PROCEDURAL BACKGROUND
On February 6, 2017, plaintiffs filed a complaint against the County, requesting declarations that (1) the tax proposed by Measure AI was a special tax subject to article XIII C's supermajority vote requirement; (2) because the proposed tax increase received less than two-thirds voter approval, it was defeated; and (3) that measures like Measure AI and its companion advisory measure, Measure AJ, are schemes meant to circumvent the California Constitution's supermajority requirements.
On March 23, 2017, the County filed a demurrer to plaintiffs' complaint.
On April 3, 2107, plaintiffs filed a motion for preliminary injunction.
On June 29, 2017, following a hearing, the court sustained the demurrer without leave to amend and denied plaintiffs' motion for a preliminary injunction.
On July 20, 2017, the court entered an order of dismissal.
On July 24, 2017, plaintiffs filed a notice of appeal.
On December 7, 2017, we granted the unopposed application of Howard Jarvis Taxpayers Association (HJTA) for leave to file an amicus curiae brief in support of plaintiffs' position.
I. Background
A. Ballot Measures AI and AJ
Measures AI and AJ appeared on the November 8, 2016 ballot in Mendocino County. Measure AI was approved by 63.04 percent of the voters and Measure AJ was approved by 86.54 percent of the voters. We briefly summarize the measures' provisions and related information contained in the Sample Ballot and Voter Information Pamphlet (Pamphlet).
1. Measure AI
The text of Measure AI in the Pamphlet provided: "Shall Chapter 6.32 be added to the Mendocino County Code, placing a business tax on cannabis cultivation and dispensaries (not to exceed 10% of gross receipts) and cannabis distribution, delivery, manufacturing, nurseries, testing laboratories and transportation businesses ($2,500.00 per year, to be adjusted in accordance with Consumer Price Index increases) of medical and nonmedical cannabis where legalized by state law,
The Impartial Analysis of Measure AI in the Pamphlet described the measure as "a general tax," placed on the ballot by the Board of Supervisors, which must be adopted by a majority of the voters.
The argument in favor of Measure AI stated, inter alia: "A 'YES' vote will make marijuana businesses operating in the unincorporated areas of Mendocino County pay their fair share to support County services." The proponents further argued that the measure "protects the environment and requires marijuana businesses to pay long overdue funding to support general County services, including public health, public safety, and environmental cleanup. ... [¶] ... [¶] A 'YES' vote on Measure AJ (the companion advisory measure) will tell the Board of Supervisors that you want a majority of the proceeds from the 'Marijuana Tax' to be spent for Marijuana Enforcement, Mental Health Services, Repair of County Roads, and Fire and Emergency Medical Services. [¶] Vote 'YES' on Measure AI ... to restore tax fairness and fund County services."
2. Measure AJ
The text of Measure AJ in the Pamphlet provided: "Advisory Vote Only. If Mendocino County adopts business license taxes on cannabis businesses by the adoption of the measure adopting Chapter 6.32, Measure AI, should the County use the majority of that revenue for funding enforcement of marijuana regulations, enhanced mental health services, repair of county roads, and increased fire and emergency medical services?"
The "Impartial Analysis" of Measure AJ stated, inter alia: "The Elections Code provides that a county may seek an advisory measure to allow voters to voice their approval or disapproval of a ballot proposal. This ballot measure seeks voter approval for spending the general tax dollars that would be generated if the voters approve Measure AI, as proposed by the Board of Supervisors. Measure AI is a general tax.... [¶] If the voters approve Measure AJ, it would serve to advise the Board of Supervisors that the voters want a majority of the revenue generated by the Cannabis Business Tax, Measure AI, for enforcement of marijuana regulations, enhanced mental health services, repair of county roads, and increased fire and emergency services. [¶] This is an advisory vote only. The results of this advisory vote will in no manner be controlling of the Board of Supervisors."
The argument in favor of Measure AJ stated, inter alia: "Measure AJ is your opportunity to tell the Board of Supervisors how you want proceeds from Measure AI, the 'Marijuana Tax,' to be spent. [¶] .... The 'Marijuana Tax' is a general tax and can be spent for general county government purposes. [¶] Measure AJ asks the voters if they want a majority of revenue from the 'Marijuana Tax' to be spent for the following services: [marijuana enforcement, mental health, county road repair, and fire and emergency medical services]. [¶] ... [¶] Vote 'YES' on Measure AJ. Tell this and future Boards of Supervisors to spend the 'Marijuana Tax' money to pay for critical County services."
B. Trial Court's Ruling on the County's Demurrer
In granting the County's demurrer without leave to amend, the trial court rejected plaintiffs' argument that the passage of Measure AI by a simple majority of voters was insufficient under article XIII C because the purported
Specifically, the court found that the language of Measure AI made clear "that the tax was designed as a general tax and not a special tax. There is nothing in the ordinance that requires the Board of Supervisors to make specific expenditures with the tax revenue. [¶] The advisory measure [Measure AJ] adopted by the voters is just that, advisory. Advisory measures, even those related to the expenditure of tax revenues, are permissive under the law and merely allow the legislative body to poll it[s] constituents without enacting any law. The legislative body is not bound by such advisory measures. [Citing Howard Jarvis Taxpayers Assn. v. Padilla (2016)
The court also found that plaintiffs' references to certain provisions of Proposition 26 "reflect[ed] a complete misunderstanding as to its meaning and application to this case. There is no dispute that fees adopted by the legislative body must be reasonably related to the services provided. In this case, plaintiffs are not challenging an adoption of a fee; they are objecting to the imposition of a tax. The provision of Proposition 26 referenced in plaintiffs' moving papers has no bearing on the adoption of a tax."
Finally, because plaintiffs had "conceded that there are no contested facts in this case" and because their "interpretation of the ordinance is not supported by any legal theory[,] leave to amend would be futile." The court also denied plaintiffs' motion for a preliminary injunction.
II. Standard of Review
"An appellate court must independently decide questions of law without deference to the trial court's conclusions. [Citation.] A demurrer tests only the sufficiency of the pleadings and, as such, raises only a question of law. [Citation.] Also, a dispute over the meaning of a constitutional provision presents a question of law. [Citation.]" ( Neilson v. City of California City (2005)
"In reviewing a demurrer that is sustained without leave to amend, an appellate court assumes the truth of (1) all facts properly pleaded by the plaintiff, (2) all facts contained in exhibits to the complaint, (3) all facts that
"The reviewing court must reverse the judgment if (1) the complaint, liberally construed, has stated a cause of action under any possible legal theory; or (2) the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citations.
III. Measure AI is Not a Special Tax
A. Legal Background
In 1978, California voters passed Proposition 13, which limited the ability of local governments to raise taxes. Proposition 13, which added article XIII A to the California Constitution, included the following provision: "Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district." (Art. XIII A, § 4.)
In City and County of San Francisco v. Farrell (1982)
In 1986, California voters approved Proposition 62, which added Government Code sections 53720 through 53730. Government Code section 53721 provides: "All taxes are either special taxes or general taxes. General taxes are taxes imposed for general governmental purposes. Special taxes are taxes imposed for specific purposes." Government Code section 53722 provides that local government may not impose a special tax unless the tax is submitted to the electorate and passed by two-thirds of voters. Under Government Code section 53723, a general tax may not be imposed unless the tax is submitted to the electorate and is passed by a majority vote.
In Neecke v. City of Mill Valley (1995)
We also rejected the plaintiff's claim that a court is required to "ascertain whether a tax, the proceeds of which are deposited into a city's general fund, was enacted in order to circumvent Proposition 13 and then (if the court concludes that it was) to invalidate the tax. The Farrell court was aware of the potential that its decision provided for cities to compensate for Proposition 13's limitation on property taxes by enacting 'general fund taxes.' [Citations.]" ( Neecke , supra ,
A few years later, in Coleman , supra ,
The court in Coleman stated that the two ballot measures were obviously "closely related to each other: One increased the sales tax; the other expressed the voters' preference for how new tax revenue should be spent. This relationship, however, does not reflect such inseparability that as a matter of law the two measures must be considered as one. On the contrary, the measures were not legally connected. The spending priorities in Measure A were not compulsory. The County was free to spend Measure B revenue on any and all County purposes without restriction. And the validity of neither measure was dependent on passage of the other." ( Coleman , supra ,
Finally, the Coleman court adopted our conclusion in Neecke that courts generally "must determine the validity of legislation by its own terms and not the motives of, or influences upon, the legislators who enacted it." ( Coleman , supra ,
Article XIII C distinguishes between a "general tax," defined as "any tax imposed for general governmental purposes" and a "special tax," defined as "any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund." (Art. XIII C, § 1, subds. (a) & (d).) A general tax requires approval by a majority of the electorate. (Art. XIII C, § 2, subd. (b).) A special tax requires approval by two-thirds of the electorate. (Art. XIII C, § 2, subd. (d).) Proposition 218 thus added language to the California Constitution not contained in Proposition 62, indicating that a "special tax" includes "a tax imposed for specific purposes, which is placed into a general fund." (Art. XIII C, § 1, subd. (d).)
After the passage of Proposition 218, " '[a] tax is general only when its revenues are placed into the general fund and are available for expenditure for any and all governmental purposes. [Citation.]'
B. Legal Analysis
In the present case, plaintiffs argue that the language Proposition 218 added to the definition of "special tax"-i.e., "any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund" (art. XIII C, § 1, subd. (d) )-supersedes Proposition 62 and, consequently, the holding in Coleman (which, though decided in 1998, addressed a tax imposed before passage of Proposition 218). According to plaintiffs, this new definition of special tax applies to Measure AI because, through the use of an advisory measure, the voters in fact enacted a tax that was placed in the general fund, but was imposed for the specific purposes set forth in Measure AJ.
First, the "essence" of a special tax remains the same after the passage of Proposition 218: a tax is "special" when " 'its proceeds are earmarked or dedicated in some manner to a specific project or projects.' [Citation.]" ( Bay Area Cellular Telephone Co. v. City of Union City (2008)
Second, contrary to plaintiffs' and amicus curiae HJTA's claim, the inclusion of companion Measure AJ on the ballot with Measure AI does not alter the fact that Measure AI proposed a general tax. HJTA asserts that "it is clear that Proposition 218's expanded definition of 'special tax' is intended to capture schemes like the County's here, where through an 'advisory' measure, the County indicates to voters the 'specific purposes' of a tax that will be 'placed into a general fund.' ( [A]rt. XIII C, § 1[, subd.] (d).)" HJTA cites in support of this claim cases stating that Proposition 218 was enacted " 'to close government-devised loopholes in Proposition 13' " and " 'to reform the law governing local government's imposition of revenue generating devices other than special taxes.' " ( Moore v. City of Lemon Grove (2015)
The text of Measure AJ, however, plainly stated at the outset that it was an "[a]dvisory vote only." The Impartial Analysis informed voters that this advisory measure "would serve to advise the Board of Supervisors that the voters want a majority of the revenue generated by" Measure AI to be spent in certain ways, but also that "[t]his is an advisory vote only. The results of this vote will in no manner be controlling of the Board of Supervisors." In addition, the argument in favor of Measure AJ told voters that this was their opportunity to tell the Board of Supervisors how they wanted
The two companion measures in this case, like those discussed in Coleman , were "closely related to each other[.] This relationship, however, does not reflect such inseparability that as a matter of law the two measures must be considered as one," given that the "County was free to spend [the revenue from the non-advisory measure] on any and all County purposes without restriction." ( Coleman , supra ,
Hence, because Measure AJ did not in any way limit the County's ability to spend the proceeds collected under Measure AI, the tax necessarily and by its terms remained a general tax. (See Coleman , supra ,
Moreover, to accept plaintiffs' and HJTA's claim that the County improperly used Measure AJ to avoid the supermajority vote required on a special tax would, as the Neecke and Coleman courts explained, "violate the well-established rule that, except in certain 'rare circumstances' [citation], '... the validity of legislative acts must be measured by the terms of the legislation itself, and not by the motives of, or influences upon, the legislators who enacted the measure. [Citations.]' " ( Neecke , supra ,
In sum, Proposition 218 did not alter the definition of a general tax. A tax is general " 'when its revenues are placed into the general fund and are available for expenditure for any and all governmental purposes. [Citation.]' [Citation.]" ( Building Industry , supra ,
IV. Measure AI is Not a Fee
In the alternative, plaintiffs contend the tax imposed by Measure AI "is not a tax but is an illegal 'fee' imposed on legal medical cannabis businesses in the guise of a 'general tax,' solely for the County-licensed 'privilege' of conducting a legal cannabis business." According to plaintiffs, this disguised fee "was never justified and calculated as a proportionate fee related to actual County costs." Plaintiffs also claim the court improperly failed to place the burden of proof on the County to demonstrate that the so-called tax was not in fact a fee.
"(e) [The post-Propositions 13 and 218] escalation in taxation does not account for the recent phenomenon whereby the Legislature and local governments have disguised new taxes as 'fees' in order to extract even more revenue from California taxpayers without having to abide by these constitutional voting requirements. ...
"(f) In order to ensure the effectiveness of these constitutional limitations, this measure also defines a 'tax' for state and local purposes so that neither the Legislature nor local governments can circumvent these restrictions on increasing taxes by simply defining new or expanded taxes as 'fees.' "
Proposition 26 also amended section 1 of article XIII C to define a "tax" as "any levy, charge, or exaction of any kind imposed by a local government," except when specific exceptions apply, and to provide that "[t]he local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax...." (Art. XIII C, § 1, subd. (e)(7).)
Proposition 26 thus addressed the problem of state and local governments disguising taxes as fees, with the burden on the government to prove that the so-called fee is not in fact a tax. Here, the County never claimed that Measure AI, which by its terms imposed a tax, was anything other than a tax. We agree with the trial court that plaintiffs' reliance on Proposition 26 "reflects a complete misunderstanding as to its meaning and application to this case."
DISPOSITION
The order of dismissal is affirmed. Costs on appeal are awarded to the County.
We concur:
Stewart, J.
Miller, J.
Notes
On November 22, 2017, we granted the County's unopposed request for judicial notice of the Sample Ballot and Voter Information Pamphlet for the November 2016 Mendocino County election, the full text of Mendocino County Ordinance No. 4361 (Cannabis Business Tax), the text of the official ballot pamphlet for Proposition 218, and the final vote totals on Measure AI and Measure AJ from the November 2016 Mendocino County election. (See Evid. Code, §§ 452, 459.)
The ordinance itself provides: "The Cannabis Business Tax is enacted solely for general governmental purposes for the County and not for specific purposes. All of the proceeds from the tax imposed by this Chapter shall be placed in the County's general fund and used for purposes consistent with general fund expenditures of the County." (Mendocino County Code, § 6.32.020.)
In the sample ballot for Proposition 218, the legislative analyst's brief analysis of Proposition 218's effect on local taxes was as follows:
"Taxes
"Current Practice . Local governments typically use taxes to pay for general government programs, such as police and fire services. Taxes are 'general' if their revenues can be used to pay for many government programs, rather than being reserved for specific programs. Proposition 62-a statutory measure approved by the voters in 1986-requires new local general taxes to be approved by a majority vote of the people. Currently, there are lawsuits pending as to whether this provision applies to cities that have adopted a local charter, such as Los Angeles, Long Beach, Sacramento, San Jose, and many others.
"Proposed Requirements for Taxes . The measure states that all future local general taxes, including those in cities with charters, must be approved by a majority vote of the people. The measure also requires existing local general taxes established after December 31, 1994, without a vote of the people to be placed before the voters within two years." (Ballot Pamp., Gen. Elec. (Nov. 5, 1996) analysis of Prop. 218 by Legis. Analyst, pp. 3-4.)
In addition, section 5 of Proposition 218 provided that "[t]he provisions of this act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent."
Plaintiffs seem to misunderstand the basic definition of "special purposes" in Proposition 218 when they also assert in their opening brief, without any legal support, that the ordinance approved by Measure AI "defines its specific purpose as imposing 'a tax on the privilege of cultivating dispensing, producing, [etc.] medical cannabis products.' " (Quoting Mendocino County Code, § 6.32.030.) The relevant definition of "special purposes," however, relates to the particular projects to which the tax revenue is dedicated, not the category of people on whom the tax is imposed. (See Art. XIII C, § 1, subd. (d); Neecke , supra ,
Although we believe the language of Proposition 218 makes its meaning clear (see Neilson , supra ,
We likewise find unpersuasive HJTA's argument that "Proposition 218's expanded definition of 'special tax' would be nonsensical if not applied to an advisory measure specifying the use of a tax placed into the general fund. For there is no other way a tax 'placed into a general fund' can be 'imposed for specific purposes' [Citation.]" Again, HJTA's argument would require us to improperly go beyond "the terms of the legislation itself" and related legislative materials and attempt to infer "the motives of, or influences upon the legislators who enacted the measure." (Neecke , supra ,
Regardless of any theories about the intent of the drafters of Proposition 218, what the initiative and related ballot materials did not indicate was any intent to turn an advisory measure into a binding law setting forth the special purposes for which a general purpose tax proposed in another measure will be used.
We also find meritless plaintiffs' additional contentions that Measure AI was a "sin tax" and that it violated equal protection. Plaintiffs provide no legal authority in support of the sin tax claim, merely asserting that Measure AI proposed a "special sin tax," which was not approved by a supermajority of the voters. We decline to address this unsupported contention. (See, e.g., County of Butte v. Emergency Medical Services Authority (2010)
As to the contention that Measure AI violates equal protection, a claim not raised in the trial court, plaintiffs make the bare-and somewhat incomprehensible-argument that Measures AI and AJ amount to "defamatory allegations of a community of now-legal cannabis farmers and distributors [sic ] that has no rational basis in the evidence before the court." They then assert that the County "has shown no reasonable basis for imposing the Medical Cannabis Business Tax on certain legal businesses and farmers while exempting all others; they have shown no basis whatsoever. That is both arbitrary and grossly unfair." (Citing Pennell v. City of San Jose (1986)
"[T]he threshold for tax legislation to pass constitutional muster against an equal protection challenge is very low. 'The party who challenges the constitutionality of a classification in a tax statute bears a very heavy burden; it must negate any conceivable basis [that] might support the classification.' [Citation.]" (Borikas v. Alameda Unified School Dist. (2013)