San Diego has had budget problems for many years. One step that San Diego used to balance its budget was ruled an illegal tax this pat week by a court.
San Diego charges a collection fee on its business tax. The city says its to cover mailing and handling costs. Fees don’t need approval by voters; taxes do. Two landlords filed a lawsuit claiming the fee was an illegal tax (the fee was never approved by San Diego voters).
The Court agreed with the landlords, noting:
Whereas before the enactment of the Resolution a portion of the Business Tax proceeds were necessarily expended on the cost of administering the Business Tax program and collecting the tax, the imposition of the levy raised funds to pay for those costs, thereby permitting all of the Business Tax proceeds to be deposited in the general fund for expenditure on any and all governmental purposes. Thus, in practical effect, the levy is an increase in the Business Tax and therefore an increase in a general tax.
The Tax Foundation filed an amicus curiae brief on the case, and they were pleased with the ruling.
“San Diego wanted more revenue. Rather than just going to voters, they chose to play this definitions game,” said Joseph Henchman, tax counsel for the Tax Foundation in Washington, D.C., which filed a brief in support of getting rid of the fee. “To us, it’s such an obvious issue of trying to mislabel something that is clearly a tax.”