Gonzalez v. City of Norwalk
B276871
| Cal. Ct. App. | Dec 4, 2017Background
- In 2003 Norwalk voters ratified a municipal utility user tax (UUT) of 5.5% on telephone, electric, and gas charges by approving Measure A, codified as Norwalk Mun. Code §3.36.060. Measure A stated the tax applied to “all telephone … charges.”
- §3.36.060(D) originally exempted telephone services that were “exempt from or not subject to … Section 4251 of the Internal Revenue Code,” reflecting then-applicable IRS interpretation that IRC §4251 reached almost all telephone service.
- In 2006–2007 several federal decisions and IRS notices narrowed the federal excise tax’s scope for certain long-distance and bundled cell/landline plans, prompting Norwalk’s City Council in 2007 to adopt Ordinance No. 07-1586 deleting the §4251 reference to preserve the City’s historical UUT administration.
- Plaintiffs (Norwalk residents) sued in 2014, alleging the 2007 ordinance unlawfully imposed, extended, or increased the UUT without voter approval in violation of Propositions 62 (Gov. Code §53723) and 218 (Cal. Const., art. XIII C §2).
- The trial court sustained the City’s demurrer without leave to amend and dismissed; the Court of Appeal affirmed, holding the 2007 ordinance did not change the tax voters approved in 2003.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2007 deletion of the IRC §4251 reference unlawfully imposed a new general tax without voter approval (Prop. 62/218) | Gonzalez: Deleting the §4251 reference expanded the tax to services that, after federal decisions, were not subject to the federal excise tax, thereby imposing/expanding the municipal tax without voter approval | Norwalk: Measure A already imposed a 5.5% tax on all telephone service; the 2007 change was a technical clarification to preserve historical application and did not alter rate or tax base as intended by voters | Held: No new tax was imposed. Measure A’s 2003 text evidenced intent to tax all telephone service; the federal change in 2006 did not retroactively alter the voters’ enactment, so the 2007 ordinance merely clarified existing law and did not violate Prop. 62/218 |
Key Cases Cited
- AB Cellular LA, LLC v. City of Los Angeles, 150 Cal.App.4th 747 (Cal. Ct. App. 2007) (revision of taxing methodology that increases tax burden violates Prop. 218)
- National Railroad Passenger Corp. v. United States, 431 F.3d 374 (D.C. Cir. 2005) (federal appellate decision narrowing scope of IRC §§4251/4252)
- Reese Bros., Inc. v. United States, 447 F.3d 229 (3d Cir. 2006) (federal appellate decision limiting federal excise tax application to certain telephone services)
- Palermo v. Stockton Theatres, 32 Cal.2d 53 (Cal. 1948) (adopted provisions incorporated by reference are fixed as of time of incorporation, not by later modification)
- California Cannabis Coalition v. City of Upland, 3 Cal.5th 924 (Cal. 2017) (standard for interpreting voter initiatives and consulting related materials to determine voter intent)