PG sues state over sales tax initiative
The city of Pacific Grove filed a lawsuit against the state of California Wednesday over its refusal to implement a voter-approved sales tax increase.
The complaint, filed in Sacramento County Superior Court by City Attorney David Laredo, asks the court to resolve a dispute between the city and the California Department of Tax and Fee Administration, or CDTFA, that has left the status of Measure L’s tax increase up in the air.
Measure L was approved by voters in the November 2020 election by a wide margin — roughly 60% to 40%. It would add 0.5% onto the 1% that is currently returned to the city by the CDFTA, for a total of 1.5%.
The state agency is charged with collecting and then distributing sales tax, technically called a transaction and use tax, to jurisdictions in California. But the agency is refusing to do so for Pacific Grove because of a typo that referenced the wrong municipal code in a resolution adopting the voter-approved measure.
Even after the city officially corrected the error the agency is still refusing to implement Measure L. The agency, responding to an email request for comment when the city gave the go-ahead to pursue litigation, said “before contracting to administer a Transactions and Use Tax (commonly known as sales tax), it’s our responsibility to make sure ballot measures that increase the Transactions and Use Tax meet
all of the requirements of state law.”
No further was offered.
The failure to implement the tax increase couldn’t come at a worse time for the city. City Manager Ben Harvey noted that before the start of the pandemic the city’s general fund stood at $10.5 million but fell to $7.5 million after the COVID-19 pandemic hit. As a result, Pacific Grove has had to curtail services, even instituting a work furlough program that called for a four-day workweek.
In Wednesday’s lawsuit, the city states that not implementing the tax increase will cost the city between $700,000 and $840,000 each fiscal year “until CDTFA relents and begins collecting the city’s voter-approved tax — a substantial loss made especially acute by the ongoing pandemic and its attendant impacts on revenue and service demands,” the suit reads.
Claiming comment
“ambiguity
where none exists,” the lawsuit states that the CDTFA wants Pacific Grove to hold another election to pass the measure again. Nicolas Maduros, the director of CDTFA was specifically named in the complaint, as well as other officials.
The drafting error was to cite Pacific Grove Municipal Code 6.08 instead of 6.07. The 6.08 municipal code refers to a state statute called the Bradley-Burns Tax that cannot be changed by a municipality. But 6.07 is the municipal code that does permit a city to increase salestax.
It would make no sense to try and change a law a city has no authority to change, which is part of the city’s argument in the lawsuit.
“Measure L was intended to do what the city
could do, not what it could not,” the lawsuit states.
One precedent established by the California Supreme Court (People vs. Skinner, 1985) is a case of an initiative that included “and” but really meant “or.” The court held that when the intent seems clear, a typo can be rectified by legislation, as the Pacific Grove City Council did following discovery of the typo.
Another precedent involves what Laredo referred to as the “absurdity doctrine.” In it, if the language of a legislative provision has two interpretations, and one is “reasonable, fair and harmonious” with its intended purpose and the other “would be productive of absurd consequences, the former construction will be adopted,” according to the lawsuit.
Laredo is effectively arguing that it is absurd to try and change a municipal code that cannot be changed (MC 6.08) and so it would default to the legislative construction that makes sense (6.07).
It would make no sense to try and change a law a city has no authority to change.