PLF to appeal emissions tax ruling to state Supreme Court
PLF announced today that, on behalf of Morning Star Packing Company, the National Tax Limitation Committee, and several other clients, it will ask the California Supreme Court to review the decision of the court of appeal, that the billions of dollars which the California Air Resources Board is collecting, by auctioning off greenhouse gas emissions permits, are not illegal taxes under California’s Proposition 13.
The Court of Appeal held, in a 2-1 decision, that the auction payments made by Morning Star and similarly situated companies are not taxes and therefore do not require a legislative supermajority approval. To do so, the court decided that the California Supreme Court’s decision in Sinclair Paint, defining valid regulatory fees and distinguishing them from taxes, is not applicable. As the dissent pointed out, this is a key decision by the court’s majority, because the allowance auction would clearly be considered an illegal tax under Sinclair Paint.
Instead of applying state Supreme Court precedent, the court of appeal majority developed a novel rule to define taxes: a payment to the government is only a tax (and therefore subject to Prop 13) if (1) the payment is compulsory, and (2) the payor gets nothing of value for it. The majority then went on to say that, even if Morning Star must cease operating without the emissions permits it must purchase at ARB’s auction, its decision to bid for the allowances at auction is voluntary rather than compulsory. Because its decision to remain in business is itself voluntary rather than compulsory.
Then the majority held that the payment of the auction price for emissions allowances provides a benefit to Morning Star, in the form of a property interest in the allowances themselves. The court then proceeds to a bizarre discussion of how this is so, given that the regulations specify that there is no property interest in the allowances. The court takes the absurd position that a thing can be property between two private citizens, but not property between the citizen and the government. This is a categorical error, and would certainly come as news to the authors of the Bill of Rights.
It is difficult to see how the court of appeal’s new test would not apply equally to the state’s gas tax. Drivers are no more compelled to fill their cars with gas than Morning Star must purchase emissions allowances to remain in business. People make voluntary decisions to drive, or take the bus, or catch Uber, or ride bicycles. Under the court of appeal’s test, paying the gas tax is entirely voluntary. And, you get a whole gallon of gas as your property for each increment of the gas tax you pay, so you clearly get something of value for paying the tax.
PLF will ask the California Supreme Court to review this decision, and require the state to comply with Prop 13 if it wants to continue collecting billions in taxes for unrelated revenue purposes.
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