of business or employment in the City. The Court also concluded that the City may collect fees to cover the cost of that regulation from such regulated entities.
As part of a broader regulatory scheme on towing operations, the City's Police Code requires tow truck drivers and companies to obtain permits to tow cars in the City. If a towing company obtains a permit, it must pay a license fee based on the number of trucks used in the business. The City's Police Code makes towing vehicles without a permit a misdemeanor.
The California Tow Truck Association ("Association") filed a complaint against the City in Superior Court, alleging that the permit system was preempted by federal and state law, and that all or part of the system is unconstitutional. With respect to the state law preemption claim, the Association alleged preemption by provisions in the California Vehicle Code and California Revenue and Taxation Code.
The City removed the case to federal court, where the District Court determined that the City's permit system did not implicate federal law. The District Court remanded the case back to state court, and the Superior Court determined that the permit system was not preempted by state law so long as the City applied the scheme to "those drivers and firms that conduct substantial or consequential business in San Francisco." The Superior Court provided no analysis on the Association's tax preemption claim, but offered the Association the opportunity to amend its complaint to allege the permit fees were "impermissible taxes." The Association chose to appeal the decision instead of amending its pleadings.
The Court of Appeal reversed the Superior Court's judgment. The Court held that "A local authority may only license and regulate tow truck services and drivers having their 'principal place of business or employment' within the jurisdiction of the local authority." Furthermore, the Court held that local authorities may collect fees to cover the cost of regulating towing services from the tow truck services that are within the jurisdiction of the local authority.
In its analysis, the Court noted that cities and counties may make and enforce ordinances and regulations "not in conflict with 'general laws.'" Since the legislature has "expressly manifested an intent to fully occupy the subject matter governed by the Vehicle Code", cities and counties may only regulate such matters if state law provides express authorization. The legislature provided such authorization regarding towing regulations in Vehicle Code section 21100, which permits "local authorities to license and regulate the operation of tow truck service or tow truck drivers whose principal place of business or employment is within the jurisdiction of the local authority.'"
The Court interpreted Section 21100 to mean that only one location may be the "principal place of business or employment." Thus, the City may only regulate such companies and drivers that have their principal place of business in the City. The Court, however, did not state how the "principal place of business" should be determined for tow truck services and employees operating in several cities or counties.
Also, the Court held that although state law prevents local governments from raising revenue by way of a license tax, the legislature did not forbid local authorities from collecting fees to cover the cost of regulating towing businesses. Therefore, a fee may be imposed on regulated tow truck services as long as the revenue is used for the cost regulating tow truck operations.
What This Means To You
Although the Court affirmed that cities and counties may regulate tow truck operations that have their "principal place of business" in the jurisdiction, the Court did not provide clarity as to how the principal place of business is to be determined. Therefore, cities or counties seeking to regulate tow truck services will need to carefully craft their ordinance to ensure it is applied only to those businesses whose principal place of business is located within the subject jurisdiction.