40 Cal.App.5th 798
Cal. Ct. App.2019Background
- Measure U (approved by Rialto voters, Nov. 2014) imposed an annual business license tax of up to $1.00 per cubic foot of liquid fuel storage capacity on “any person engaged in the business of owning, operating, leasing, supplying, or providing a wholesale liquid fuel storage facility.”
- Plaintiffs (Tesoro, Equilon, SFPP, Phillips 66) own all wholesale fuel-storage terminals in Rialto; the City assessed 2015–2016 taxes based on tank capacity; plaintiffs paid under protest and sued for refunds and invalidation.
- In May 2016, after suit was filed, the City adopted “Guidelines” to implement Measure U: they allowed operators to certify (and be deemed) not engaged in the business if no fuel was stored during the year and permitted allocation of the $1/cubic-foot tax among multiple operators.
- Trial court held Measure U valid as a business license tax and upheld the Guidelines; plaintiffs appealed. The Court of Appeal reviewed de novo.
- The Court of Appeal majority held the Guidelines unlawfully amended voter-approved Measure U (Elections Code § 9217) and that Measure U is, in substance, a real property tax (not a business license/excise tax) that violates Cal. Const. art. XIII D; it reversed and directed judgments for plaintiffs. A published dissent would have upheld Measure U under Apartment Association.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Do the City’s 2016 Guidelines unlawfully amend Measure U in violation of Elec. Code § 9217? | Guidelines change Measure U’s scope by exempting tanks with no fuel and by limiting liability to “operators,” thereby amending the voter ordinance. | Guidelines merely clarify/implement Measure U to target business operations the voters intended to tax. | Held: Guidelines amended Measure U (changed scope and persons liable) and are invalid under § 9217. |
| 2. Is Measure U a business license/excise tax (valid) or a disguised real property tax (invalid)? | Measure U is a disguised property tax because it taxes tank storage capacity regardless of use; mere ownership triggers liability. | Measure U is a business license/excise tax targeting the privilege of operating/storage function—consistent with voter labeling and intent. | Held: Measure U is a tax on real property (storage tanks) because liability is tied to ownership/capacity regardless of use; not a valid excise/business license tax. |
| 3. If Measure U is a property tax, does it violate California Constitution art. XIII D (Proposition 218)? | Yes—Measure U is imposed as an incident of property ownership and does not fall within art. XIII D exceptions. | No—Measure U applies only to persons "engaged in the business" and thus is imposed on business activity, not merely property ownership. | Held: Measure U violates art. XIII D and is invalid; the majority rejects the City’s reliance on Apartment Association. |
| 4. Remedy / disposition | Plaintiffs seek judgment on the pleadings and refunds. | City sought affirmance. | Held: Court reversed judgments for City, remanded with directions to grant plaintiffs’ motions for judgment on the pleadings and enter judgments for plaintiffs; plaintiffs awarded costs on appeal. |
Key Cases Cited
- Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles, 24 Cal.4th 830 (Cal. 2001) (upheld per-unit inspection fee on rental-property owners as not imposed "as an incident of property ownership")
- Thomas v. City of East Palo Alto, 53 Cal.App.4th 1084 (Cal. Ct. App. 1997) (property tax defined as triggered by ownership; invalidated non–ad valorem parcel tax)
- City of Oakland v. Digre, 205 Cal.App.3d 99 (Cal. Ct. App. 1988) (distinguishing excise taxes from taxes on ownership; parcel tax characteristics)
- Mobilepark West Homeowners Assn. v. Escondido Mobilepark West, 35 Cal.App.4th 32 (Cal. Ct. App. 1995) (legislative act that changes scope/effect of voter initiative is an amendment)
- Douglas Aircraft Co. v. Johnson, 13 Cal.2d 545 (Cal. 1939) (analysis of excise vs. property tax distinctions)
- Richmond v. Shasta Community Services Dist., 32 Cal.4th 409 (Cal. 2004) (fees imposed as incident of property ownership contrasted with voluntary service connections)
- City of San Buenaventura v. United Water Conservation District, 3 Cal.5th 1191 (Cal. 2017) (recent article XIII D/ C analysis; cited in dissent regarding precedent )