Court Opinion

ID: 9624531
Source: CourtListenerOpinion
Date Created: 2023-08-22 07:07:31.860698+00
Date Added: 2024-06-11T18:05:49.226742
License: Public Domain

MOSK, J.
I dissent.
Although titled an “Employee License Fee Ordinance” the tax involved here is measured by a percentage of the gross income of all employees in Oakland. Thus this measure will have the dubious distinction of being the first municipal tax on the gross income of employees in the State of California, despite the clearly expressed intent of the Legislature that the state, and the state alone, may impose a tax based on income. (Rev. & Tax. Code, § 17041.5.) Of one thing we can be certain: it will not be the last. No unusual prescience is needed, in this day of city treasury thirst, to foresee similar income taxes imposed in most California cities. Thus employees will be subjected to three income tax bites into their one income: federal, state and municipal.
After their scholarly discussion of numerous cases and analogies the majority reach the remarkable conclusion that a tax on income is not an income tax. My views on the subject are less imaginative: since the burden of the tax is on the income of employees and not upon the receipts of a business, the ordinance does not create a license fee but an income tax.
The tax here is imposed upon the salary or compensation received by employees for services, fees and commissions, the very definition of gross income contained in Revenue and Taxation Code section 17071, subdivision (a)(1). It is rare for the Legislature to prohibit municipal action; yet it has done so in this instance with unusual emphasis. “Notwithstanding any statute, ordinance, regulation, rule or decision to the contrary,” declared the Legislature in 1963 and 1965, “no city ... whether chartered or not, shall levy or collect ... any tax upon the income, or any part thereof, of any person, resident or non-resident.” (Rev. & Tax. Code, § 17041.5.) Legislative intent has seldom been expressed more clearly.
*410The Legislature then added to the section that it “shall not be construed so as to prohibit the levy or collection of any otherwise authorized license tax upon a business measured by or according to gross receipts.” In short, our legislators advised the cities they could use business receipts as a tax measure, but not employee income. Obviously this ordinance does not qualify for the exemption because it is not based upon the gross receipts of the business. The “performance of service by an individual as an employee” is excluded from the definition of a “business.” (See 26 U.S.C. § 1402(c)(2) & (3).)
I am unimpressed by the constitutional argument raised by the city. Authority for the Legislature to retain the exclusive right to impose income taxes is contained in the state Constitution. Article XIII, section 26, permits imposition of income taxes and article XIII, section 33, authorizes the Legislature to “pass all laws necessary to carry out the provisions of this article.” It is elementary that if home rule rights of chartered cities conflict with constitutionally bestowed authority of the State of California and its Legislature, the latter will prevail.
I would affirm the judgment of the trial court.