Updated: Dec 7, 2021
We’ve lifted up the work of SLoGLaw Blog contributors Rich Briffault and Erin Scharff on punitive pre-emption in earlier posts of this blog, and Sarah Swan provided a troubling case study out of Florida where the state tried to authorize the Governor and his handpicked Cabinet to reach in to local law enforcement budgets.
Now comes an example out of California that shows the malicious result when industry (in this case, Big Sugar) gets enmeshed in undermining the imperio home rule powers that are a crown jewel in the Golden State’s local government law regimen.
The California Sales and Use Tax Law (SUTL) imposes a tax by the State on the sale of tangible personal property, and a use tax on purchases. Cities and counties may adopt additional local sales and use taxes, but the Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) a 1956 law, requires such local taxes to contain provisions identical to SUTL. Bradley-Burns contemplates a uniform, integrated system of city and county taxes, where local governments are given authority to impose sales and use taxes as a way of raising additional revenue, and cities are furnished with a plan that relieves them of operating their own tax system. Sales and use taxes do not apply to food sales; but carbonated beverages are not classified as food products, and so they are subject to sales and use taxes. California’s Department of Tax and Fee Administration collects and administers taxes permitted under SUTL, and a city that imposes its own sales and use tax must contract with the State Department to collect the tax.
In 2018, following similar actions by charter cities including Berkeley, San Francisco, Oakland and Albany, another charter city, Santa Cruz, adopted Resolution NS-29-419 in its City Council, which put on the local ballot for the November 2018 election a measure that would have imposed a one-and-a-half cent per ounce tax on sugar sweetened beverages (SSBs) sold in the city. In the City of Stockton, a health equity non-profit collected over 6000 signatures, petitioning the City Council there to do the same.
Both cities were acting on the public health data. SSBs are a known factor in development of obesity, diabetes and other chronic diseases; consumption by children can create lifelong health challenges. The US is behind other nations including Chile, Mexico, the Philippines, Saudi Arabia, South Africa, Sri Lanka, Thailand, and the United Arab Emirates, each of which have SSB taxes.
Past battles over SSB taxes have been waged by Big Sugar in the face of taxes or portion-sized based bans imposed by state and local governments. In the US, local governments that tried to raise revenue and deter consumption have lost at the ballot box, in city councils and in court challenges, including a high profile 2014 loss by Mayor Bloomberg of New York on administrative law grounds following a ban on “super-sized” SSBs by the New York City Department of Health. Philadelphia is a rare success.
Starting in 2017, four states rejected and four passed laws preempting local SSB taxes. California was one state where Big Sugar won. In 2017, the beverage industry circulated a statewide proposition in California, the Tax Fairness Transparency and Accountability Act of 2018, which would have imposed a constitutional supermajority voter approval of all new local tax measures. Industry agreed to withdraw the petition in exchange for passage by the Legislature of AB 1838, a preemption that placed a moratorium on local government efforts to tax groceries until 2031, and explicitly included carbonated and non-carbonated beverages in the definition, conflicting with the SUTL definitions. The new measure also contained a penalty provision, which terminated the Department of Tax and Fee Administration’s obligation to collect sales and use taxes under Bradley-Burns for any city that imposed a tax on groceries, including SSBs.
Governor Brown’s signing statement for the bill noted that of 482 California cities, only four were contemplating the SSB tax, but all would be prevented from raising revenues by local governments not just for twelve years, but potentially permanently, had the beverage industry succeeded on the constitutional amendment. The compromise, the Governor noted, came as mayors and county officials petitioned for relief from the specter of an industry-engineered permanent supermajority popular vote to impose any new local taxes.
Santa Cruz raises one quarter of its general revenues through sales and use taxes. The AB 1838 sanction would have devastated its budget, and the City Council withdrew the measure from the 2018 ballot; Stockton never got as far as placing it on their ballot. The advocates, including Santa Cruz Council member Martine Watkins, and Cultiva La Salud, a health equity non-profit, took the matter to court.
In a decision on October 1 of this year, the Superior Court in Sacramento ruled in their favor. Brushing aside standing and ripeness issues, it ruled the penalty provision was an unconstitutional violation of the California Home Rule provision, noting
[The drafters of AB 1838] added a carefully drafted penalty provision targeted directly at charter cities to discourage them from exercising their constitutional home rule authority to impose taxes on sugary beverages. This penalty only applies to a “local agency” that imposes a tax on “groceries” in contradiction to Revenue and Taxation Code section 7284.12 and only when “a court of competent jurisdiction has determined [that] ... [t]he tax, fee, or other assessment is a valid exercise of a city’s authority under Section 5 of Article XI of the California Constitution with respect to the municipal affairs of that city.” (Rev. & Tax. Code § 7284.12, subd. (f).) In other words, the penalty only applies after a court has determined that a charter city has properly imposed a tax under its constitutional home rule authority.
Let’s take this in. AB 1838 is a preemption designed to punish municipalities for levying taxes that are within their California Home Rule power. The instrument for punishment is Bradley-Burns, a tax administration bill that is not designed to grant any discretion to the Department of Tax and Fee Administration, but only empower it to act as a passthrough to streamline and consolidate tax collection and administration. And the penalty applies only where a court has determined that the challenged tax is a valid exercise of home rule powers!
Here are a few questions: would Bradley-Burns have been enacted if the California Legislature thought it would be used to bludgeon local governments into declining to exercise their home rule powers? How did Big Sugar/the beverage industry become so powerful in California that it can manipulate votes on referendum propositions, and the Governor and 482 mayors are powerless to stop them? What’s the state uniformity interest here, an essential element in preemption analysis? And, if a California appeals court decides to junk the case on ripeness or standing grounds, what’s going to prevent Big Sugar from bringing their act, and this Act, to a statehouse near you?
Chertoff is a Board Member of ChangeLab Solutions, a nonpartisan, nonprofit organization which, with the American Heart Association, supported the Santa Cruz lawsuit. The views expressed are those of the author alone.