PLF will present oral argument next tuesday in California energy tax case

Next Tuesday I will be arguing on behalf of Morning Star Packing Co., the National Tax Limitation Committee, and several other clients in PLF’s challenge to California’s unconstitutional auction of air emissions permits. This case will determine whether California can continue raising billions in illegal taxes by auctioning off permits that companies like Morning Star need to stay in business and comply with state regulations, or whether Propositions 13 and 26 will be enforced to protect against illegal taxes.

This case boils down to a simple principle. Under the California constitution, the state can only require you to pay a fee when it issues you a permit if (1) the fee bears a reasonable relationship to the impact of the regulated activity, (2) is fairly apportioned among the fee payers, and (3) is only spent on the program that regulates the fee payers. Otherwise, the payment is a tax and cannot be collected without supermajority legislative approval.

In this case, the California Air Resources Board issues air emissions permits which companies like Morning Star need in order to comply with the state’s unique greenhouse gas reduction regulation. About half are issued for free, but the rest are sold at auction to the highest bidders. By holding the permits hostage in this way, the state is raising billions of dollars without legislative authority, in violation of constitutional protections against illegal taxes.

The State of California has capped your right to purchase gasoline, and then auctioned that right to investment banks, sovereign wealth funds, and international energy companies.