Court holds California local tax subject to supermajority voting requirement, California Supreme Court review likely

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

On September 5, a Fresno trial court held that the California Constitution imposes a two-thirds vote requirement on special local taxes, including those proposed by voter initiative. The decision comes just two months after a San Francisco trial court held that local taxes imposed by voter initiative are not subject to the two-thirds voter approval requirement.1 See our prior Legal Alert on that case here. The latest ruling highlights the likelihood that the California Supreme Court will clarify its decision in California Cannabis Coalition v. City of Upland.2    

In Upland, the Supreme Court determined the narrow question of whether local general taxes must be submitted to the electorate at a general election, as opposed to a special election, under Article XIII C, Section 2(b) of the California Constitution. It held that the general election requirement does not apply to taxes voters seek to impose via the initiative process.3   
Upland set the backdrop for litigation concerning the application of Article XIII C, Section 2(d) of the California Constitution – a related provision – providing in relevant part that “[n]o local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote.” This provision is at the heart of both the Fresno and San Francisco decisions but was not at issue in Upland. However, courts have differed as to its relevance. Notably, though, the Supreme Court drew a distinction between the “procedural timing requirement” in Article XIII C, Section 2(b) that local general taxes be submitted at a general election and that the “procedural two-thirds vote requirement” in Article XIII C, Section 2(d) that local special taxes be approved by a two-thirds vote.4 
In City of Fresno v. Fresno Building Healthy Communities,5  a ballot initiative to authorize the City of Fresno to collect a 3/8 percent sales and use tax received 52.17% of the vote.6 Consequently, the Fresno City Council declared that the initiative failed for not receiving a supermajority as required under Article XIII C, Section 2(d) of the California Constitution.7 The proponent of the ballot initiative brought suit, arguing that only a simple majority was required to validate the initiative under the reasoning in Upland.8 
In ruling on a Motion for Judgment on the Pleadings, the trial court rejected an expansive reading of Upland that was embraced by the San Francisco court. Instead, the trial court determined “Upland is confined to its limited holding concerning the election date for an initiative” and relied on the Supreme Court’s above-mentioned distinction to support its holding that the “two-thirds vote requirement applies to all special tax proposals, regardless of the proponent of the proposal.”9 Additionally, the trial court examined the history of the state Constitution’s supermajority voter approval requirements for special taxes, including case law interpreting the various provisions, which led the court to apply a construction of those provisions “requiring enhanced taxpayer consent.”10  In light of the history and controlling authority, the trial court concluded that “[o]nce the initiative is submitted to the voters, it is incumbent” upon those “voters to approve it by a two-thirds vote, or otherwise reject it.”11 

Eversheds Sutherland Observations
• The San Francisco decision was appealed the day after the court issued its ruling. The Fresno decision is certain to be appealed as well. The inconsistent readings of and application of Upland underscore the need for the California Supreme Court to clarify its decision in that case. If the Fresno trial court’s decision is affirmed, it will serve as a final check to the various localities seeking to reduce the approval threshold for new or increased local taxes across the state. 

• Taxpayers operating in cities like San Francisco, which are pushing ahead with collection of new special taxes passed by a simple majority of votes, should consider filing protective refund claims according to the respective rules and procedures of each jurisdiction. San Francisco, for example, provides taxpayers a two-step refund process, involving a request for refund to the Tax Collector followed by a claim for refund to the Controller if the request is denied by the Tax Collector or deemed denied due to failure to act.12 

The Eversheds Sutherland SALT team will continue to closely monitor this and other related cases and will keep you apprised of relevant updates.


1City and County of San Francisco v. All Persons Interested in the Matter of Proposition C on the November 6, 2018 San Francisco Ballot (July 5, 2019) Cal. Super. Ct. (County of San Francisco), Dkt. No. CGC-19-573230.
2 (2017) 3 Cal.5th 924.
3 Article XIII C, Section 2(b) provides in pertinent part: “No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote.” 
4Upland, 3 Cal.5th at 943.
5 (Sept. 5, 2019) Cal. Super. Ct. (County of Fresno), Dkt. No. 19CECG00422. 
6City of Fresno at 1.
8Id. at 1, 3.
9Id. at 3-4.
10Id. at 2-3.
11Id. at 4.
12 See San Francisco Bus. & Tax Regulations Code §§ 6.15-1(a), (g). A business may request a refund from the Tax Collector on a return, an amended return, or a prescribed form within one year of payment or the date the return was due, whichever is later. Id. § 6.15-1(g). A request for refund is deemed denied if the Tax Collector does not act on the request within one year. Id. A business may file a claim for refund with the Controller within one year of payment, the date the return was due, or the date a request for refund was denied, whichever is later. Id. § 6.15-1(a). Note, a business may submit a claim for refund with the Controller without first submitting a request for refund with the Tax Collector; however, submitting a request for refund first can extend the time in which a taxpayer must file a suit for refund in California Superior Court (within six months after notice of action on a claim for refund by the Controller or within two years from accrual of the cause of action if no notice is provided). Id. § 6.15-3(b); see also Cal. Gov. Code § 945.6(a).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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