APPEAL from a judgment of the Superior Court of San Diego County, Charles R. Hayes, Judge. Reversed and remanded with directions. (Super. Ct. No. GIC871893).
The opinion of the court was delivered by: Nares, Acting P. J.
CERTIFIED FOR PUBLICATION
The principal issue we must decide is whether a 2004 levy imposed by the City of San Diego (the City), without a vote of the electorate, for the primary purpose of recovering the cost of collecting and administering a general tax called the "Rental Unit Business Tax," is a fee or rather a void general or special tax that should have been approved by a vote of the electorate as required by the California Constitution. We hold that this levy is a general tax that is void because it was not approved by a majority vote of the municipal electorate as required by article 13C, section 2, subdivision (b) of the California Constitution.
Plaintiffs Sidney Weisblat and Kenneth Ledgerwood (together plaintiffs) appeal from a grant of summary judgment in favor of the City on their complaint for declaratory and injunctive relief, which challenges on state constitutional grounds a "fee" the City imposed on owners of residential real property who are engaged in the rental of their properties within the City limits. The City imposed the levy for the primary purpose of recovering the costs incurred by the City in collecting and administering the City's rental unit business tax (sometimes referred to as the RUBT), a general tax that is levied on those same property owners but is not challenged in this appeal. The City and the plaintiffs brought separate motions for summary judgment or, alternatively, summary adjudication.
In granting summary judgment in favor of the City, the trial court determined that (1) the undisputed material facts show the levy is not a general or special tax, "but rather falls within the exception set forth in [Government Code*fn1 section] 50076"; and (2) the levy does not violate article XIIID of the California Constitution because it is not a "tax, assessment, fee or charge" imposed by the City upon "any parcel of property or upon any person as an incident of property ownership" within the meaning of that article. The court found the City's alternative motion for summary adjudication, and the plaintiffs' motion for summary judgment or, alternatively, summary adjudication, were moot.
This case presents the specific questions of (1) whether the City's levy is a fee that is exempt from the voter approval requirements of the California Constitution or rather a void general or special tax that should have been approved by the voters in the City under Proposition 218, which (as we shall discuss, post) amended our state Constitution by adding articles*fn2 XIIIC and XIIID (articles 13C and 13D); and (2) if it is a fee, whether it is a property-related fee that requires voter approval under article 13D. We specifically hold the levy is not a fee, but rather is a general tax that is subject to the voter approval limitation set forth in article 13C, section 2, subdivision (b), and is thus void because it was levied by the City Council without approval by a majority vote of the qualified voters in the City. Accordingly, we reverse the summary judgment granted in favor of the City and remand the matter with directions that the trial court reach the merits of the plaintiffs' motion for summary judgment or, in the alternative, summary adjudication, and conduct such further proceedings consistent with this opinion as the court deems necessary.
A. Rental Unit Business Tax
Pursuant to section 31.0101 of the San Diego Municipal Code (Municipal Code), the City charges all businesses operating in the City a business tax (Business Tax), which was enacted for the sole purpose of raising revenue for municipal purposes. The rental unit business tax, which is codified in Municipal Code section 31.0305,*fn4 is part and parcel of the Business Tax.*fn5 In 1990 the City Council amended the Municipal Code to assess the RUBT on all rental housing.
The Treasury Operations Division of the City Treasurer's Office administers the Business Tax program, which includes the RUBT program. Any increase in the Business Tax or the RUBT must be approved by the voters. In 2004 those taxes generated $11 million for the City's general fund.
B. Challenged Resolution and Fee
In June 2004 the City Manager issued a report (Manager's Report) recommending to the City Council that the City Manager implement an annual "Business Tax and Rental Unit Tax Processing Fee" in the amount of $25 as one of the solutions to offset a $17.3 million state budget reduction. The Manager's Report informed the City Council that the City's annual cost to operate the Business Tax and RUBT programs was about $3.5 million. Those costs included the collection and processing of the Business Tax and RUBT payments, printing and postage fees, and computer systems and overhead costs. The Manager's Report explained that spreading the $3.5 million cost among the 139,000 businesses operating in the City yielded the proposed $25 processing fee.
On June 28, 2004, the City Council followed the City Manager's recommendation and passed Resolution No. R-299382 (the Resolution) authorizing the City's Treasury Operations Division to establish and collect a "Business Tax Application, Business Tax Renewal, and [RUBT] Billing Statement Processing Fee" (the levy) in the annual amount of $25. The Resolution stated that the purpose of the levy was "to recover costs associated with processing applications and renewals for Business Tax Certificates and [RUBT] Certificates."*fn6 The Resolution also stated (among other things) that the City Manager was "hereby directed to review the fees annually to ensure that all reasonable costs incurred in providing services are being recovered and to approve fee schedules whenever possible in accordance with [City] Administrative Regulation 95.25." The fee was imposed without voter approval.
Robbin Kulek, the City's Treasury Operations Division manager, was responsible for overseeing the Business Tax program and was involved in determining the actual costs incurred by this program for administering the Business Tax, including the RUBT. Kulek estimated that those costs for Fiscal Year 2005 totaled about $3.5 million. In estimating that total cost, Kulek included the salaries and overhead of the 22 full-time Business Tax program employees, who handle the seasonal task of sending out about 80,000 RUBT billing statements and processing RUBT payments. It is undisputed that the responsibilities and services of those 22 employees include responding to requests from the general public, whether those requests are made by landlords or nonlandlords, business owners or nonbusiness owners.*fn7
It is also undisputed that the purpose of the levy is to recover the costs associated with the administration of the Business Tax and RUBT programs, including the cost of collecting and processing the Business Tax and RUBT payments, printing and postage fees, and the cost of computer systems and overhead. The levy is not exacted in return for permits or other governmental privileges.
In Fiscal Year 2005, the amount of the levy was $25. In January 2007, it was reduced to $15.
C. City's Rejection of Weisblat's Claim for a Refund
Plaintiffs own residential rental property within the City and have paid the RUBT for many years. In early 2005, Weisblat received from the City an RUBT billing statement in the amount of $80, which included the $25 levy. The statement characterized the levy as a "processing fee."
Weisblat submitted a claim against the City for a refund of the $25 levy, claiming that it was an illegal tax that violated section 50076 and articles XIIIA (article 13A), 13C, and 13D.
In a letter signed by Kulek and dated June 23, 2005 (Denial Letter), the City denied Weisblat's claim for a refund. Kulek indicated that the levy was authorized under section 50076, it was not a special tax, and it was not an unauthorized increase in the Business Tax. She also indicated that although the levy was denominated a "processing fee," it was a fee imposed for both services provided to, and regulatory activities related to, businesses that operate in the City. Plaintiffs' lawsuit against the City followed.
Plaintiffs brought this action for declaratory and injunctive relief in August 2006. They alleged in their first and second causes of action that the levy is an illegal general tax that violates article 13C, section (2)(b) because it is an increase in the RUBT that has not been approved by a majority vote of the electorate; in their third and fourth causes of action that the levy is an illegal special tax that violates article 13C, section 2(d) because it is imposed, without approval of two-thirds of the electorate, for the specific purpose of paying for the administrative functions related to the collection of the RUBT; in their fifth and sixth causes of action that the levy is not a "fee" under section 50076, and thus is not exempt from being a special tax, because the revenue exceeds "the reasonable cost of providing the service or regulatory activity for which the [levy] is charged" within the meaning of that section; in their seventh and eighth causes of action that the levy is not a "fee" under section 50076, and thus is not exempt from being a special tax, because, as the City acknowledges in its Denial Letter, the revenue from the levy is being spent on a "myriad of services," rather than on processing RUBT applications and renewals as required by the Resolution; in their ninth and 10th causes of action that the levy is not a "fee" under section 50076, and thus is not exempt from the voter approval requirement of a special tax, because the only activity the Resolution permits to be funded by the proceeds is levying and collecting the RUBT, and thus the levy is not being collected for any activity that could legally be called a "service"; in their 11th and 12th causes of action that the levy is a general tax that is not exempted under section 50076 because, like the RUBT, it is charged for the general governmental purpose of raising tax revenue for the City's general fund, the purpose of which is to fund a variety (or a "myriad") of general public services, and thus it is "levied for general revenue purposes" within the meaning of section 50076; in their 13th and 14th causes of action that the levy violates article 13D because it is a property-related fee that was not approved by property owners or the voters; in their 15th and 16th causes of action that the levy is either a tax in excess of the 1 percent ad valorem tax in violation of article 13A, section 1(a), or it is a special tax imposed without approval of two-thirds of the electorate in violation of article 13A, section (4); and in their 17th and 18th causes of action that the levy violates section 76.1 of the City Charter because it is a special tax created, without approval of two-thirds of the electorate, for the special purpose of paying for the administration of an existing tax.
The City moved for summary judgment or, alternatively, summary adjudication, arguing that (1) plaintiffs' causes of action Nos. 1 through 12 and 15 through 18, which are premised on the allegation that the levy is either a general tax or a special tax, have no merit because it is neither a general tax nor a special tax, but instead is a legitimate fee under section 50076 in that it "does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged" and "is not levied for general revenue purposes"; and (2) plaintiffs' causes of action Nos. 13 and 14 have no merit because the levy is not a property-related fee that violates article 13D due to lack of voter approval because it is not a "tax, assessment, fee, or charge" imposed by the City upon "any parcel of property or upon any person as an incident of property ownership."
Plaintiffs brought their own motion for summary judgment or, alternatively, summary adjudication, arguing that (1) the levy is either an increase in the RUBT and thus a general tax, or it is a new special tax, that violates article 13C because it was imposed without voter approval; (2) if it is not an excise tax or part of the RUBT, it is a property-related fee imposed in violation of articles 13A and 13D; (3) because the purpose of the levy is to pay for the imposition and collection of the RUBT, it does not provide a "service" or "regulatory activity" as those terms are used in section 50076; and (4) the City cannot ...