The California Court of Appeals upheld a District Court ruling that the City of Los Angeles increase in their tax on cellular phone service was invalid. The City will likely appeal the decision to the State Supreme Court. The case is interesting because the Court told California cities that if you change the methodology of a tax, you need to submit it to the voters under Proposition 218.
The decision involves two issues: Proposition 218 and the methodology used in the tax. Proposition 218, passed by the voters in 1996, states that voters must approve all new taxes (and extensions of existing taxes) by a majority vote (a 2/3 vote is required for “special” taxes). As the Court noted, “In 1997, the Legislature passed the Proposition 218 Omnibus Implementation Act (Omnibus Act) (Gov. Code, § 53750 et seq.) and, in Government Code section 53750, subdivision (h)(1)(B), provided that a tax increase occurs when a decision by an agency revises the methodology by which a tax is calculated and the revision results in increased taxes being levied on any person or parcel. [footnote omitted]”
The methodology of the tax changed in 2002 after Congress passed the Mobile Telecommunications Sourcing Act. The City of Los Angeles felt that, “…it had the authority to unilaterally impose the cell tax on all airtime and thereby increase cell taxes.”
The City argued that the goal was to have the tax cover everything permissible; given that the law changed, it was the City’s right to change the methodology of the tax. The Court noted that the City could do this…if they submitted the change to the voters, as per Proposition 218. “And if Proposition 218 had not passed, the City could collect an increased cell tax based on the evolved constitutional parameters. But Proposition 218 was passed, and it arrested the cell tax’s maturation over time. This restriction on local tax authority is of course characterized by the City as an unreasonable policy that is sure to create numerous administrative headaches. This fear is unjustified.”
The Court’s conclusion is worth printing in full:
“In sum, the City wants us to interpret Proposition 218 so that it permits a fluctuating local government tax if the fluctuation is due to expanding constitutional boundaries. The voters of California stand in the City’s path. They demanded the right to approve increased local taxes after finding that such increases “threaten . . . the California economy.” We are obligated to uphold that right and adhere to that finding despite the City’s protestations. To be sure, the City must be credited for offering thoughtful arguments on a complex issue, but those arguments cannot carry the day, which leaves us to but one conclusion: The trial court properly granted the carriers’ petition for writ of mandate.”
Appeals Court Decision: AB Cellular LA, LLC v. City of Los Angeles, B185373
