A Tax Win in California

San Diego tried to get around California’s requirement that voters approve all tax hikes by imposing a so-called “fee” on the collection of a rental tax on property owners. Are they kidding?

California’s Fourth District Court of Appeals correctly ruled this week that this was an unconstitutional tax on rental property owners.

Joseph Henchman, tax counsel for the Tax Foundation, who wrote a friend-of-the-court brief in the case, issued a statement:

“All over the country, politicians are increasingly trying to label taxes as ‘fees’ in an effort to get around voter-approval requirements or otherwise discreetly raise revenue. This case, Weisblat v. City of San Diego, shows that we’re making progress in clarifying those definitions. The purpose of a tax is to raise revenue, while the purpose of a fee is to cover the cost of providing a service. In San Diego’s case, money raised from the so-called ‘fee’ on rental property owners provided no services to the landlords, but simply went into the city’s general fund to help fill a revenue shortfall. Mislabeling what are really taxes as ‘fees’ is problematic for a number of reasons, which the Tax Foundation outlined in its amicus brief. Other than being unconstitutional under a state law that requires voter approval for tax increases, blurring the line between taxes and fees also conflates the purposes for which the revenue may be used. Clearly identifying taxes as taxes and fees as fees increases government transparency and helps taxpayers understand where their money is going. It’s only under that kind of a system that voters and policymakers can make sound, informed choices.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council