Gavin Howe
California has a long history of requiring supermajority approval for tax increases. For the last forty years, California has required that new taxes be approved by a two-thirds supermajority in a general election to pass. However, in 2017, the California Supreme Court's decision in California Cannabis Coalition v. City of Upland sparked debate about whether the supermajority requirement applied to local special taxes introduced by voter initiative. This has led to a wave of litigation challenging the supermajority requirement, with some lower courts ruling that certain tax measures proposed by citizen groups or voter initiatives only require a simple majority. The California Supreme Court has declined to review these lower court decisions, leaving the supermajority requirement in a state of uncertainty.
| Characteristics | Values |
|---|---|
| Law | Proposition 26 |
| Year | 2010 |
| Voter Approval | 56.5% |
| Opposition Vote Approval | 43.5% |
| Voter Initiative Power | Yes |
| Supermajority Requirement | 66.67% (two-thirds) |
| Previous Majority Vote | 50% |
| Type of Taxes | Special taxes |
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What You'll Learn
California's Proposition 26
Proposition 26 was primarily funded by the oil, tobacco, and alcohol industries, which stand to benefit financially from its passage. The proposition was endorsed by several organizations, including the California Nations Indian Gaming Association, the Los Angeles Urban League, and several Native American tribes. The total contributions for and against the proposition amounted to approximately $150 million.
The proposition was also referred to as California's "Stealth Initiative" because it would have fundamentally changed the way a large percentage of state and local government regulatory programs are financed. It would have mandated that many fee systems designed to fund public health, safety, and environmental protection programs could only take effect if authorized by a two-thirds supermajority vote.
Supporters of Proposition 26 argued that it would close a tax loophole and prevent fiscal abuse by the government. They claimed that politicians were disguising taxes as fees to pass or increase them with a simple majority vote instead of the two-thirds majority required by law. However, opponents of the proposition argued that it would present a danger to necessary government programs and protect polluters and corporations from paying for the harm they cause.
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Proposition 218
In California, Proposition 218, also known as Article XII C Voter Approval For Local Tax Levies, was approved by voters in November 1996 with 56.5% of the vote. The proposition significantly altered the way local governments finance their operations.
Prior to Proposition 218, local governments in California typically raised new funds by imposing new or increased assessments, fees, or taxes. In most cases, residents or property owners could object to these new charges at a public hearing or during a statutory protest procedure, but these charges were not put to a vote. This meant that locally elected governing bodies held most of the power over local revenue-raising.
The proposition's provisions apply to a relatively small subset of local government revenues, and it is not expected to cause more than a 5% annual decrease in aggregate local government revenues. However, it has been controversial, with some arguing that it protects the minority from legislative tyranny by the majority, while others consider it inconsistent with democratic principles.
In August 2017, a California Supreme Court decision raised questions about how to interpret the constitutional voting requirements for special taxes proposed through citizen initiatives. This ruling suggested that taxes proposed by citizens' groups may only require a simple majority to pass, rather than a two-thirds supermajority. This has led to concerns about the potential negative impact on the California economy and local government tax policies.
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The California Supreme Court's ruling on Proposition C
For the last forty years, California has required that new taxes be approved by a two-thirds supermajority in a general election to pass. However, in 2017, the state's supreme court ruled that tax measures initiated by citizens' groups, rather than directly by the government, require neither supermajority approval nor a general election vote. This ruling suggests that new taxes can be passed with the approval of a simple majority and through a special election.
In San Francisco, voters passed Proposition C, the largest tax increase in the city's history. This new tax is levied on roughly the largest three percent of the city's businesses. The Howard Jarvis Taxpayers Association filed a lawsuit against the city and county in August 2018, stating that Proposition C did not receive sufficient votes because it required a two-thirds supermajority vote. On January 27, 2021, the First District Court of Appeal ruled that the supermajority requirement did not apply to Proposition C.
The California Supreme Court has also upheld the constitutionality of Proposition 22, which allowed app-based transportation and delivery companies to classify their drivers as independent contractors rather than employees if certain requirements were met. The Court addressed the question of whether Proposition 22 conflicted with the California Constitution, and held that it did not because the state constitution does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers' compensation.
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The California Constitution's two-thirds requirement
California has had a two-thirds supermajority requirement for new taxes for over forty years. This means that new taxes earmarked for a specific purpose must be approved by a two-thirds supermajority in a general election to pass. This requirement was prescribed in Propositions 13 and 218, which amended the California Constitution to add restrictions on the government's power to tax. Proposition 13, in particular, required any local special tax to be approved by two-thirds of the electorate.
However, in 2017, the California Supreme Court's decision in California Cannabis Coalition v. City of Upland sparked debate and confusion regarding the interpretation of the supermajority requirement. The court's ruling suggested that the supermajority requirement applied only to tax measures proposed directly by local governments and not to those proposed by citizen groups through voter initiatives. This distinction between citizen-initiated taxes and government-imposed taxes led to legal challenges, with some arguing that certain tax initiatives were acts of gamesmanship by government officials to circumvent the supermajority requirement.
The implications of the Upland decision continued to unfold, with lower courts and appellate courts issuing rulings that further questioned the longstanding two-thirds supermajority requirement for local special taxes. These rulings have had significant impacts on local government tax policies and local economies, particularly in San Francisco, where voter initiatives have resulted in substantial tax increases.
The California Supreme Court has declined to review these lower court decisions, leaving the interpretation of the supermajority requirement in flux and creating uncertainty for future tax initiatives.
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The impact on San Francisco's economy
California's supermajority rule was established in the late 1970s with Proposition 13, which required a legislative supermajority for raising taxes. In 1996, California voters approved Proposition 218, which added Article XII C Voter Approval For Local Tax Levies to the California Constitution. This proposition required local governments to refer tax initiatives to voters and mandated a two-thirds supermajority vote for the approval of special taxes.
In 2017, the California Supreme Court's decision in Cannabis Coalition v. City of Upland raised questions about the supermajority requirement for special taxes proposed through citizen initiatives. The court ruled that tax measures initiated by citizens' groups, rather than the government, did not require supermajority approval or a general election vote. This ruling allowed new taxes to be passed with only a simple majority, which has had a significant impact on San Francisco's economy.
San Francisco has passed several new taxes based on the simple majority rule, including Proposition C, a gross receipts tax to fund services for the homeless. This tax applies to businesses with gross receipts above $50 million, with rates ranging from 0.175% to 0.69% depending on business activity, or a 1.5% payroll tax for businesses with at least $1 billion in gross receipts and 1,000 employees nationwide. Proposition C is expected to generate an additional $300 million in revenue in its first year. The city has also introduced taxes on gross rental income for childcare services and land parcels to increase teacher salaries. These taxes are projected to raise $500 million in annual revenue.
The impact of these new taxes on San Francisco's economy is complex. On the one hand, the taxes will undoubtedly increase revenue for the city, allowing for increased funding for essential services such as homelessness initiatives and education. However, there are concerns that the taxes may negatively impact businesses, particularly financial service firms that are charged higher tax rates than technology companies. Some argue that these taxes may depress the city's economy and drive highly productive businesses out of the state. Additionally, there is ongoing litigation challenging the legality of these taxes, with taxpayer advocacy groups filing lawsuits. As a result, San Francisco is currently holding the revenue from these taxes in accounts until the lawsuits are resolved.
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Frequently asked questions
California Proposition 26, also known as the Supermajority Vote to Pass New Taxes and Fees Act, created a supermajority for tax increases in California.
The supermajority requirement states that a two-thirds (66.67%) vote is needed for tax increases.
Supporters of the supermajority requirement argue that it protects the minority from legislative tyranny by the majority, thus promoting compromise. Opponents argue that it is inconsistent with the basic principle of democratic governance, as it allows the minority to decide for the majority.
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