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Discussion Notes

1. The Pennsylvania Court states that the "substantive content of the Uniformity Clause is of course less susceptible to precise definition than is the scope of its application." 444 Pa. at 48, 279 A.2d at 59. What does this mean?

2. Massachusetts proposed an amendment to its constitution that would have permitted a graduated personal income tax, seeking to overcome a limitation similar to that recognized in Amidon v. Kane. Its attempt to limit corporate spending to influence the referendum was struck down, on fed

eral constitutional grounds, in First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978).

3. In State ex rel. Harvey v. Morgan, 139 N.W. 2d 585 (Wis. 1966) the Wisconsin Supreme Court upheld state "circuit breaker" property tax relief legislation in the face of a uniformity clause challenge. Circuit breaker legislation provides for state rebates or credits to persons whose local property taxes exceed a certain portion of their income. The court held such legislation was not really a "tax" bill, but rather a welfare-type police power meas

ure.

4. The "Tax Revolt" and State Constitutions

The famous Proposition 13 was an initiated amendment which created Article 13A of the California Constitution, adopted in June, 1978. It has been amended several times since then.

California Constitution, Article XIII A. Tax Limitation

Section 1. Ad Valorem tax on real property; maximum amount; application

Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.

(b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on (1) any indebtedness approved by the voters prior to July 1, 1978, or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition.

Section 2. Full Cash value; reassessment; newly constructed property; seismic safety; value of replacement dwelling; full cash value base; change in ownership; family transfers

Section 2. (a) The full cash value means the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value" or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. All real property not already assessed up to the 1975-76 full cash value may be reassessed to reflect that valuation.

For purposes of this section, "newly-constructed" does not include real property which is reconstructed after a disaster, as declared by the Governor, where the fair market value of the real property, as reconstructed, is comparable to its fair market value prior to the disaster. Also, the term "newly constructed" shall not include the portion of reconstruction or improvement to a structure, constructed of unreinforced masonry bearing wall construction, necessary to comply with any local ordinance relating to seismic safety during the first 15 years following that reconstruction or improvement.

However, the Legislature may provide that under appropriate circumstances and pursuant to definitions and procedures established by the Legislature, any person over the age of 55 years who resides in property which is eligible for the homeowner's exemption under subdivision (k) of Section 3 of Article XIII and any implementing legislation may transfer the base year value of the property entitled to exemption, with the adjustments authorized by subdivision (b), to any replacement dwelling of equal or lesser value located within the same county and purchased or newly constructed by that person as his or her principal residence within two years after the sale of the original property. For purposes of this section, "any person over the age of 55 years" includes a married couple one member of which is over the age of 55 years. For purposes of this section, "replacement dwelling" means a building, structure, or other shelter constituting a place of abode, whether real property or personal property, and any land on which it may be situated. For purposes of this section, a twodwelling unit shall be considered as two separate single-family dwellings. This paragraph shall not apply to any replacement dwelling which was purchased or newly constructed prior to the effective date of this paragraph.

(b) The full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction or other factors causing a decline in value.

(c) For purposes of subdivision (a), the Legislature may provide that the term "newly constructed" shall not include both of the following:

(1) The construction or addition of any active solar energy system.

(2) The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as defined by the Legislature, which is constructed or installed after the effective date of this paragraph.

(d) For purposes of this section, the term "change in ownership” shall not include the acquisition of real property as a replacement for comparable property if the person acquiring the real property has been displaced from the property replaced by eminent domain proceedings, by acquisition by a public entity, or governmental action which has resulted in a judgment of inverse condemnation. The real property acquired shall be deemed comparable to the property replaced if it is similar in size, utility, and function, or if it conforms to state regulations defined by the Legislature governing the relocation of persons displaced by governmental actions. The provisions of this subdivision shall be applied to any property acquired after March 1, 1975, but shall affect only those assessments of that property which occur after the provisions of this subdivision take effect.

(e) Notwithstanding any other provision of this section, the Legislature shall provide that the baseyear value of property which is substantially damaged or destroyed by a disaster, as declared by the Governor, may be transferred to comparable property, within the same county, that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property.

This subdivision shall apply to any comparable replacement property acquired or newly constructed on or after July 1, 1985, and to the determination of baseyear values for the 1985-86 fiscal year and fiscal years thereafter.

(f) For the purposes of subdivision (e):

(1) Property is substantially damaged or destroyed if it sustains physical damage amounting to more than 50 percent of its value immediately before the disaster. Damage includes a diminution in the value of property as a result of restricted access caused by the disaster.

(2) Replacement property is comparable to the property substantially damaged or destroyed if it is similar in size, utility, and function to the property which it replaces, and if the fair market value of the acquired property is comparable to the fair market value of the replaced property prior to the disaster.

(g) For purposes of subdivision (a), the terms "purchased" and "change in ownership" shall not include the purchase or transfer of real property between spouses since March 1, 1975, including, but not limited to, all of the following:

(1) Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor.

(2) Transfers to a spouse which take effect upon the death of a spouse.

(3) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation.

(4) The creation, transfer, or termination, solely between spouses, of any co-owner's interest.

(5) The distribution of a legal entity's property to a spouse or former spouse in exchange for the interest of the spouse in the legal entity in connection with a property settlement agreement or a decree of dissolution of a marriage or legal separation.

(h) For purposes of subdivision (a), the terms “purchased" and "change of ownership" shall not include the purchase or transfer of the principal residence of the transferor in the case of a purchase or transfer between parents and their children, as defined by the Legislature, and the purchase or transfer of the first $1,000,000 of the full cash value of all other real property between parents and their children, as defined by the Legislature. This subdivision shall apply to both voluntary transfers and transfers resulting from a court order or judicial decree.

(i) Unless specifically provided otherwise, amendments to this section shall be effective for

change of ownerships which occur, and new construction which is completed, after the effective date of the amendment.

Section 4. Special taxes; imposition

Section 4. Cities, counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district.

Discussion Notes

1. Proposition 13 was upheld against a variety of constitutional attacks, many of which had to do with the procedure by which it was adopted. Amador Valley Joint Union High School Dist. v. Board of Equalization, 22 Cal. 3d 208, 583 P.2d 1281 (1978). See generally, George Lefcoe and Barney Allison, "The Legal Aspects of Proposition 13: The Amador Valley Case," Southern

City and County of San Francisco v. Farrell

32 Cal. 3d 47, 648 P.2d 935 (1982)

MOSK, Justice.

In 1978, the voters adopted Proposition 13 (now art. XIIIA of the Const.) which places limitations on the taxation powers of state and local government. Section 4 provides, "Cities, counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district."

In our recent decision in Los Angeles County Transportation Commission v. Richmond (1982) 31 Cal.3d 197, 182 Cal. Rptr. 324, 643 P.2d 941, we interpreted the effect of this provision as it applies to “special districts," holding that as used in Section 4 that term encompasses only entities empowered to levy a property tax. The present action involves the meaning of another term used in Section 4: the issue is whether a payroll and gross receipts tax, the proceeds of which are placed into a city's general fund to be used for general governmental expenditures, constitutes a "special tax" so that a two-thirds vote of the electors is required in order to adopt such a tax.

Prior to March 28, 1980, San Francisco, a charter city and county, imposed on businesses operating in the city a tax of 1.1 percent on payrolls or gross re

Section 5. Effective date of article

Section 5. This article shall take effect for the tax year beginning on July 1 following the passage of this Amendment, except Section 3 which shall become effective upon the passage of this article.

Section 6. Severability

Section 6. If any section, part, clause, or phrase hereof is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected but will remain in full force and effect.

California Law Review 53 (November 1979): 173. 2. Does Proposition 13 read like constitutional language? Why would it be put into the constitution?

3. Does a constitutional provision like Proposition 13 leave much room for judicial interpretation? Read the next case with that question in mind.

ceipts. The proceeds of the tax were to be used for general revenue purposes. On April 1, 1980, ordinances increasing the tax rate to 1.5 percent became effective. These increases were to expire on June 30, 1980, but prior to that date, the board of supervisors placed on the election ballot an initiative measure proposing to extend the expiration date. The voters approved the extension by a majority vote of 55 percent on June 3, 1980.

On May 29, 1980, the mayor approved a request for a supplemental appropriation of $1.1 million by the department of health to pay for improvement of the elevator system at the municipally owned Laguna Honda Hospital. The request specified that the appropriation was to come from the proceeds of the increases in the payroll and gross receipts taxes.

Respondent Farrell, the city's controller, refused to certify that funds were available for the proposed expenditure. He asserted that the increased tax adopted by the voters constituted a "special tax" as defined in Article XIIIA, Section 4 of the Constitution, and it had not been lawfully collected because its imposition was not approved by two-thirds of the electorate, as required by that section. . . .

In claiming that the imposition of an increase in the payroll and gross receipts taxes does not require a two-thirds vote of the electorate, the city makes two basic arguments. It claims that Section 4 does not apply to charter cities. In the alternative, it argues that the term "special taxes," as used in that provision, applies only to taxes earmarked for a specific purpose, and that since the payroll and gross receipts taxes at issue here are not so designated, their imposition is

not subject to the two-thirds vote requirement. We shall conclude that the city prevails as to the second of these assertions.

The rules of construction applicable to constitutional initiatives were set forth in detail in Amador Valley Joint Union High School District v. State Board of Equalization (1978) 22 Cal.3d 208, 219, 245-246, 149 Cal. Rptr. 239, 583 P.2d 1281, and it is not necessary to repeat them in detail here. In that decision, we upheld the constitutionality of various provisions of Article XIIIA, and in doing so we applied the familiar rules that an initiative measure should receive a practical construction, that its literal language may be disregarded to avoid absurd results and to fulfill the intent of the framers, and that ambiguities in the wording of the measure may be clarified by reference to the material presented to the voters in the ballot pamphlet and the contemporaneous construction of the measure by the Legislature.

We expanded on these general propositions in Richmond with a qualification applicable specifically to a provision which, like section 4, requires a twothirds vote for the adoption of a tax measure. The Richmond case involved the adoption of a sales and use tax by the Los Angeles County Transportation District. Prior to the enactment of Article XIIIA, the Legislature had authorized the district to adopt such a tax for the purpose of improving public transit, upon a majority vote of the electors who voted in the election; the district had no authority to enact a property tax. The tax was approved by a majority but less than two-thirds of the voters after the effective date of the constitutional amendment. We held that the tax was valid despite the absence of a two-thirds favorable majority because the language of the section and extrinsic aids to its construction indicated that the term "special districts" in section 4 referred only to those entities authorized to levy a property tax.

In reaching this conclusion, we held that, while the requirement for a two-thirds vote as a condition for adoption of a tax is not unconstitutional (see Gordon v. Lance (1971) 403 U.S. 1, 6, 91 S.Ct. 1889, 1892, 29 L.Ed.2d 273), the language of section 4 must be strictly construed and ambiguities therein resolved so as to limit the measures to which the two-thirds requirement applies. In this connection, we reasoned that the two-thirds vote requirement in section 4 is inherently undemocratic; the requirement was imposed by a simple majority of the voters throughout the state upon a local entity to prohibit a majority (but less than two-thirds) of the voters of that entity from taxing themselves for programs or services which would benefit largely local residents; and the sales tax in issue in that case unlike the levy in Gordon, did not result in "committing... the credit of... generations yet unborn." (31 Cal.3d at pp. 203-205, 182 Cal. Rptr. 324, 643 P.2d 941.)

Two additional observations we made in Richmond are relevant to the present case: We recognized that section 4 is ambiguous in various respects, and that, although its language is framed affirmatively so as to authorize local entities to adopt "special taxes," it is actually a limitation on the enactment of such taxes because it requires a two-thirds vote for their approval.

With this background, we turn to the meaning of the term "special taxes" in section 4. The city claims that these words refer to a tax whose proceeds are used for a special purpose, while Farrell asserts that they refer to additional or supplemental taxes other than those specifically excepted.

There can be no doubt that the term "special taxes" is ambiguous in the sense that it has been interpreted to mean different things in different contexts. One meaning frequently attributed to it by cases and statutes is a tax "collected and earmarked for a special purpose, rather than being deposited in a general fund."...

Farrell, relying on some of a number of dictionary definitions of the word "special" as "supplemental to the regular" (Webster's 3d New Internat. Dict. (3d ed. 1971), "additional" or "extra" (Funk & Wagnall's Standard College Dict. (1968), claims that a "special tax" is an “extra, additional, or supplemental charge imposed... to raise money for public purposes.”4

In construing the words of a statute or constitutional provision to discern its purpose, the provisions should be read together; an interpretation which would render terms surplusage should be avoided, and every word should be given some significance, leaving no part useless or devoid of meaning....

Farrell's claim that the word "special" as used in Section 4 means "additional" or "extra" or "supplemental" effectively reads the word "special" out of the statute, since any taxes imposed by a local entity following adoption of Article XIIIA would be encompassed within those descriptive terms. Moreover, the language used in section 3 of the article... indicates that the term "special taxes" in section 4 refers to some particular type of tax. Section 3 provides that state taxes enacted for the purpose of increasing revenue must be passed by a two-thirds vote of each house of the Legislature. The section states that "any" changes in state taxes to increase revenue must be enacted by the two-thirds vote. If the term “special" were to have the broad meaning suggested by

4These definitions are not the only nor indeed the first dictionary definitions of the word "special" in the authorities cited by Farrell. In both dictionaries upon which he relies, the first definition of "special" is a thing which is distinguished by some unusual or distinguishing quality or characteristic.

Farrell, it is very likely that section 4, like section 3, would have provided that "any" changes in taxes would require the votes of an extraordinary majority. Thus, the language of section 4 appears to support the city's assertion that “special taxes" refers to a particular type of tax rather than to any and all exactions.

We turn next to Farrell's claim that the material presented to the voters in the ballot pamphlet corroborates his view that the electorate understood and intended "special taxes" in section 4 to mean all taxes. The statement of the Legislative Analyst in the ballot pamphlet that "new taxes would... have to be approved by two-thirds of the local voters" would appear to support Farrell's position. (Ballot Pamp., Proposed Amends. to Cal.Const. with arguments to voters, Primary Elec. (June 6, 1978), page 60.) However, this broad language is qualified by a preceding sentence which describes the initiative as allowing local governments to raise additional revenues by levying "other unspecified taxes," indicating that perhaps not all "new taxes" must be approved by a two-thirds vote. In another portion of the analysis, section 4 is described as authorizing local governments to impose "certain" nonproperty taxes with the approval of twothirds of the voters. (Id. at p. 56.) If anything, this statement favors the city's view, since the use of the word "certain" implies that some but not all nonproperty taxes are subject to the two-thirds require

ment.

The broadest reference in the pamphlet to the scope of section 4 is a statement by the proponents of the measure, who describe its effects as follows: "Limits property tax to 1% of market value, requires two-thirds vote of both houses of the legislature to raise any other taxes . . . and requires all other tax raises to be approved by the people." (Ballot Pamp. op. cit. at p. 58.) Whether the voters accepted the Legislative Analyst's statement that "certain" nonproperty taxes were subject to the two-thirds requirement or this broader description of the effect of the measure we cannot know. It seems apparent, however, that the ballot pamphlet provides little authoritative guidance to the meaning of "special taxes" in section 4.5

Nor does legislation following the enactment of article XIIIA assist in deciding the issue before us. The parties refer to Sections 50075 through 50077 of the Government Code, enacted in 1979, as an indication of the Legislature's interpretation of section 4. These provisions authorize the imposition of special taxes by local entities upon the concurrence of two

5Other portions of the ballot pamphlet relied upon by Farrell are also uninstructive. For example, he relies on the summary of the Attorney General, which states that Proposition 13 authorizes the imposition of "special taxes... by 2/3 vote of qualified electors." This statement does not purport to define the exactions which are included in the term "special taxes."

thirds of the electorate voting on the measure. Section 50076 states that, as used in the article " "special tax' shall not include any fee which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged and which is not levied for general revenue purposes." Farrell contends that this provision implies that the Legislature viewed an exaction for general revenue purposes to be a "special tax" within the meaning of section 4. However, section 50076 refers to a fee for services and we are not here concerned with whether such a fee may exceed the cost of the service provided, but with whether section 4 permits the levy of a tax for general revenue purposes without a two-thirds vote. The exception provided by section 50076 sheds little light on this question.

Farrell relies heavily on certain statements we made in Amador regarding the purpose of section 4. In holding that the provisions of article XIIIA did not violate the constitutional prohibition against an initiative measure containing more than one subject (Cal. Const., art. II, Section 8, subd. (d)], we observed that the four sections of article XIIIA are "functionally related in furtherance of, a common underlying purpose, namely, effective real property tax relief." (22 Cal.3d at p. 230, 149 Cal.Rptr. 239, 583 P.2d 1281.) We explained this relationship as follows:

[S]ince any tax savings resulting from the operation of sections 1 and 2 could be withdrawn or depleted by additional or increased state or local levies of other than property taxes, sections 3 and 4 combine to place restrictions upon the imposition of such taxes. Although sections 3 and 4 do not pertain solely to the matter of property taxation, both sections, in combination with sections 1 and 2, are reasonably germane, and functionally related, to the general subject of property tax relief.

(Id. at p. 231, 149 Cal.Rptr. 239, 583 P.2d 1281).

Admittedly, this language can be interpreted to mean that any tax levy (aside from the specified exceptions) comes within the two-thirds vote requirement of section 4, whether imposed for general or special revenue purposes. But there are persuasive reasons for not invoking such an interpretation. Amador itself warns against the use of its language as authority for propositions not before the court in that case. The opinion, stressing the "limited nature" of the inquiry involved there, cautions that interpretation or application of specific provisions of article XIIIA should await cases in which the meaning of particular provisions is directly challenged. (22 Cal.3d at pp. 219-220, 149 Cal.Rptr. 239, 583 P.2d 1281.)

In deciding whether the payroll and gross receipts taxes come within the term "special taxes" in

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