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Are Property Related Fees That Exceed Costs Taxes as Defined by Proposition 26?

| Jun 14, 2021 | Firm News |

Articles XIII C and D of California’s constitution address taxes, assessments and fees.  They were enacted together in 1996 when the People of this state approved Proposition 218 “The Right to Vote on Taxes Act.”  Article XIII D places limitations on and imposes mandatory procedures on local government agencies seeking to impose special assessments on property and fees and charges for certain “property-related” services.  Courts have held that services such as ongoing water, sewer, storm drainage and refuse (or trash) services are property related services as defined by article XIII D.  Such fees are governed by article XIII C, section 6.

Under Section 6(a) requires a local agency seeking to impose a property related fee to a) give notice to include the amount of the fee and how it was calculated, as well as the reason for the fee, and the date and time of a public hearing.  It must allow those people who will pay the fee to “protest” or vote against the fee.  If a majority protest the fee, it cannot be imposed.

Under Section 6(b), a local agency may not impose a fee that exceeds the cost of service and revenues from such fees may not be used for purposes other than providing the service.  In addition, the fee imposed must be proportionate to the costs attributable to each parcel.  Finally, no fee or charge may be imposed for “general government services” 0 such as police or fire services.

Historically, property related fees were not considered taxes subject to article XIII C.  But in 2010, the People of this state approved Proposition 26, defining most fees and charges as taxes unless a local agency can prove that the fee meets and exception to the definition of tax.  One exception is a “assessments and property-related fees imposed in accordance with the provisions of Article XIII D.”  That begs the question: are property-related fees ever considered taxes under article XIII C?  At least one appellate court seems to suggest they can be, and another suggested they could be.  The answer comes down to the meaning of “in accordance with…”   If it means it only excepts from the definition of “tax” property related fees that comply with all procedural and substantive requirements of article XIII D, section 6, then it could be that property related fees that are imposed in violation of Section 6 might to taxes.  If it means that any property related fee that a local agency imposed in compliance with the procedures of Section 6 – then it could be that property related fees are not taxes, so long as the local agency obtained approval under section 6.

It is a difficult question.  It seems that the exception to the definition of tax for assessments and fees that comply with article XIII D would be meaningless if it only applied to such fees the fully comply with article XIII D, since fees that do not exceed costs are already excepted.  The Supreme Court has yet to way in.  We will have to wait and see how it plays out.