ALFRED A. GONZALEZ et al., Plaintiffs and Appellants, v. CITY OF NORWALK, Defendant and Respondent.
B276871
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION THREE
Filed 12/4/17
CERTIFIED FOR PUBLICATION; (Los Angeles County Super. Ct. No. BC553119)
APPEAL from a judgment of the Superior Court of Los Angeles County, John Shepard Wiley, Jr., Judge. Affirmed.
Girardi & Keese, Thomas V. Girardi, Howard B. Miller, Robert Finnerty, and Alexandra T. Steele; Law Offices of Martin N. Buchanan and Martin N. Buchanan; Slovak, Baron, Empey, Murphy & Pinkey, Thomas S. Slovak and Stephen J. Schultz for Plaintiffs and Appellants.
Richards, Watson & Gershon, B. Tilden Kim and Saskia T. Asamura; Daley & Heft, Scott Noya and Lee H. Roistacher for Defendant and Respondent.
Plaintiffs Alfred Gonzalez and David Reynoso (plaintiffs) are residents of the defendant City of Norwalk (Norwalk or City) who pay the telephone user tax through their cellular telephone providers. In 2014, plaintiffs filed a complaint asserting that the 2007 ordinance violated Propositions 62 and 218, which prohibit local governments from imposing, extending, or increasing taxes without voter approval. Plaintiffs urged that when Norwalk voters approved a utility user tax in 2003, they “specifically voted not to tax services that were exempt from taxation under”
The City demurred, asserting that the 2007 ordinance did not violate Propositions 62 or 218 as a matter of law. The trial court sustained the demurrer without leаve to amend and subsequently entered a judgment of dismissal.
We affirm. While the 2007 ordinance made a technical change to the
BACKGROUND
I. In 2003, Norwalk Voters Adopt Municipal Code Section 3.36.060, Which Imposes a 5.5 Percent Tax on Telephone User Fees
In 1992, the City enacted a user tax on various utilities, including telephone service (utility user tax).
In pertinent part, Ordinance No. 1541 (hereafter, Measure A or the 2003 initiative) provided as follows:
“The People of the City of Norwalk do ordain as follows:
”Section A. Chapter 3.36 of the
Norwalk Municipal Code (‘Code‘) entitled ‘Utility User Tax’ which applies a five and one-half percent (5½%) tax rate on all telephone, electric and gas charges in the City of Norwalk is hereby ratified and approved as set forth in Chapter 3.36 of the Code as of July 1, 2003, attached hereto as Exhibit ‘A’ and incorporated herein by this reference[,] and the City is hereby authorized to continue to impose and collect the utility tax as provided by the terms set out in Chapter 3.36 of the Code.”Section B. In no event may the City Council alter the provisions of section 3.36.060, 3.36.070, and 3.36.080 to incrеase the five and one-half percent (5½%) rate on telephone, electric and gas use without the approval of a majority of voters of the City, voting on the question of the tax rate; provided, however, the City Council is hereby authorized to amend any other provisions of Chapter 3.36 of the Code by three (3) affirmative votes of its members to, without limitation, carry out the general administrative purposes of Chapter 3.36 of the Code to reasonably implement the collection of the utility user tax through public utilities and other service suppliers as authorized in Chapter 3.36 of the Code.
”Section C. It is the intent of the voters to apply the provisions of Chapter 3.36 of the Code to the fullest extent permitted by the law to ratify the City‘s previous and continued collection of the tax.”
On September 30, 2003, 64.6 percent of Norwalk voters approved Measure A, which was codified in pertinent part as
- Section 3.36.060, subsection A provided: “There is imposed a tax on the amounts paid for any interstate, intrastate and international telephone communication services, including cellular telephone services and other telephone services that gain access to the public switched
network (PSN) by means of various technologies, by every person in the City using such services. The tax imposed by this section shall be at the rate of five and one half percent of the charges made for such services.” - Section 3.36.060, subsection D provided: “Notwithstanding the provisiоns of subsection A of this section, the tax imposed under this section shall not be imposed upon any person for using intrastate, interstate and international telephone communication services to the extent that the amounts paid for such services are exempt from or not subject to . . . the tax imposed under
Section 4251 of the Internal Revenue Code .”
II. Internal Revenue Code Sections 4251 and 4252
When the City of Norwalk adopted Measure A in 2003,
“(1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States, and
“(2) a service which entitles the subscriber, upon payment of a pеriodic charge (determined as a flat amount or upon the
basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.” (
26 U.S.C. § 4252(b) , italics added.)1
By 1979, some long distance telephone service was billed based on only the length of telephone calls made by the user, without regard to distance. In a 1979 ruling, the Internal Revenue Service concluded that a long distance telephone call for which the charge varied with elapsed transmission time but not with distance constituted “toll telephone service” within the meaning of
intent of the statute would be frustrated if a new type of service otherwise within such intent were held to be nontaxable merely because charges for it are determined in a manner which is not within the literal language of the statute.” (Rev. Rul. 79-404, 1979-2 C.B. 382.)
Until 2006, the
Neither party has suggested that the exemptions in
Inc. v. United States (2d Cir. 2006) 447 F.3d 190; NRPC, supra, 431 F.3d 374; OfficeMax, Inc. v. United States (6th Cir. 2005) 428 F.3d 583; American Bankers Ins. Group v. United States (11th Cir. 2005) 408 F.3d 1328.)
In June 2006, the IRS issued Notice 2006-50, which stated that in light of the holdings of the five federal circuit court cases, it would no longer collect federal excise taxes on any “long distance” or “bundled” service. “Long distance service” was defined as “telephonic quality communication with persons whose telephones are outside the local telephone system of the caller.” “Bundled service” was defined as “local and long distance service provided under a plan that does not separately state the charge for the local telephone service,” including “both landline and wireless (cellular) service” under plans “that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time.” (Notice 2006-50, 2006-25 I.R.B.
III. Norwalk City Council Ordinance No. 07-1586
On March 20, 2007, the City Council adopted Ordinance No. 07-1586 (the 2007 ordinance). In its statement of purpose, the City Council explained that the City of Norwalk had imposed a utility user tax on telephone communication services since July 13, 1992. For “ease of administration and convenience of the telephone communication service providers,” the City had for many years administered its utility user tax consistently with the administration of the federal excise tax (
excise tax as expressed in IRS Notice 2006-50 “is inconsistent with both the original legislative intent of the City‘s telephone user tax and the manner in which the City has historically imposed its telephone user tax,” and the City Council “wishes to continue to impose the utility user tax on telephone communication services in a manner that is consistent with how it has been historically imposed.” Accordingly, the City Council adopted the following ordinance, which “clarifies and restates the type of telephone service that is subject to the tax without reference to the Federal Excise Tax and does not increase the tax or change or expand the type of telephone services that are subject to the tax“:
“Section 1. Title 3 of the
Norwalk Municipal Code is hereby amended by deleting paragraph D from Section 3.36.060 of Chapter 3.36.“Section 2. Because the provisions of the
Norwalk Municipal Code , as amended by this ordinance, do not alter the amount of the City‘s telephone user tax, do not expand the application of the tax, and are substantially the same as the previous provisions of the Code as they read immediately prior to the adoption of this ordinance, the amendments made by this ordinance shall be construed as continuations of the earlier provisions and not as new enactments.”
The City Council Agenda Report describes the 2007 ordinance‘s “Fiscal Impact” as follows: “None if adopted. However, there is a potential for significant loss of tax revenues to the City if the proposed ordinance is not adopted.”
A. Complaint and First Amended Complaint
Plaintiffs filed the present action on July 29, 2014, and filed a first amended complaint on February 20, 2015. The City demurred to the first amended complaint, and the trial court sustained the demurrer with leave to amend.
B. Second Amended Complaint
Plaintiffs filed the operative second amended complaint on June 29, 2015. It alleged as follows: Prior to 2007, the
The second amended complaint asserted that the City‘s actions gave rise to six causes of action: (1) declaratory and injunctive relief, (2) money had and received, (3) unjust enrichment, (4) writ of mandamus, (5) violation of
C. City‘s Demurrer to Second Amended Complaint
The City demurred to the second amended complaint. On Aрril 6, 2016, the court sustained the demurrer to all causes of action without leave to amend, explaining as follows:
“[Plaintiffs‘] . . . argument is this: [Proposition 62] provides that cities cannot ‘impose’ a general tax unless they submit that tax to the city‘s electorate, which Norwalk did not do in 2007. [Plaintiffs] therefore would conclude the Norwalk tax is invalid. “[Plaintiffs‘] logic is incorrect. Norwalk voters approved [the] 5.5% phone tax in 2003. The City Council‘s 2007 deletion of the federal reference changed an invisible legal detail in an old and voter-approved tax. The deletion did not impose a new tax. [Plaintiffs do] not allege the 2007 deletion had the effect of costing taxpayers more tax dollars. Before and after the 2007 deletion, as [plaintiffs] concedеd in oral argument, the 5.5% tax on monthly cell phone bills remained the same. As far as taxpayers were concerned, then, the deletion had no practical or discernible effect. The Norwalk City Council thus did not ‘impose’ a phone tax in 2007. This claim fails.
“[Plaintiffs‘] constitutional argument likewise fails. [Their] constitutional argument is as follows. Section 2(b) of Article [VIII C] of the California Constitution specifies that no local government may ‘impose, extend, or increase’ any general tax unless voters approved the tax. [Plaintiffs say] Norwalk indeed did ‘impose,’ ‘extend,’ and ‘increase’ this tax in 2007. But Norwalk did not ‘impose’ this tax in 2007, as the previous paragraph established. Nor did it ‘increase’ the tax, because the level and the size of the tax remained exactly the same.
“That leaves us with the third constitutional verb: ‘extend.’ Did the City Council action ‘extend’ the phone tax? The answer is no.
“To construe the word ‘extend,’ it is proper to consult the Proposition 218 Omnibus Implementation Act, which the Legislature passed in response to Prop 218. Our Supreme Court mentioned this statute when interpreting California‘s Constitution. (See Greene v. Marin County Flood Control & Water Conservation Dist. (2010) 49 Cal.4th 277, 290–291 (ultimate constitutional interpretation authority belongs to the judiciary, which may consult a contemporaneous construction of the constitutional provision made by the Legislature, including the Proposition 218 Omnibus Implementation Act).)
“This statutory interpretive aid states that ‘extended’ means a decision by local government ‘to extend the stated effective PERIOD for the tax or fee оr charge, including, but not limited to, amendment or removal of a sunset provision or expiration date.’ (
Government Code 53750, subd. (e) emphasis added.)“The City Council did not extend the stated effective period of the Norwalk cell phone tax in 2007. This tax was a
permanently ongoing tax
when the voters approved it in 2003. So it remained in 2007. The 2007 action did not extend the period of the tax. Nor did the 2007 action extend the tax to more taxpayers or to more tax bills. As far as taxpayers paying tax bills could see in 2007, nothing changed. “[Plaintiffs‘] claims have no legal validity. . . . The demurrer is sustained without leave to amend because [plaintiffs have] made no attempt to suggest [they] can amend [their] pleading to greater effect.”
A judgment of dismissal was entered on April 20, 2016, and notice of entry of judgment was served on April 25, 2016. Plaintiffs timely aрpealed.
CONTENTIONS
Plaintiffs contend that when the City Council adopted the 2007 ordinance, which deleted subsection D from
The City contends the voters approved a 5.5 percent utility user tax, and the 2007 ordinance merely made a minor change to the utility user tax provisions to ensure that the tax approved by the voters in 2003 remained the same. Accordingly, the City Council‘s adoption of the 2007 ordinance did not impose, extend, or increase a tax without voter approval in violation of Propositions 62 and 218.
STANDARD OF REVIEW
“On appeal from an order of dismissal after an order sustaining a demurrer, the standard of review is de novо: we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.” (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) Our review of the trial court‘s interpretation of a statute or constitutional provision is also de novo. (California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, 933–934 (California Cannabis Coalition).)
DISCUSSION
I. The Legal Framework: Propositions 62 and 218
In 1986, California voters passed Proposition 62, which, as subsequently codified in
In 1996, voters passed Proposition 218, which added to the California Constitution the requirement that local governments seek voter approval of new general and special taxes. Proposition 218 provides: “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. A general tax shall not be deemed to have been increased if it is imposed at a
rate not higher than the maximum rate so approved. . . .” (
“A ‘general tax’ is one ‘imposed for general governmental purposes’ ([
II. What Is And Is Not in Dispute
There are several issues on which the parties agree. It is undisputed that the utility user tax is a “general tax” and the City is a “local government” within the meaning of Propositions 62 and 218. It also is undisputed that the 2007 ordinance was adopted by the City Council without voter approval. And, it is undisputed that the 2007 ordinance eliminated the exemption for telephone service not subject to the federal excise tax (
The crux of the parties’ dispute is the effect of the 2007 ordinance—specifically, whether the elimination of the reference to
The City contends that the 2007 ordinance did not make any substantive change to the municipal utility user tax. It asserts that in 2003 the voters approved a 5.5 percent tax on all telephone service billed to City residents, and “[t]his 5.5% percent rate has remained the same for well over a decade and remains unchanged today.” Accordingly, the City urges that while the 2007 ordinance made technical changes to the utility user tax, it did not extend the tax to any telephone service not аlready subject to it.
Before we turn to a consideration of the effect of the 2007 ordinance on the City‘s utility user tax, we briefly address an issue to which the parties devote significant portions of their appellate briefs—the distinctions between the terms “impose,” “extend,” and “increase,” as used in Proposition 218. Although these terms are not synonymous, the differences between them need not detain us here. The key issue before us is whether the
2007 ordinance subjected Norwalk residents to a tax to which they were not already subject under the initiative approved by the voters in 2003. If it did, we need not determine whether such tax was effectuated through an imposition, extension, or increase in order to decide that the 2007 ordinance violated Propositions 62 and 218—and if it did not, the distinctions between the terms are similarly immaterial.
We therefore now turn to the significant question before us: whether the 2007 ordinance established a new tax—i.e., whether it subjected telephone users or plans to a tax to which they previously had not been subject—or instead continued an existing tax already approved by the voters.
A. Legal Standards
” ‘When interpreting a [statute or a] provision of our state Constitution, our aim is “to determine and effectuate the intent of those who enacted the [statute or] constitutional provision at issue.” [Citation.] When, as here, the voters enacted the provision, their intent governs. [Citation.] . . . ’ ” (Paland v. Brooktrails Township Community Services Dist. Bd. of Directors (2009) 179 Cal.App.4th 1358, 1368–1369.)
To determine the voters’ intent, “we first analyze provisions’ text in their relevant context, which is typically the best and most reliable indicator of purpose. (Larkin v. Workers’ Comp. Appeals Bd. (2015) 62 Cal.4th 152, 157; Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 321 [when interpreting voter initiatives, ’ “we begin with the text” ‘].) We start by ascribing to words their ordinary meaning, while taking account
of related provisions and the structure of the relevant statutory and constitutional scheme. (Los Angeles County Bd. of Supervisors v. Superior Court (2016) 2 Cal.5th 282, 293; Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 212 (Bighorn).) If the provisions’ intended purpose nonetheless remains opaque, we may consider extrinsic sources, such as an initiative‘s ballot materials. (Larkin, at p. 158.) Moreover, when construing initiatives, we generally presume electors are aware of existing law. (In re Lance W. (1985) 37 Cal.3d 873, 890, fn. 11 (Lance W.).)” (California Cannabis Coalition, supra, 3 Cal.5th at pp. 933–934.)
B. When Norwalk Voters Passed Measure A in 2003, They Expressed a Clear Intent to Impose a 5.5 Percent Tax on All Telephone Service
Prior to 2003, the City taxed telephone, electric, and gas utility services at the rate of 5.5 percent. In 2003, the City Council agreed to allow the voters to ratify the City‘s continued collection of the utility user tax. Therefore, on July 1, 2003, the City Council adopted Resolution No. 03-40, entitled “A Resolution of the City Council of the City of Norwalk Calling and Giving Notice of the Holding of Special Municipal Election on Tuesday, September 30, 2003, for the Submission to the Qualified Voters of the City a Proposed Ordinance to Ratify Continuing Collection of the City‘s Existing Utility User Tax.” The
That the voters intended by passing Measure A to impose a 5.5 percent tax on all telephone service is supported by all of the following:
Section A of Measure A: Section A stated: “Chapter 3.36 of the
Section C of Measure A: Section C stated: “It is the intent of the voters to apply the provisions of Chapter 3.36 of the Code to the fullest extent permitted by the law to ratify the City‘s previous and continued cоllection of the tax.” (Italics added.) Prior to the enactment of Measure A, the City already had been taxing all telephone service at the rate of 5.5 percent; thus, section C‘s reference to the ”continued collection of the tax” (italics added) indicates that the voters intended to approve a continued 5.5 percent tax on all telephone service.
Proposed Norwalk Municipal Code section 3.36.060, subsection A: Subsection A of section 3.36.060 provided that “[t]here is imposed a tax on the amounts paid for any interstate, intrastate and international telephone communication services, including cellular telephone services . . . at the rate of five and one half percent of the chargеs made for such services.” (Italics added.) The use of “any” when referring to “interstate, intrastate and international telephone communication services” suggests, again, that the voters intended to approve a 5.5 percent tax on all telephone service.
Proposed Norwalk Municipal Code section 3.36.060, subsection D: Subsection D exempted from the proposed
Municipal Code telephone charges “exempt from or not subject to the tax imposed under . . .
Argument in Favor of Measure A: The “Argument in Favor of Measure A” in the 2003 sample ballot told the voters as follows: “Norwalk residents pay a surcharge on telephone, gas, and electric bills. This surcharge, called a Utility Users Tax (UUT), is critical to maintaining the current levels of City services. This money is used for police protection, parks, recreation, senior citizen programming, street repairs and other vital services. Originally instituted at 8% in 1992 to combat a budget crisis, the City Council has gradually reduced the UUT to the current 5-1/2%. [¶] A recent California Supreme Court decision now requires voter approval for the City of Norwalk to continue collecting the UUT. [¶] . . . [¶] Approving Measure A will not increase current taxes one penny; it just continues an existing fee.”
Taken together, the language of the ballot initiative, the language of the proposed law, and the “Argument in Favor of Measure A” all compel the same conclusion—that the voters who enacted Measure A intended to impose a 5.5 percent tax on all telephone service billed to Norwalk residents.
IV. The 2006 Change in Federal Law Did Not Retroactively Change the Meaning of Norwalk Municipal Code Section 3.36.060
Plaintiffs do not disagree that the voters who passed Measure A in 2003 would have understood that Measure A imposed a 5.5 percent tax on all telephone service billed to Norwalk residents. They nonetheless urge that Norwalk‘s tax of long distance and bundled (i.e., combined local and long distance) telephone services, both before and after 2007 was unlawful. We understand plaintiffs’ theory to be as follows: (1) When Norwalk voters approved a municipal telephone tax in 2003, they exempted from taxation any telephone services not taxable under
Although this contention is the linchpin of plaintiffs’ analysis, plaintiffs do not cite any legal authority to support it. We therefore may deem the contention waived. (E.g., Orange County Water District v. Sabic Innovative Plastics US, LLC (2017) 14 Cal.App.5th 343, 383 [” ’ “Appellate briefs must provide argument and legal authority for the positions taken. ‘When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.’ ” [Citation.] “We are not bound to develop appellants’ argument for them. [Citation.] The absence of cogent legal argument or citation to authority allows this court to treat the contention as waived.” ’ [Citations.]“].)
Even if plaintiffs had not waived this argument, we would find it unpersuasive. ” ‘It is a well established principle of statutory law that, where a statute adopts by specific reference the provisions of another statute, regulation, or ordinance, such provisions are incorporated in the form in which they exist at the time of the reference and not as subsequently modified, and that the repeal of the provisions referred to does not affect the adopting statute, in the absence of a clearly expressed intention to the contrary.’ ” (Palermo v. Stockton Theatres (1948) 32 Cal.2d 53, 58–59, italics added.) Thus, because the
Further, as we have said, when interpreting a ballot initiative, our primary purpose is to ascertain and effectuate the voters’ intent. (People v. Park (2013) 56 Cal.4th 782, 796; People v. Briceno (2004) 34 Cal.4th 451, 459; Robert L. v. Superior Court (2003) 30 Cal.4th 894, 901.) Lacking clairvoyant powers, the Norwalk voters cannot have intended to incorporate an interpretation of a federal statute that had not yet been promulgated.
As discussed above, the central purpose of Measure A was to effectuate the “continued collection of a utility users tax as a general tax at a rate not to
Accordingly, we conclude that the 2006 change in the interpretation of federal law did not mean, as plaintiffs suggest, that Norwalk “had unlawfully been collecting a telephone users tax on services exempt from taxation under . . . the 2003 tax ordinance passed by the City‘s voters.” In 2003, and 2007, and every year in between,
V. The 2007 Ordinance Therefore Did Not Impose a New Tax on Telephone Service
Having concluded that the 2006 change in federal law did not retroactively change the meaning of
Plaintiffs urge that AB Cellular LA, LLC v. City of Los Angeles (2007) 150 Cal.App.4th 747 (AB Cellular) compels the conclusion that the 2007 ordinance constituted an unlawful increase in local taxes. We disagree.
In AB Cellular, the Los Angeles City Council adopted an ordinance that, as applied, including through instructions issued by the city‘s tax and permit division, taxed fixed monthly cell
phone fees, but not “airtime” fees—i.e., fees charged for the number of minutes during the billing period that customers used their cellular serviсe to make phone calls. (AB Cellular, supra, 150 Cal.App.4th at p. 757.) Subsequently, after the passage of Proposition 218, the city issued new instructions directing cell phone providers to collect a tax on both fixed monthly fees and airtime charges. (Ibid.) The city projected that the revised instructions would increase 2003 tax revenues by $1 million and 2004 tax revenues by $4 million. (Ibid.)
Cell phone carriers filed a petition for writ of mandate, seeking a declaratory judgment that the revised instructions violated Proposition 218. (AB Cellular, supra, 150 Cal.App.4th at p. 757.) Both the trial court and the Court of Appeal agreed that the revised instructions were not permitted by Proposition 218. (Id. at p. 758.) The Court of Appeal explained that Proposition 218 required voter approval of all tax “increases,” which included revisions in the methodology by which a tax is calculated if the revision results in an increased tax being levied on any person. “The word ‘calculated’ denotes the math behind a tax. The dictionary definition of ‘revision’ is ‘alteration.’ In practical terms, a tax is increased if the math behind it is altered so that either a larger tax rate or a larger tax base is part of the calculation.” (Id. at p. 763, fn. omitted.) Accordingly, because the revised instructions changed the taxing methodology in a manner that increased city revenue without voter approval, they violated Proposition 218. (Id. at p. 767.)
Applying AB Cellular‘s analysis to the present case compels the conclusion that the adoption of the 2007 ordinance did not violate Proposition 218. Under AB Cellular, a revision to the methodology by which а tax is calculated constitutes a tax
“increase” only if it increases the amount levied on taxpayers. The AB Cellular approach is a practical one: It asks not simply whether a taxing agency has revised the methodology by which a tax is calculated, but also whether that revised methodology has resulted in a
DISPOSITION
The judgment is affirmed. The City is awarded its аppellate costs.
CERTIFIED FOR PUBLICATION
EDMON, P. J.
We concur:
LAVIN, J.
BACHNER, J.*
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.