Opinion ID: 1412641
Heading Depth: 2
Heading Rank: 2

Heading: San Francisco Tax

Text: It was out of this milieu that the City and County of San Francisco, on August 19, 1968, enacted ordinance 246-68, the preamble of which provided in part: An Ordinance Providing For The Imposition Of License Fees For The Privilege Of Engaging In Occupations, Trades And Professions In ... San Francisco By All Non-Resident Persons Employed By Others.... (Comment, The Validity of San Francisco's Commuter Tax (1969) 20 Hastings L.J. 813, fn. 1.) The ordinance imposed a tax of 1 percent upon the gross income earned by nonresidents in San Francisco. Note the language: license fees shall be measured by one percent (.01) of the gross receipts of each such person.... ( Id., at fn. 2.) The measure of the tax was wages and salaries which would normally be termed gross income. The implementing provisions included apportionment and employer withholding. ( Id., at fn. 3.) This tax was popularly referred to as the commuter tax. ( Id. ) San Francisco authorities argued commuters exploited city residents. However, a contrary argument may be made. (Sato, Municipal Affairs in California (1972) 60 Cal.L.Rev. pp. 1105, 1106, fns. 193, 199.) The reaction of surrounding bay area counties was strong and swift. On September 13, 1968, the counties of Alameda, Contra Costa, Marin, San Mateo, and Santa Clara filed an action in the County of Sonoma seeking to enjoin the San Francisco ordinance and for declaratory relief. One of the arguments advanced in the trial court was that the San Francisco tax was an income tax imposed under the guise of a license tax, and hence invalid. (20 Hastings L.J. 813, supra, at p. 819, fn. 49.) At the very time the San Francisco ordinance was under consideration, the Legislature, at the behest of legislators from surrounding cities (Januta, supra, 56 Cal.L.Rev. at p. 1550), was acting forcefully and quickly to outlaw such taxes by adopting Government Code section 50026, which provides as follows: The legislative body of any local agency, chartered or general law, which is otherwise authorized by law or charter to impose any tax on the privilege of earning a livelihood by an employee or any other tax, fee or charge on or measured by the earnings, or any part thereof, of any employee, shall not impose any such tax, fee or charge on the earnings of any employee, when such employee is not a resident of the taxing jurisdiction, unless exactly the same tax, fee or charge at the same rate, with the same credits and deductions, is imposed on the earnings of all residents of the taxing jurisdiction who are employed therein. (Added by Stats. 1968, ch. 559, § 1, p. 1225.) Thus, the Legislature, faced with the San Francisco tax proposal, prohibited enactment of commuter tax measures, such as that adopted by San Francisco. Was the Legislature, by the language employed, inferring that it approved a ... tax, fee or charge on or measured by the earnings, or any part thereof, of any employee ... contrary to the prohibition of Revenue and Taxation Code section 17041.5? This question is more fully answered in our subsequent discussion. Suffice it at this point to say that such does not seem to be the case, for the Legislature, out of what appears as greater caution, and perhaps being fearful of just such an interpretation, added a second paragraph to section 50026, providing: This section shall not be construed as authorizing any tax prohibited by section 17041.5 of the Revenue and Taxation Code or any other provision of law ... (italics added). There was, however, as previously observed, an exception in section 17041.5 regarding license taxes on businesses measured by gross receipts. The Legislature, in an apparent effort to also preserve that exception, added the following final clause to section 50026: ... nor shall it be construed so as to prohibit the levy or collection of any otherwise authorized tax upon a business measured by or according to gross receipts. The words ... tax upon a business measured by or according to gross receipts were identical to the words employed in section 17041.5. Returning to the action filed by Alameda and other counties, the trial court held the San Francisco ordinance invalid. The Court of Appeal affirmed, but a petition for hearing was not lodged with this court. ( County of Alameda v. City and County of San Francisco (1971) 19 Cal. App.3d 750 [97 Cal. Rptr. 175, 48 A.L.R.3d 332].) The appellate court found the tax arbitrary, unreasonable, and discriminatory  denying ... to nonresidents the equal protection of the laws. ( Id., at pp. 756-757.) The appellate court neither addressed nor decided the two issues presented in the case at bar. Therefore, the effect of the holding was to leave open these issues. The form of the San Francisco tax suggested a way to avoid the income tax prohibition of section 17041.5. In fact, in a footnote the appellate court encouraged cities intent upon such taxation by observing: Although Government Code, section 50026, is obviously intended to prohibit the precise type of ordinance enacted by San Francisco, it is at least questionable that the Legislature possesses the power to prohibit a city from exercising its inherent power of municipal taxation. [Citation omitted.] We cite the section solely as an indication of legislative intent. ( Id., p. 757, fn. 3.) Encouragement to follow the San Francisco lead came from other sources. The decision in the Alameda case was rendered on August 30, 1971. Also in 1971, while that case was pending, a Comment in 11 Santa Clara Law. at page 343, was published, concluding that a municipal income tax was valid. Subsequently, in June 1972, another commentator came to the same conclusion. (Sato, Municipal Affairs in California, supra, 60 Cal.L.Rev. at p. 1099, fn. 177.)