Court Opinion

ID: 9624530
Source: CourtListenerOpinion
Date Created: 2023-08-22 07:07:31.856174+00
Date Added: 2024-06-11T18:05:49.224383
License: Public Domain

RICHARDSON, J.
I concur. Although the case properly may be disposed of on the basis that the Oakland license tax is not an income tax, I would uphold the tax upon the additional ground that, in any event, the Legislature lacks power to proscribe municipal income taxes. I would reach and resolve the constitutional issue which the parties have raised in view of the unquestionable importance of this matter to numerous California cities. Additionally, a speedy resolution of the constitutional question is suggested by the need for judicial economy and the likelihood of future litigation over novel municipal levies that are business taxes by designation but arguably are disguised income taxes statutorily prohibit*399ed by Revenue and Taxation Code section 17041.5 (all statutory references are to that code unless otherwise indicated).
Stated concisely, that issue is whether the enactment of a revenue-raising tax based upon the income of persons within a city’s jurisdictional reach is a municipal affair, insulated from legislative interference by article XI, section 5, subdivision (a), of the California Constitution.
Since 1879, California cities of designated population have had the power to adopt charters for local government (Cal. Const., art. XI, §§ 6, 8 (1879)), but it was not until 1896 that they acquired supremacy over local matters by virtue of a constitutional amendment which provided that “except in municipal affairs, [city charters] shall be subject to and controlled by general laws.” (Cal. Const., art. XI, § 6 (1896), italics added.) This constitutional provision, commonly known as the “home rule amendment,” presently reads, in part: “It shall be competent in any city charter to provide that the city governed thereunder may make and enforce all ordinances and regulations in respect to municipal affairs, subject only to restrictions and limitations provided in their several charters and in respect to other matters they shall be subject to general laws. City charters adopted pursuant to this Constitution ... with respect to municipal affairs shall supersede all laws inconsistent therewith.” (Cal. Const., art. XI, § 5, subd. (a).)
The home rule provision, as it has existed in various forms and phrasings since 1896, is best construed as accomplishing two purposes: (1) it grants to chartered cities the authority to manage local affairs; and (2) it imposes a corresponding restriction upon the power of the state Legislature to interfere with or override decisions on municipal matters made at the local level. (Sato, “Municipal Affairs” in California (1972) 60 Cal.L.Rev. 1055, 1057, 1060; Sandalow, The Limits of Municipal Power Under Home Rule: A Role for the Courts (1964) 48 Minn.L.Rev. 643, 648; cf., Januta, The Municipal Revenue Crisis: California Problems and Possibilities (1968) 56 Cal.L.Rev. 1525, 1547, fn. 119.) We have consistently so held. As we stated many years ago, “it has always been conceded ... that the object of the [1896 amendment and its successors]... was to secure to the municipality that had, under the provisions of the constitution, adopted a charter for its own government, the maintenance of its charter provisions in municipal matters, and to deprive the legislature of the power, by laws general in form, to interfere in the government and management of the municipality.” (Ex Parte Braun (1903) 141 Cal. 204, 209 [74 P. 780].)
*400“On the other hand,” we observed in Professional Fire Fighters, Inc. v. City of Los Angeles (1963) 60 Cal.2d 276, 291 [32 Cal.Rptr. 830, 384 P.2d 158], “the clear language of the constitutional provisions ... deny to the state Legislature the right to interfere with a chartered city only with respect to matters which are exclusively municipal affairs.” More recently we noted that “[a]s to matters which are of statewide concern ... home rule charter cities remain subject to and controlled by applicable general state laws regardless of the provisions of their charters, if it is the intent and purpose of such general laws to occupy the field to the exclusion of municipal regulation ....” (Bishop v. City of San Jose (1969) 1 Cal.3d 56, 61-62 [81 Cal.Rptr. 465, 460 P.2d 137].) Thus, “When it appears that a municipal regulation [of a chartered city] and a general state law are in conflict, the controlling law will depend on whether the subject matter is a municipal affair or whether it is of statewide concern. If the matter is a municipal affair, local ordinances and regulations will be upheld despite conflict with the general state laws .,.(City of Santa Clara v. Von Raesfeld (1910) 3 Cal.3d 239, 245 [90 Cal.Rptr. 8, 474 P.2d 976].)
It is conceded that taxation for local purposes is one of the powers conferred by direct constitutional grant under article XI, section 5 (West Coast Adver. Co. v. San Francisco (1939) 14 Cal.2d 516, 524, 526 [95 P.2d 138]), and that such power, generally speaking, is very broad. (In re Redevelopment Plan for Bunker Hill (1964) 61 Cal.2d 21, 74 [37 Cal.Rptr. 74, 389 P.2d 538]; cf. Butterworth v. Boyd (1938) 12 Cal.2d 140, 147 [82 P.2d 434, 126 A.L.R. 838].) Municipal taxing power, however, like all powers granted by the home rule provision, is not unlimited but may be circumscribed or abrogated (1) by self-limitations contained within a city’s own charter; (2) by other constitutional provisions reserving various powers over taxation to the state; and (3) by the limitations inherent in the concept of “municipal affairs.”
Section 17041.5 purports to forbid any California city, chartered or not, to impose an income tax. Assuming for purposes of discussion that the Oakland employee license fee must be considered an income tax in direct conflict with that provision, plaintiffs contend that the state statute must prevail for two reasons. The power to levy an income tax, they assert, is expressly reserved to the Legislature by article XIII, sections 26, subdivision (a), and 33, thereby rendering paramount legislative expressions on the subject. Alternatively, it is argued that enactment by California cities of a series of individual, uncoordinated local income taxes would have such a severe impact at the state level upon the mobility of California citizens, the location of commercial enterprises, and the *401operation of the state income tax system that municipal income taxation must, for practical purposes, be deemed a “matter of statewide concern,” and not a “municipal affair.” I examine each of these contentions.
1. Reservation of Power Under Article XIII
Article XIII, section 26, subdivision (a), of the Constitution provides as follows: “Taxes on or measured by income may be imposed on persons, corporations, or other entities as prescribed by law.” (Italics added.) Section 33 states, “The Legislature shall pass all laws necessary to carry out the provisions of this article.”
Although article XIII deals expressly with income taxation, and the broad grant of the home rule amendment does so only by implication, the traditional rule that specific constitutional provisions govern more general provisions is applicable only if section 26 is indeed specific on the precise point at issue: the identity of the governmental entities entitled to levy taxes upon income. Focusing upon the phrase “as prescribed by law” in section 26, and the specific reference to the Legislature in section 33, plaintiffs maintain that the two provisions, in combination, indicate a constitutional purpose that the power to impose income taxes shall rest exclusively with the state. I do not agree.
We have previously held that “Where the power of taxation has been lodged [by constitutional provision] in the state to the exclusion of municipalities and other entities of that character, it has customarily been done by specific language expressive of such a purpose” (Ainsworth v. Bryant (1949) 34 Cal.2d 465, 472 [211 P.2d 564]), and that even constitutional provisions which clearly are reservations of taxing power should be strictly construed, and read as limiting the scope of the power being withdrawn from local entities. (Id., at pp. 472-473.) The Constitution contains several examples of such explicit reservations. (E.g., Cal. Const., art. XIII, §§27 [state tax upon banks is in lieu of all local taxes, with specified exceptions], and 28 [state has sole power to tax insurance companies, with specified exceptions]; art. XX, § 22 [state has sole authority to license and regulate sale or purchase of alcoholic beverages].)
In contrast, the provisions cited by plaintiffs are notably and undeniably vague. Section 26, subdivision (a), does not specify who may levy income taxes, and section 33 can hardly be deemed a clarification, since it obviously was intended simply as an enabling clause to permit the Legislature to enact such laws as might be necessary to implement those *402numerous permissive provisions of article XIII which are not self-executing.
It is true that the available legislative history tends to indicate that when the initial version of section 26 was adopted, its supporters were concerned solely with the power of the state to levy income taxes. One delegate to the constitutional convention explained during the debate over the section, “It is a question among the lawyers of this Convention whether, if it is not declared in this Constitution, that the Legislature has power to impose such a tax—whether it would have such a power. The reasons given are that the various taxes will be enumerated in this Constitution which the Legislature shall impose, and this being left out, the argument will be that they have no right to impose any other taxes than those enumerated in the Constitution.” (2 Debates and Proceedings, Cal. Const. Convention 1878-1879, p. 947 (remarks of Mr. Ayers).) It will be noted that reference is explicitly to the Legislature, and given the prevailing theory that local entities possessed only those powers delegated by the sovereign state, the independent power of a municipality to enact an income tax could hardly have been at issue. (Januta, The Municipal Revenue Crisis: California Problems and Possibilities, supra, 56 Cal.L.Rev. at pp. 1541-1543; Sato, “Municipal Affairs” in California, supra, 60 Cal.L.Rev. at p. 1104, fn. 190; but see Comment, The Municipal Income Tax and State Preemption in California (1971) 11 Santa Clara Law. 343, 350-353.)
It need not follow, however, that the section was intended to, or does, vest in the Legislature alone the power to tax income. The purpose of the income tax provision in section 26 was to establish the legitimacy of the income tax as a permissible levy. In addition to the enumerated powers problem discerned by Mr. Ayers, there was potential difficulty in the fact that an income tax was widely regarded as a species of property tax. (See Pollock v. Farmers' Loan & Trust Co. (1895) 157 U.S. 429, 579 [39 L.Ed. 759, 818, 15 S.Ct. 673], affd. in part on rehg. 158 U.S. 601, 627-629 [39 L.Ed. 1108, 1122-1123, 15 S.Ct. 912].) Since the California Constitution, like most state constitutions, provided for uniform taxation of property in proportion to value (Cal. Const., art. XIII, § 1), a graduated income tax, or an income tax providing for certain exemptions for particular classes, would have been subject to challenge on constitutional grounds. (Traynor & Keesling, The Scope and Nature of the California Income Tax (1936) 24 Cal.L.Rev. 493, 502-506.) To assure the availability of a mode of taxation more equitable than the uniform property tax, the convention prudently removed any potential constitutional barrier by differentiating the two *403taxes, property and income, and expressly approving the more flexible income tax. (2 Debates and Proceedings, Cal. Const. Convention, supra, at p. 945; see also, 3 id., at p. 1325.)
With the adoption of the home rule amendment 17 years later, in 1896, chartered cities choosing to take advantage of the grant acquired, with respect to local matters, “a power of taxation ... concurrent with, not dependent upon, the state Legislature.” (Comment, The Municipal Income Tax and State Preemption in California, supra, 11 Santa Clara Law. at p. 352; see Ex Parte Braun, supra, 141 Cal. 204, 211-212.) The legislative history and the language of section 26 neither mandate nor support a conclusion that the power to tax income for local purposes was excluded from the bundle of municipal taxing and regulatory powers which were granted to cities by article XI, section 5. That an income tax may be imposed, by the terms of section 26, only “as prescribed by law” indicates simply that the provision is not self-executing, and although the term “law” generally refers to state statutes, as distinguished from city “ordinances,” that usage is not inflexible. (See, e.g., Rothschild v. Bantel (1907) 152 Cal. 5, 9 [91 P. 803] [“law,” in constitutional provision, can refer to provisions of a city charter as well as state statutes]; In re Johnson (1920) 47 Cal.App. 465, 467 [190 P. 852] [“law,” in state statute, includes city ordinance]. Until 1974, the home rule amendment itself referred to municipal “laws and regulations.” See Cal. Const. Revision Com., Proposed Revision (1968) p. 59.)
Consequently, I would conclude that the power to enact an income tax is not reserved exclusively to the state Legislature by article XIII, sections 33 and 26, subdivision (a).
The inquiry should not, however, terminate at this point. Even if the power to tax income is not constitutionally reserved, the Legislature may appropriate that power to itself by statute unless a city income tax is a “municipal affair” within the meaning of article XI, section 5, subdivision (a), the home rule provision of the Constitution. On matters of statewide concern, statutes adopted by the Legislature are supreme, superseding all conflicting municipal ordinances. Is imposition of a local income tax properly a municipal affair?
2. “Municipal Affairs”
The California Legislature first adopted a comprehensive state income tax system in 1935. (Stats. 1935, ch. 329, p. 1090 et seq.) With the 1963 *404enactment of section 17041.5 proscribing local taxes “upon the income ... of any person,” it clearly expressed its intent to preempt the field of income taxation. The city, however, contends that the Legislature has no authority to prevent chartered cities from enacting a local tax measure designed to raise revenue for municipal purposes. I agree.
Since the adoption of the home rule amendment in 1896, the courts of this state have grappled with the definition of “municipal affair” within the meaning of article XI, section 5. The exact scope of the term is of great significance, because we have said that a “city which [has] adopted ... ‘home rule’ ... thereby [has] gained exemption, with respect to its municipal affairs, from the ‘conflict with general laws’ restrictions of [section 5] ... of article XI. [1] As to matters which are of statewide concern, however, home rule charter cities remain subject to and controlled by applicable general state laws regardless of the provisions of their charters, if it is the intent and purpose of such general laws to occupy the field to the exclusion of municipal regulation ....” (Bishop v. City of San Jose, supra, 1 Cal.3d 56, 61-62, italics added.)
Expressing the precise contours of the foregoing concept is essentially a matter of allocating power among competing governmental entities, and it is a duty confided to the courts alone. (Id., at p. 63; City of Santa Clara v. Von Raesfeld, supra, 3 Cal.3d 239, 246.) With “no alternative but to accept the invitation,” and “[without the benefit of guidance from history, constitutional tradition, or sharply delineated principle,” (Sandalow, The Limits of Municipal Power Under Home Rule: A Role for the Courts, supra, 48 Minn.L.Rev. at p. 661), we soon concluded that “[n]o exact definition of the term ‘municipal affairs’ can be formulated,” and have perforce been content to “give it meaning in each controverted case.” (Butterworth v. Boyd, supra, 12 Cal.2d 140, 147.)
Over the past 80 years, numerous subjects and activities have been found not to be “municipal affairs,” and certain examples may be revealing. (E.g., Baron v. City of Los Angeles (1970) 2 Cal.3d 535 [86 Cal.Rptr. 673, 469 P.2d 353, 42 A.L.R.3d 1036] [city lobbyists regulation, insofar as it impinges upon state regulation of the practice of law]; City of Santa Clara v. Von Raesfeld, supra, 3 Cal.3d 239 [intercity water pollution control project and its funding procedure]; Professional Fire Fighters, Inc. v. City of Los Angeles, supra, 60 Cal.2d 276 [organizational rights of city employees]; Pipoly v. Benson (1942) 20 Cal.2d 366 [125 P.2d 482, 147 A.L.R. 515] [regulation of highway traffic passing through city streets]; Bay Cities Transit Co. v. Los Angeles (1940) 16 Cal.2d 772 [108 P.2d 435] *405[regulation of interurban transportation system]; Young v. Superior Court (1932) 216 Cal. 512 [15 P.2d 163] [public improvement project extending beyond city limit]; CEEED v. California Coastal Zone Conservation Com. (1974) 43 Cal.App.3d 306 [118 Cal.Rptr. 315] [regional land use planning]; Wilson v. City of San Bernardino (1960) 186 Cal.App.2d 603 [9 Cal.Rptr. 431] [highway development]; County of San Mateo v. City Council (1959) 168 Cal.App.2d 220 [335 P.2d 1013] [annexation procedures]; cf., Century Plaza Hotel Co. v. City of Los Angeles (1970) 7 Cal.App.3d 616 [87 Cal.Rptr. 166] [taxation/regulation of alcohol].)
With the possible exception of Century Plaza, supra, all of these decisions involved activities which were essentially regulatory in nature. On the specific issue of taxation for revenue only, numerous cases declare without equivocation or qualification that “the power of municipal corporations operating under a freeholder’s charter to impose taxes for revenue purposes is strictly a municipal activity authorized by the state Constitution and subject only to those limitations appearing in the Constitution or the charter itself.” (A.B.C. Distributing Co. v. City and County of San Francisco (1975) 15 Cal.3d 566, 571 [125 Cal.Rptr. 465, 542 P.2d 625]; accord In re Redevelopment Plan for Bunker Hill, supra, 61 Cal.2d 21, 74; City of Glendale v. Trondsen (1957) 48 Cal.2d 93, 99 [308 P.2d 1]; Ainsworth v. Bryant, supra, 34 Cal.2d 465, 469; West Coast Adver. Co. v. San Francisco, supra, 14 Cal.2d 516, 524; Ex Parte Helm (1904) 143 Cal. 553, 557 [77 P. 453]; Ex Parte Braun, supra, 141 Cal. 204, 211-212; Franklin v. Peterson (1948) 87 Cal.App.2d 727, 732 [197 P.2d 788].) Indeed, the only case I have found which hints at any erosion of this principle is Century Plaza, supra, 7 Cal.App.3d 616, a decision which “relied upon the interrelationship of certain constitutional and statutory provisions” peculiar to that case, and seems to have turned upon the inherently regulatory effect of any tax on the sale or purchase of alcoholic beverages. (See Rivera v. City of Fresno (1971) 6 Cal.3d 132, at p. 140 [98 Cal.Rptr. 281, 490 P.2d 793].)
Past adherence to the principle of local autonomy in tax matters, however, is neither conclusive nor dispositive as to the issue before us. Matters once entirely local in nature may, in a society rapidly increasing in both complexity and interdependence, lose their “strictly local” character and become “matters of statewide concern.” (Bishop v. City of San Jose, supra, 1 Cal.3d 56, 63; City of Santa Clara v. Von Raesfeld, supra, 3 Cal.3d 239, 246; Pacific Tel. & Tel. Co. v. City & County of S. F. (1959) 51 Cal.2d 766 [336 P.2d 514]; CEEED v. California Coastal Zone Conservation Com., supra, 43 Cal.App.3d 306, 321.) Plaintiffs argue that *406the unprecedented mobility of contemporary society, the prevalence of the commuter who works in one community while maintaining his home in another, and the growing disposition of businesses to treat local tax burdens as a key factor in location decisions will all combine to spread, distort and magnify the effect of a local income tax, necessarily producing considerable impact at the state level. The Legislature, it is asserted, has a significant interest in preventing the emergence of a series of separate and competitive “economic enclaves” with varying tax rates and overlapping jurisdictions.
We have on occasion suggested that to be a “municipal affair,” a particular matter must be “solely” or “exclusively” of local interest. (See Professional Fire Fighters, Inc. v. City of Los Angeles, supra, 60 Cal.2d 276, 291.) Literal application of that standard would compel termination of the present inquiry at this point, for it certainly cannot be said that the state interests urged herein are wholly fictitious. Judicial characterization of a particular matter as either a “municipal affair” or “of statewide concern,” however, has always and necessarily been less a practical description of raw fact than a legal conclusion. The briefest reflection will confirm that virtually anything touching upon the welfare and management of a municipality will also be of some concern to the state. (See Bishop v. City of San Jose, supra, 1 Cal.3d 56, 67-69, dis. opn. of Peters, J.) But article XI, section 5, by committing one class of affairs to local government and the other to the Legislature, compels a dichotomy when state and local enactments conflict. Classification, then, is unavoidable; how is it to be accomplished?
In Bishop, we stated quite plainly that the Legislature may not arrogate to itself a particular area of activity merely by asserting an interest. (Id., at p. 63.) That course would “return us to the time of the pre-1896 constitution when all general laws prevailed over charter provisions .... The only virtue of [such an approach] ... is the ease of resolving the problem, but this would be accomplished at the expense of historical development and the clear import of the constitution.” (Sato, “Municipal Affairs” in California, supra, 60 Cal.L.Rev., at pp. 1074-1075.) Our examination cannot cease once some legitimate but perhaps tenuous or overly broad state interest has been identified. If the home rule provision is not to be excised from the Constitution virtually at the will of the Legislature, as we have said it is not, then the only reasonable and practicable means of distinguishing matters committed to local control from areas in which the Legislature is free to assert supremacy is to weigh, in each case, the city’s interest against the state’s need to require *407uniformity, or to prohibit, control or coordinate the extraterritorial impact of the challenged municipal activity. (See Sato, supra, at pp. 1072-1076; 2 McQuillin, Municipal Corporations (1966) §§ 4.85, 4.87, pp. 164, 166.)
Applying this principle to the case before us, we must acknowledge that the Legislature’s attempt to appropriate the field of income taxation is certainly an indication of the seriousness with which it views the potential statewide impact of local income taxes. (Cf. Stats. 1968, ch. 559, § 3, pp. 1226-1227, declaring the mobility of California citizens a matter of statewide interest, insofar as it may be affected by “discriminatory” local taxes.) However, the Legislature’s evaluation is not conclusive (Bishop v. City of San Jose, supra, 1 Cal.3d 56, 63), and in the present instance I am not persuaded that the problems potentially generated by municipal income taxes are so sweeping that they can be resolved by nothing less than an absolute proscription of this type of tax.
Plaintiffs contend with some force that municipal income taxes, particularly a network of municipal income taxes that vary in their structure and comprehensiveness from city to city, pose the very real danger of unfair distribution of tax burdens flowing from the commuter situation. While it undoubtedly is true that the raising of revenue for municipal purposes is a vital and traditional local concern, it is equally indisputable that the state has a right to prevent what one commentator has described as the exportation of “spillover costs,” whether those costs be measured in money or otherwise. (Sato, supra, 60 Cal.L.Rev. at pp. 1074-1075.) When a local tax measure threatens serious extraterritorial effects, those consequences rise to the level of a substantial state concern, and the Legislature may properly assert its supremacy to prevent or minimize them. But the sweep of the state’s protective measures may be no broader than its interest.
Here, it is the “spillover” effect, not the local revenue ordinance itself, that is the proper concern of the Legislature. If a number of sister cities follow Oakland’s lead, it is perhaps conceivable that the resulting network of uncoordinated local income taxes might cause such a heavy impact upon the ubiquitous California commuter as to impede intermunicipal business activities. None of the recitation of facts or arguments presented to us, however, suggests that such external difficulties, present or potential, cannot be adequately controlled by means less stringent and intrusive than total prohibition. For example, there is available a mandatory credit and allocation system comparable to provisions of the *408Bradley-Burns Uniform Local Sales and Use Tax Law. (§§ 7200-7209; see also Legislative Developments, The Limits of Municipal Income Taxation: The Response in Ohio (1970) 7 Harv.J.Leg. 271; Sato, supra, 60 Cal.L.Rev. at pp. 1101, 1103-1104.) I note in passing that the terms of the Bradley-Bums Act, which now purport to preempt the field of local sales and use taxes (§ 7203.5, added by Stats. 1968, ch. 1265, § 1, p. 2388), do not dictate the absolute uniformity claimed to be essential with respect to local income taxes. Any local entity enacting a sales tax must adopt a standard percentage rate; the decision to tax, however, is not compelled. Theoretically, a particular city and the county in which it is located could choose to forego that source of revenue and so create a substantial imbalance with respect to neighboring counties and municipalities levying the tax. It may be assumed that such eventuality was thought unlikely, but apparently the possibility was not considered intolerable.
Similarly, it is urged that businesses may be heavily influenced by the existence or nonexistence of a local income tax; however, the variation in total tax burden created by differences in local property, special district and business taxes has approximately the same effect at present. I am not persuaded that this danger so expands the state interest as to justify a flat prohibition of the city tax. Nor can I discern any potential impact upon the state income tax system, except insofar as the addition of local income tax liability increases the citizens’ overall burden. However, an increase in property and business taxes, the traditional resort of financially troubled local governments, would have the same result.
Although I hasten to acknowledge that neither the economic wisdom nor the social propriety of a municipal tax measured by “income” lies within our purview, I cannot say that the mere existence of a tax such as the Oakland employee license fee threatens to disrupt a state legislative scheme or produce serious and uncontrollable adverse consequences outside the bounds of the taxing jurisdiction. Accordingly, an absolute prohibition of a particular type of revenue-raising tax is neither warranted nor tolerable under the home rule doctrine. (See Januta, supra, 56 Cal.L.Rev. at p. 1547; Sato, supra, 60 Cal.L.Rev. at pp. 1076, 1101, 1104; Comment, The Municipal Income Tax and State Preemption in California, supra, 11 Santa Clara Law. at pp. 348-349.)
The foregoing analysis is not novel. The case of In re Groves (1960) 54 Cal.2d 154 [4 Cal.Rptr. 844, 351 P.2d 1028], for instance, involved a municipal occupation tax upon a business subject to an elaborate system of state regulation. We held that even when a state interest in a particular *409type of enterprise is extensive enough to justify preemption of regulation, a city revenue-raising tax upon that business is perfectly permissible. (See also In re Galusha (1921) 184 Cal. 697 [195 P. 406]; cf. Rivera v. City of Fresno, supra, 6 Cal.3d 132.) As long as the Legislature retains reasonable control over those features of the matter which are its legitimate concern, local governments remain free to exercise their legitimate and independent powers as to the local aspects.
Clark, J., concurred.