When Is A Tax Just A Tax?

SEPT. 24, 2010


When is a tax just a tax, and a fee just a fee? A November ballot initiative seeks to answer the question by defining both a tax and a fee, and then require both the legislature and voters to pass all taxes with a two-thirds vote.

“Currently the tendency is to disguise taxes as fees, which lowers the vote threshold to majority vote, instead of the two-thirds vote required for all taxes,” said Beth Miller, YES on Prop 26 campaign and Stop Hidden Taxes spokeswoman. “Especially at the local level, cash-strapped programs seek to raise money, and prefer to call what is a tax, a fee, in order to get around the vote.”

Proposition 26, called the “Supermajority Vote to Pass New Taxes and Fees Act,” would clear this up and end the fuzzy practice of fee increases without specific services attached. “We are just seeking to close the loophole,” said Miller. “With a fee, you usually get a service in return. In exchange for the fishing license fee, the applicant also gets a fishing license. Where this starts to get fuzzy are things like the extra fees on marriage licenses that pay for domestic violence programs in the state. This is a stretch.”

Titled “Stop Polluter Protection,” the opponents state “Prop 26 was placed on the ballot by the oil, tobacco, and alcohol industries to stick ordinary taxpayers with the bill for the environmental, health and safety hazards they cause. Prop 26 would amend the Constitution, requiring a 2/3 vote, rather than simple majority, to enact fees on industries that pollute our air, dirty our water, and endanger our health.”

Miller said, “The absurd charge that proposition 26 will endanger our health, is primarily because the government will be unable to tax things like unhealthy foods, candy, snacks and the like, and put the money into programs within health budgets.”

Ballotpedia lists the official Proposition 26 summary of the initiative:

  • “Requires that certain state fees be approved by two-thirds vote of Legislature and certain local fees be approved by two-thirds of voters.
  • “Increases legislative vote requirement to two-thirds for certain tax measures, including those that do not result in a net increase in revenue, currently subject to majority vote.

NO on Prop 26 campaign spokesman Lenny Goldberg said, “If voters really want to support the free market and a truly conservative position of hating taxes, vote NO on Proposition 26.”

Goldberg was critical of the Prop 26 argument using the nexus of fees and services, and called it “questionable.”  Goldberg said that the Prop 26 campaign posted a list of specific industry examples of fees on services on its website, and then removed it.

“Their list of examples are of fees that will immediately become taxes,” he said. “What happens when a promoter holding an event at an arena charges a fee to cover the traffic management on behalf of public safety? Will this also become a tax that requires a two-thirds vote of the people?” Goldberg called this “a necessary fee.”

“The issue is much bigger than just fees becoming taxes,” said Goldberg. “We need to narrow this down to have a discussion of the true nexus.”

The NO on Proposition 26 website states, “Companies like Chevron and Phillip Morris don’t want to be held responsible for the harm they cause. Prop 26 would cost the state $ billions in revenue annually – blowing an immediate $1 billion hole in next year’s budget – leading to even deeper cuts to education, health services, and public safety. Prop 26 would also weaken environmental, consumer, and health safeguards and starve local government services of badly needed revenue.”

Goldberg said the costs associated with pesticide controls and hazardous waste cleanup are born from fees. “The CalEPA is run entirely on fees,” he said.

The Legislative Analyst’s Office wrote in its report on the effects of Proposition 26, “The change in the definition of taxes would not affect most user fees, property development charges, and property assessments. This is because these fees and charges generally comply with Proposition 26’s requirements already, or are exempt from its provisions. In addition, most other fees or charges in existence at the time of the November 2, 2010 election would not be affected unless:

  • The state or local government later increases or extends the fees or charges.
  • The fees or charges were created or increased by a state law—passed between January 1, 2010 and November 2, 1010—that conflicts with Proposition 26.”

The LAO explained that there are several different types of fees imposed by state and local governments:

User fees—such as state park entrance fees and garbage fees, where the user pays for the cost of a specific service or program.

Regulatory fees—such as fees on restaurants to pay for health inspections and fees on the purchase of beverage containers to support recycling programs. Regulatory fees pay for programs that place requirements on the activities of businesses or people to achieve particular public goals or help offset the public or environmental impact of certain activities.

Property charges—such as charges imposed on property developers to improve roads leading to new subdivisions and assessments that pay for improvements and services that benefit the property owner.

Proponents say that any state law adopted between Jan. 1, 2010 and Nov. 2, 2010 that conflicts with Proposition 26 would be repealed one year after the proposition is approved. But this repeal would not take place if two-thirds of each house of the Legislature passed the law again.

“This is a fatal flaw in the measure,” said Goldberg. “It even reverses the gas tax swap. This should be a user fee.”

The LAO report stated, “The state shifted about $1 billion of annual transportation bond costs from the state’s General Fund to its fuel tax funds.” But because this was approved only with a majority vote in both the Senate and Assembly, it could be repealed in November 2011, unless the legislature votes on it again, and passes it with a two-thirds vote.

“They’re making false statements about Prop. 26’s impacts,” Maureen Gorsen,a former general counsel for CalEPA and former director of the Department of Toxic Substances Control, said in a press release Miller provided. “Prop. 26 does nothing to affect the status of California’s existing and legitimate environmental regulatory fees, nor the liability provisions of environmental laws.”

According to Miller, Gorsen refuted the “unfounded allegations made by Prop. 26 opponents regarding the measure’s impact on California’s environmental protections and our ability to hold polluters accountable for the harm they cause.”

Miller also rejected the notion that Prop. 26 would somehow protect polluters from paying for any environmental damage they cause, and addressed the strict liability provisions in laws such as the Oil Spill Response and Prevention Act, in addition to numerous other California statutes that hold polluters accountable.

The LAO warns, “Over time, we estimate that it could reduce government revenues and spending statewide by up to billions of dollars annually compared with what otherwise would have occurred.”

But Miller says, “Proposition 26 would force elected officials to be honest. Call it a tax, put it on the ballot and vote on it.”

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