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Jensen v. Franchise Tax Board

October 14, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County. Rex Heeseman, Judge. Affirmed. (Los Angeles County Super. Ct. Nos. BV027742, 08K09860).

The opinion of the court was delivered by: Boren, P.J.


This is a challenge to the constitutionality of the Mental Health Services Act, added by California voters through an initiative measure, Proposition 63, at the November 2, 2004 General Election (Proposition 63). Proposition 63 expands funding for mental health services for all Californians by imposing an additional tax of 1 percent on annual income in excess of $1 million. (Rev. & Tax. Code, § 17043.) Proposition 63 also prevents future state funding for mental health services from falling below the amounts allocated for these services in 2003. (Welf. & Inst. Code, § 5891.)

We find no constitutional infirmity in the challenged portions of Proposition 63. An income tax may be rationally based on a taxpayer‟s income level and ability to pay, and there is no need to show that a particular taxpayer personally benefits from a tax assessed for the public good. Taxpayers earning more than $1 million annually do not comprise a "suspect class" requiring a strict scrutiny constitutional analysis. Further, Proposition 63 is valid even if it is not a constitutional amendment.


Craig and Sally Jensen (the Taxpayers) sued the Franchise Tax Board (FTB) to recover part of their 2006 California state income tax. The tax was imposed by Revenue and Taxation Code section 17043 on income that exceeded $1 million. The Taxpayers remitted the tax under protest and filed a "Claim for Refund" with the FTB. The FTB took no action on the Taxpayers‟ claim for a refund.

The Taxpayers allege that they are victims of arbitrary discrimination, in violation of the federal and state equal protection clauses. In their view, wealthy individuals are singled out to bear the burden of a public expense, while others are excused from that burden. The Taxpayers reason that the wealth of a taxpayer is not a rational basis for a tax assessed for a specific purpose, such as mental health services.

The Taxpayers also challenge the requirement in Welfare and Institutions Code section 5891 that the state maintain funding for mental health services at 2003 levels. They claim that this is an unconstitutional suspension of state budgetary powers, so that the budgets for mental health services "are cast in stone, and are not subject to reduction by either the legislature or the governor without a statutory change." The Taxpayers allege that making this change in the creation of the state budget required an amendment to the state constitution. Proposition 63 is not a constitutional amendment.

The FTB demurred to the Taxpayers‟ complaint. The trial court declined to strike down a generally applicable tax scheme based on income, noting that states have great leeway in making classifications that produce reasonable systems of taxation. The court also refused to strike down Proposition 63 simply because it was not presented as a constitutional amendment. The court sustained the FTB‟s demurrers without leave to amend and dismissed the Taxpayers‟ lawsuit.


Standard of Review and Standing to Sue

Appeal lies from the trial court‟s signed dismissal order, after demurrers were sustained without leave to amend. (Code Civ. Proc., §§ 581, subd. (f)(1), 581d; Serra Canyon Co. v. California Coastal Com. (2004) 120 Cal.App.4th 663, 667.) Review is de novo: we exercise our independent judgment to determine whether a cause of action has been stated as a matter of law. (Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115.) In reviewing initiative measures, ""[w]e do not consider or weigh the economic or social wisdom or general propriety of the initiative, but rather evaluate its constitutionality in the context of established constitutional standards.‟" (California Family Bioethics Council, LLC v. California Institute for Regenerative Medicine (2007) 147 Cal.App.4th 1319, 1338.) The ""initiative power must be liberally construed to promote the democratic process.‟" (Ibid.)

A taxpayer may file suit to recover "a tax claimed to be illegal," after the tax has been paid. (Cal. Const., art. XIII, § 32.) A taxpayer‟s claim to recover taxes is deemed to have been denied-and a taxpayer may proceed with a lawsuit-if the FTB takes no action within six months after the claim is filed. (Rev. & Tax. Code, §§ 19382, 19385.) The FTB does not contest that the Taxpayers have standing ...

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