Gonzalez v. City of Norwalk ( 2018 )

Filed 1/3/18 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
ALFRED A. GONZALEZ et al., B276871
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC553119)
v.
ORDER MODIFYING
CITY OF NORWALK, OPINION AND
DENYING PETITION
Defendant and Respondent. FOR REHEARING
It is ordered that the opinion filed December 4, 2017 is
modified as follows:
1. On page 2, the first sentence of the second paragraph
is deleted, and the following sentence is inserted in its place:
“When the voters approved the telephone user tax in 2003, the
Internal Revenue Service interpreted Internal Revenue Code
section 4251 to apply to nearly all telephone service, excepting
the telephone service provided to some very limited categories of
telephone users (such as service members in combat zones and
certain nonprofit organizations). (26 U.S.C. § 4253.)”
2. On page 21, heading (IV) is deleted, and the following
is inserted in its place: “IV. The 2006 Change in the
Interpretation of the Internal Revenue Code Did Not Effect a
Change to the Meaning of Norwalk Municipal Code Section
3.36.060”
3. On page 22, the last sentence is deleted, and the
following sentence is inserted in its place: “Thus, because the
Norwalk Municipal Code specifically referenced IRC section
4251, it incorporated that section’s exemptions as they were
understood to exist when the voters passed Measure A in 2003.”
There is no change in the judgment.
The petition for rehearing, filed December 15, 2017, is
denied.
________________________________________________________________
EDMON, P.J. LAVIN, J. BACHNER, J. *
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
2
Filed 12/4/17 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
ALFRED A. GONZALEZ et al., B276871
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC553119)
v.
CITY OF NORWALK,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, John Shepard Wiley, Jr., Judge. Affirmed.
Girardi & Keese, Thomas V. Girardi, Howard B. Miller,
Robert Finnerty, and Alexandra T. Steele; Law Offices of Martin
N. Buchanan and Martin N. Buchanan; Slovak, Baron, Empey,
Murphy & Pinkey, Thomas S. Slovak and Stephen J. Schultz for
Plaintiffs and Appellants.
Richards, Watson & Gershon, B. Tilden Kim and Saskia T.
Asamura; Daley & Heft, Scott Noya and Lee H. Roistacher for
Defendant and Respondent.
_________________________
In 2003, Norwalk voters approved a 5.5 percent user tax on
all municipal utilities, including telephone service. As adopted,
the telephone user tax applied to most telephone service, but
expressly excluded services “exempt from or not subject to . . . the
tax imposed under Section 4251 of the Internal Revenue Code.”
(Norwalk Municipal Code, § 3.36.060, subd. (D).)
When the voters approved the telephone user tax in 2003,
Internal Revenue Code section 4251 exempted some very limited
categories of telephone users (such as service members in combat
zones and certain nonprofit organizations), but otherwise applied
to all telephone service. (26 U.S.C. § 4253.) By 2006, however,
the federal courts and the Internal Revenue Service had
interpreted section 4251 to exclude many cell phone and landline
plans from the federal tax. Accordingly, in 2007, the Norwalk
City Council (City Council) adopted Ordinance No. 07-1586 (the
2007 ordinance), which deleted the reference to Internal Revenue
Code section 4251 from the Norwalk Municipal Code in order “to
impose the utility user tax on telephone communication services
in a manner that is consistent with how it has been historically
imposed.”
Plaintiffs Alfred Gonzalez and David Reynoso (plaintiffs)
are residents of the defendant City of Norwalk (Norwalk or City)
who pay the telephone user tax through their cellular telephone
providers. In 2014, plaintiffs filed a complaint asserting that the
2007 ordinance violated Propositions 62 and 218, which prohibit
local governments from imposing, extending, or increasing taxes
without voter approval. Plaintiffs urged that when Norwalk
voters approved a utility user tax in 2003, they “specifically voted
not to tax services that were exempt from taxation under”
2
Internal Revenue Code section 4251. Thus, plaintiffs suggested,
eliminating the ordinance’s reference to the Internal Revenue
Code had the effect of imposing, extending, or increasing taxes
within the meaning of Propositions 62 and 218.
The City demurred, asserting that the 2007 ordinance did
not violate Propositions 62 or 218 as a matter of law. The trial
court sustained the demurrer without leave to amend and
subsequently entered a judgment of dismissal.
We affirm. While the 2007 ordinance made a technical
change to the Norwalk Municipal Code, it did not impose, extend
or increase the telephone tax. Accordingly, as a matter of law the
2007 ordinance did not violate Propositions 62 or 218.
BACKGROUND
I.
In 2003, Norwalk Voters Adopt Municipal
Code Section 3.36.060, Which Imposes
a 5.5 Percent Tax on Telephone User Fees
In 1992, the City enacted a user tax on various utilities,
including telephone service (utility user tax).
In about 2003, pursuant to a stipulation entered into in
Howard Jarvis Taxpayers Ass’n and Jerry Ori v. City of Norwalk,
et al., Case No. VC038845, the Norwalk City Council (City
Council) agreed to submit the utility user tax to the voters for
ratification. Thereafter, on July 1, 2003, the City Council
adopted Resolution No. 03-40, setting a special election and
providing that Ordinance No. 1541 (referred to in the ballot
materials as Measure A) would be submitted to the voters for
approval.
In pertinent part, Ordinance No. 1541 (hereafter, Measure
A or the 2003 initiative) provided as follows:
3
“The People of the City of Norwalk do ordain as follows:
“Section A. Chapter 3.36 of the Norwalk Municipal Code
(‘Code’) entitled ‘Utility User Tax’ which applies a five and one-
half percent (5½%) tax rate on all telephone, electric and gas
charges in the City of Norwalk is hereby ratified and approved as
set forth in Chapter 3.36 of the Code as of July 1, 2003, attached
hereto as Exhibit ‘A’ and incorporated herein by this reference[,]
and the City is hereby authorized to continue to impose and
collect the utility tax as provided by the terms set out in Chapter
3.36 of the Code.
“Section B. In no event may the City Council alter the
provisions of section 3.36.060, 3.36.070, and 3.36.080 to increase
the five and one-half percent (5½%) rate on telephone, electric
and gas use without the approval of a majority of voters of the
City, voting on the question of the tax rate; provided, however,
the City Council is hereby authorized to amend any other
provisions of Chapter 3.36 of the Code by three (3) affirmative
votes of its members to, without limitation, carry out the general
administrative purposes of Chapter 3.36 of the Code to
reasonably implement the collection of the utility user tax
through public utilities and other service suppliers as authorized
in Chapter 3.36 of the Code.
“Section C. It is the intent of the voters to apply the
provisions of Chapter 3.36 of the Code to the fullest extent
permitted by the law to ratify the City’s previous and continued
collection of the tax.”
On September 30, 2003, 64.6 percent of Norwalk voters
approved Measure A, which was codified in pertinent part as
Norwalk Municipal Code section 3.36.060. Two provisions of
section 3.36.060 are relevant here:
4
(1) Section 3.36.060, subsection A provided: “There is
imposed a tax on the amounts paid for any interstate, intrastate
and international telephone communication services, including
cellular telephone services and other telephone services that gain
access to the public switched network (PSN) by means of various
technologies, by every person in the City using such services.
The tax imposed by this section shall be at the rate of five and
one half percent of the charges made for such services.”
(2) Section 3.36.060, subsection D provided:
“Notwithstanding the provisions of subsection A of this section,
the tax imposed under this section shall not be imposed upon any
person for using intrastate, interstate and international
telephone communication services to the extent that the amounts
paid for such services are exempt from or not subject to . . . the
tax imposed under Section 4251 of the Internal Revenue Code.”
II.
Internal Revenue Code
Sections 4251 and 4252
When the City of Norwalk adopted Measure A in 2003,
section 4251 of the Internal Revenue Code (IRC) imposed a tax
(sometimes referred to as a “federal excise tax”) on, among other
things, “local telephone service” and “toll telephone service.” (26
U.S.C. § 4251(b)(1)(A)–(B).) Section 4252(b) of the IRC defined
“[t]oll telephone service” as:
“(1) a telephonic quality communication for which (A) there
is a toll charge which varies in amount with the distance and
elapsed transmission time of each individual communication and
(B) the charge is paid within the United States, and
“(2) a service which entitles the subscriber, upon payment
of a periodic charge (determined as a flat amount or upon the
5
basis of total elapsed transmission time), to the privilege of an
unlimited number of telephonic communications to or from all or
a substantial portion of the persons having telephone or radio
telephone stations in a specified area which is outside the local
telephone system area in which the station provided with this
service is located.” (26 U.S.C. § 4252(b), italics added.)1
1 When sections 4251 and 4252 of the IRC were adopted in
1965, only AT&T provided long distance telephone service.
(National Railroad Passenger Corp. v. U.S. (D.C. Cir. 2005)
431 F.3d 374, 375 (NRPC).) AT&T offered two billing plans:
“The first, Message Toll Service (MTS), charged each individual
call based on duration, distance traveled, and time of day. Under
the second plan, Wide Area Telephone Service (WATS),
customers purchased blocks of usage time for a flat fee. WATS
customers paid either a flat monthly rate for an unlimited
number of calls and minutes or a lower rate for up to fifteen
hours of calling plus a further charge for each additional hour.”
(Id. at p. 375.) Congress designed IRC section 4252(b)(1) to cover
MTS, and section 4252(b)(2) to cover WATS, such that “section
4252(b) covered all long-distance services existing in 1965.”
(NRPC, at p. 375, italics added.)
By 1979, some long distance telephone service was billed
based on only the length of telephone calls made by the user,
without regard to distance. In a 1979 ruling, the Internal
Revenue Service concluded that a long distance telephone call for
which the charge varied with elapsed transmission time but not
with distance constituted “toll telephone service” within the
meaning of IRC section 4252(b)(1). The Internal Revenue Service
ruling explained: “The toll charges described in [IRC] section
4252(b)(1), that vary in amount with both distance and elapsed
transmission time of the individual communication, reflect
Congress’ understanding of how the charges for long distance
calls were computed at the time the section was enacted. The
6
Until 2006, the Internal Revenue Service (IRS) interpreted
sections 4251 and 4252 of the IRC to apply to all telephone
service, with the limited exception of those services specifically
exempt pursuant to IRC section 4253.2 (Notice 2005-79, 2005-46
I.R.B. 952–953.) In 2005 and 2006, however, telephone service
providers and customers challenged the application of IRC
sections 4251 and 4252 to long distance telephone plans whose
fees did not vary according to both “the distance and elapsed
transmission time of each individual communication”—e.g., to
cell phone plans that charged customers according to the length
of calls, without regard to the distance of the transmission. Five
federal circuit courts agreed with the challengers, holding that
IRC sections 4251 and 4252 did not apply to such plans. (Reese
Bros., Inc. v. United States (3d Cir. 2006) 447 F.3d 229; Fortis,
intent of the statute would be frustrated if a new type of service
otherwise within such intent were held to be nontaxable merely
because charges for it are determined in a manner which is not
within the literal language of the statute.” (Rev. Rul. 79-404,
1979-2 C.B. 382.)
2 A limited statutory exemption from the tax imposed by IRC
section 4251 was provided in IRC section 4253 for public pay
phone operators, news services, communications companies,
service members in combat zones, international organizations,
state and local governments, and certain nonprofit organizations.
(26 U.S.C. § 4253.)
Neither party has suggested that the exemptions in
IRC section 4253 are relevant to any of the issues before us.
Thus, for ease of discussion, we will refer to the federal excise
tax, as it was enforced by the IRS until mid-2006, as having
taxed “all” telephone service.
7
Inc. v. United States (2d Cir. 2006) 447 F.3d 190; NRPC, supra,
431 F.3d 374; OfficeMax, Inc. v. United States (6th Cir. 2005) 428
F.3d 583; American Bankers Ins. Group v. United States (11th
Cir. 2005) 408 F.3d 1328.)
In June 2006, the IRS issued Notice 2006-50, which stated
that in light of the holdings of the five federal circuit court cases,
it would no longer collect federal excise taxes on any “long
distance” or “bundled” service. “Long distance service” was
defined as “telephonic quality communication with persons whose
telephones are outside the local telephone system of the caller.”
“Bundled service” was defined as “local and long distance service
provided under a plan that does not separately state the charge
for the local telephone service,” including “both landline and
wireless (cellular) service” under plans “that provide both local
and long distance service for either a flat monthly fee or a charge
that varies with the elapsed transmission time.” (Notice 2006-50,
2006-25 I.R.B. 1141–1144.) In January 2007, the IRS issued
Notice 2007-11, which clarified and modified Notice 2006-50.
(Notice 2007-11, 2007-5 I.R.B. 405–406.)
III.
Norwalk City Council Ordinance No. 07-1586
On March 20, 2007, the City Council adopted Ordinance
No. 07-1586 (the 2007 ordinance). In its statement of purpose,
the City Council explained that the City of Norwalk had imposed
a utility user tax on telephone communication services since
July 13, 1992. For “ease of administration and convenience of the
telephone communication service providers,” the City had for
many years administered its utility user tax consistently with the
administration of the federal excise tax (26 U.S.C. sections 4251
et seq.). However, the IRS’s revised interpretation of the federal
8
excise tax as expressed in IRS Notice 2006-50 “is inconsistent
with both the original legislative intent of the City’s telephone
user tax and the manner in which the City has historically
imposed its telephone user tax,” and the City Council “wishes to
continue to impose the utility user tax on telephone
communication services in a manner that is consistent with how
it has been historically imposed.” Accordingly, the City Council
adopted the following ordinance, which “clarifies and restates the
type of telephone service that is subject to the tax without
reference to the Federal Excise Tax and does not increase the tax
or change or expand the type of telephone services that are
subject to the tax”:
“Section 1. Title 3 of the Norwalk Municipal Code is hereby
amended by deleting paragraph D from Section 3.36.060 of
Chapter 3.36.
“Section 2. Because the provisions of the Norwalk
Municipal Code, as amended by this ordinance, do not alter the
amount of the City’s telephone user tax, do not expand the
application of the tax, and are substantially the same as the
previous provisions of the Code as they read immediately prior to
the adoption of this ordinance, the amendments made by this
ordinance shall be construed as continuations of the earlier
provisions and not as new enactments.”
The City Council Agenda Report describes the 2007
ordinance’s “Fiscal Impact” as follows: “None if adopted.
However, there is a potential for significant loss of tax revenues
to the City if the proposed ordinance is not adopted.”
9
IV.
The Present Litigation
A. Complaint and First Amended Complaint
Plaintiffs filed the present action on July 29, 2014, and
filed a first amended complaint on February 20, 2015. The City
demurred to the first amended complaint, and the trial court
sustained the demurrer with leave to amend.
B. Second Amended Complaint
Plaintiffs filed the operative second amended complaint on
June 29, 2015. It alleged as follows: Prior to 2007, the Norwalk
Municipal Code excluded from its utility user tax services
“exempt from or not subject to the tax imposed under Sections
4251, 4252, and 4253 of Title 26 of the United States Code
(‘Federal Excise Tax’). Thus, any services not taxable under the
Federal Excise Tax [could not] lawfully be taxed by the City,” and
telephone service billed at rates “that do not vary with both
distance and transmission time, therefore, . . . fall outside of the
Federal Excise Tax, and hence, the [utility user tax].” In 2007,
without voter approval, Norwalk amended the utility user tax by
striking the reference to the federal excise tax. The 2007
ordinance violated Propositions 62 and 218, which provide that
no local government may impose a general tax unless such tax is
approved by the voters.
The second amended complaint asserted that the City’s
actions gave rise to six causes of action: (1) declaratory and
injunctive relief, (2) money had and received, (3) unjust
enrichment, (4) writ of mandamus, (5) violation of Government
Code section 53723 (Proposition 62), and (6) violation of the
10
California Constitution, Article XIII, section C (Proposition 218).3
Plaintiffs sought a declaration that the utility user tax had been
illegally applied and collected, an injunction preventing further
collection of the utility user tax on telephone services not taxable
under the federal excise tax, a writ of mandate requiring the City
to provide a constitutionally adequate legal remedy to taxpayers,
an order that the City account for and return the taxes illegally
collected, prejudgment interest, and attorney fees.
C. City’s Demurrer to Second Amended Complaint
The City demurred to the second amended complaint. On
April 6, 2016, the court sustained the demurrer to all causes of
action without leave to amend, explaining as follows:
“[Plaintiffs’] . . . argument is this: [Proposition 62] provides
that cities cannot ‘impose’ a general tax unless they submit that
tax to the city’s electorate, which Norwalk did not do in 2007.
[Plaintiffs] therefore would conclude the Norwalk tax is invalid.
“[Plaintiffs’] logic is incorrect. Norwalk voters approved
[the] 5.5% phone tax in 2003. The City Council’s 2007 deletion of
the federal reference changed an invisible legal detail in an old
and voter-approved tax. The deletion did not impose a new tax.
[Plaintiffs do] not allege the 2007 deletion had the effect of
costing taxpayers more tax dollars. Before and after the 2007
deletion, as [plaintiffs] conceded in oral argument, the 5.5% tax
on monthly cell phone bills remained the same. As far as
taxpayers were concerned, then, the deletion had no practical or
discernible effect. The Norwalk City Council thus did not
‘impose’ a phone tax in 2007. This claim fails.
3 Plaintiffs have since abandoned their causes of action for
money had and received and unjust enrichment.
11
“[Plaintiffs’] constitutional argument likewise fails.
[Their] constitutional argument is as follows. Section 2(b) of
Article [VIII C] of the California Constitution specifies that no
local government may ‘impose, extend, or increase’ any general
tax unless voters approved the tax. [Plaintiffs say] Norwalk
indeed did ‘impose,’ ‘extend,’ and ‘increase’ this tax in 2007. But
Norwalk did not ‘impose’ this tax in 2007, as the previous
paragraph established. Nor did it ‘increase’ the tax, because the
level and the size of the tax remained exactly the same.
“That leaves us with the third constitutional verb: ‘extend.’
Did the City Council action ‘extend’ the phone tax? The answer is
no.
“To construe the word ‘extend,’ it is proper to consult the
Proposition 218 Omnibus Implementation Act, which the
Legislature passed in response to Prop 218. Our Supreme Court
mentioned this statute when interpreting California’s
Constitution. (See Greene v. Marin County Flood Control &
Water Conservation Dist. (2010) 49 Cal. 4th 277, 290–291
(ultimate constitutional interpretation authority belongs to the
judiciary, which may consult a contemporaneous construction of
the constitutional provision made by the Legislature, including
the Proposition 218 Omnibus Implementation Act).)
“This statutory interpretive aid states that ‘extended’
means a decision by local government ‘to extend the stated
effective PERIOD for the tax or fee or charge, including, but not
limited to, amendment or removal of a sunset provision or
expiration date.’ (Government Code 53750, subd. (e) emphasis
added).)
“The City Council did not extend the stated effective period
of the Norwalk cell phone tax in 2007. This tax was a[]
12
permanently ongoing tax when the voters approved it in 2003. So
it remained in 2007. The 2007 action did not extend the period of
the tax. Nor did the 2007 action extend the tax to more
taxpayers or to more tax bills. As far as taxpayers paying tax
bills could see in 2007, nothing changed.
“[Plaintiffs’] claims have no legal validity. . . . The
demurrer is sustained without leave to amend because [plaintiffs
have] made no attempt to suggest [they] can amend [their]
pleading to greater effect.”
A judgment of dismissal was entered on April 20, 2016, and
notice of entry of judgment was served on April 25, 2016.
Plaintiffs timely appealed.
CONTENTIONS
Plaintiffs contend that when the City Council adopted the
2007 ordinance, which deleted subsection D from section 3.36.060
of the Norwalk Municipal Code, it unlawfully “imposed, extended,
or increased a local tax without voter approval” in violation of
Propositions 62 and 218.
The City contends the voters approved a 5.5 percent utility
user tax, and the 2007 ordinance merely made a minor change to
the utility user tax provisions to ensure that the tax approved by
the voters in 2003 remained the same. Accordingly, the City
Council’s adoption of the 2007 ordinance did not impose, extend,
or increase a tax without voter approval in violation of
Propositions 62 and 218.
13
STANDARD OF REVIEW
“On appeal from an order of dismissal after an order
sustaining a demurrer, the standard of review is de novo: we
exercise our independent judgment about whether the complaint
states a cause of action as a matter of law.” (Stearn v. County of
San Bernardino (2009) 170 Cal. App. 4th 434, 439.) Our review of
the trial court’s interpretation of a statute or constitutional
provision is also de novo. (California Cannabis Coalition v. City
of Upland (2017) 3 Cal.5th 924, 933–934 (California Cannabis
Coalition).)
DISCUSSION
I.
The Legal Framework:
Propositions 62 and 218
In 1986, California voters passed Proposition 62, which, as
subsequently codified in Government Code section 53723,
requires local governments to seek voter approval of all new
general taxes. It provides: “No local government, or district,
whether or not authorized to levy a property tax, may impose any
general tax unless and until such general tax is submitted to the
electorate of the local government, or district and approved by a
majority vote of the voters voting in an election on the issue.”
(Gov. Code, § 53723, italics added.)
In 1996, voters passed Proposition 218, which added to the
California Constitution the requirement that local governments
seek voter approval of new general and special taxes. Proposition
218 provides: “No local government may impose, extend, or
increase any general tax unless and until that tax is submitted to
the electorate and approved by a majority vote. A general tax
shall not be deemed to have been increased if it is imposed at a
14
rate not higher than the maximum rate so approved. . . .”
(Cal. Const., art. XIII C, § 2, subd. (b), added by initiative
measure (Prop. 218, § 3, approved Nov. 5, 1996), italics added.)
“A ‘general tax’ is one ‘imposed for general governmental
purposes’ ([Cal. Const., art. XIII C], § 1, subd. (a)), which courts
have interpreted to mean a tax whose revenues are placed in the
taxing jurisdiction’s general fund, thus making them available for
any and all governmental purposes. (Weisblat v. City of San
Diego (2009) 176 Cal. App. 4th 1022, 1039; Howard Jarvis
Taxpayers Assn. v. City of Roseville (2003) 106 Cal. App. 4th 1178,
1185.)” (Chiatello v. City and County of San Francisco (2010)
189 Cal. App. 4th 472, 479, fn. 1.) A “local government” is “any
county, city, city and county, including a charter city or county,
any special district, or any other local or regional governmental
entity.” (Cal. Const., art. XIII C, § 1, subd. (b).)
II.
What Is And Is Not in Dispute
There are several issues on which the parties agree. It is
undisputed that the utility user tax is a “general tax” and the
City is a “local government” within the meaning of Propositions
62 and 218. It also is undisputed that the 2007 ordinance was
adopted by the City Council without voter approval. And, it is
undisputed that the 2007 ordinance eliminated the exemption for
telephone service not subject to the federal excise tax (26 U.S.C.
§ 4251 et seq.).
The crux of the parties’ dispute is the effect of the 2007
ordinance—specifically, whether the elimination of the reference
to IRC section 4251 had the effect of “impos[ing]” a tax within the
meaning of Proposition 62, or of “impos[ing],” “extend[ing],” or
“increas[ing]” a tax within the meaning of Proposition 218.
15
Plaintiffs urge that the 2007 ordinance significantly
expanded the kinds of telephone service subject to the utility user
tax. They contend that when the voters approved Measure A in
2003, they “specifically voted not to tax services that were exempt
from taxation under the Federal Excise Tax.” Telephone service
was taxable under the federal excise tax only if it “varie[d] in
amount with the distance and elapsed transmission time;” and
thus plaintiffs urge that as adopted, the utility user tax did not
apply to cellular telephone service that “provide[d] local and long
distance service for either a flat monthly fee or a charge that
varie[d] with the elapsed transmission time for which the service
[was] used.” The 2007 ordinance applied the utility user tax to
all telephone service, and thus it significantly expanded the tax’s
reach.
The City contends that the 2007 ordinance did not make
any substantive change to the municipal utility user tax. It
asserts that in 2003 the voters approved a 5.5 percent tax on all
telephone service billed to City residents, and “[t]his 5.5% percent
rate has remained the same for well over a decade and remains
unchanged today.” Accordingly, the City urges that while the
2007 ordinance made technical changes to the utility user tax, it
did not extend the tax to any telephone service not already
subject to it.
Before we turn to a consideration of the effect of the 2007
ordinance on the City’s utility user tax, we briefly address an
issue to which the parties devote significant portions of their
appellate briefs—the distinctions between the terms “impose,”
“extend,” and “increase,” as used in Proposition 218. Although
these terms are not synonymous, the differences between them
need not detain us here. The key issue before us is whether the
16
2007 ordinance subjected Norwalk residents to a tax to which
they were not already subject under the initiative approved by
the voters in 2003. If it did, we need not determine whether such
tax was effectuated through an imposition, extension, or increase
in order to decide that the 2007 ordinance violated Propositions
62 and 218—and if it did not, the distinctions between the terms
are similarly immaterial.
We therefore now turn to the significant question before us:
whether the 2007 ordinance established a new tax—i.e., whether
it subjected telephone users or plans to a tax to which they
previously had not been subject—or instead continued an existing
tax already approved by the voters.
III.
As Enacted by the Voters in 2003, Measure A
Imposed a User Tax on All Telephone Service
A. Legal Standards
“ ‘When interpreting a [statute or a] provision of our state
Constitution, our aim is “to determine and effectuate the intent of
those who enacted the [statute or] constitutional provision at
issue.” [Citation.] When, as here, the voters enacted the
provision, their intent governs. [Citation.] . . .’ ” (Paland v.
Brooktrails Township Community Services Dist. Bd. of Directors
(2009) 179 Cal. App. 4th 1358, 1368–1369.)
To determine the voters’ intent, “we first analyze
provisions’ text in their relevant context, which is typically the
best and most reliable indicator of purpose. (Larkin v. Workers’
Comp. Appeals Bd. (2015) 62 Cal. 4th 152, 157; Kwikset Corp. v.
Superior Court (2011) 51 Cal. 4th 310, 321 [when interpreting
voter initiatives, ‘ “we begin with the text” ’].) We start by
ascribing to words their ordinary meaning, while taking account
17
of related provisions and the structure of the relevant statutory
and constitutional scheme. (Los Angeles County Bd. of
Supervisors v. Superior Court (2016) 2 Cal.5th 282, 293; Bighorn-
Desert View Water Agency v. Verjil (2006) 39 Cal. 4th 205, 212
(Bighorn).) If the provisions’ intended purpose nonetheless
remains opaque, we may consider extrinsic sources, such as an
initiative’s ballot materials. (Larkin, at p. 158.) Moreover, when
construing initiatives, we generally presume electors are aware of
existing law. (In re Lance W. (1985) 37 Cal. 3d 873, 890, fn. 11
(Lance W.).)” (California Cannabis Coalition, supra, 3 Cal.5th at
pp. 933–934.)
B. When Norwalk Voters Passed Measure A in 2003,
They Expressed a Clear Intent to Impose a 5.5 Percent
Tax on All Telephone Service
Prior to 2003, the City taxed telephone, electric, and gas
utility services at the rate of 5.5 percent. In 2003, the City
Council agreed to allow the voters to ratify the City’s continued
collection of the utility user tax. Therefore, on July 1, 2003, the
City Council adopted Resolution No. 03-40, entitled “A Resolution
of the City Council of the City of Norwalk Calling and Giving
Notice of the Holding of Special Municipal Election on Tuesday,
September 30, 2003, for the Submission to the Qualified Voters of
the City a Proposed Ordinance to Ratify Continuing Collection of
the City’s Existing Utility User Tax.” The resolution called for
the setting of a special election to obtain voter approval of the
“continued collection of a utility user[] tax as a general tax at a
rate not to exceed five and one-half percent.” This language
suggests that the intent of the initiative was to continue the
utility user tax as it then existed, by ratifying a 5.5 percent tax
on all telephone service.
18
That the voters intended by passing Measure A to impose a
5.5 percent tax on all telephone service is supported by all of the
following:
Section A of Measure A: Section A stated: “Chapter 3.36 of
the Norwalk Municipal Code (‘Code’) entitled ‘Utility User Tax’
which applies a five and one-half percent (5 ½%) tax rate on all
telephone, electric and gas charges in the City of Norwalk is
hereby ratified and approved as set forth in Chapter 3.36 of the
Code as of July 1, 2003.” On its face, this language told the
voters that what they were approving was a 5.5 percent tax on
“all telephone . . . charges.” (Italics added.)
Section C of Measure A: Section C stated: “It is the intent
of the voters to apply the provisions of Chapter 3.36 of the Code
to the fullest extent permitted by the law to ratify the City’s
previous and continued collection of the tax.” (Italics added.)
Prior to the enactment of Measure A, the City already had been
taxing all telephone service at the rate of 5.5 percent; thus,
section C’s reference to the “continued collection of the tax”
(italics added) indicates that the voters intended to approve a
continued 5.5 percent tax on all telephone service.
Proposed Norwalk Municipal Code section 3.36.060,
subsection A: Subsection A of section 3.36.060 provided that
“[t]here is imposed a tax on the amounts paid for any interstate,
intrastate and international telephone communication services,
including cellular telephone services . . . at the rate of five and
one half percent of the charges made for such services.” (Italics
added.) The use of “any” when referring to “interstate, intrastate
and international telephone communication services” suggests,
again, that the voters intended to approve a 5.5 percent tax on all
telephone service.
Proposed Norwalk Municipal Code section 3.36.060,
subsection D: Subsection D exempted from the proposed
19
Municipal Code telephone charges “exempt from or not subject to
the tax imposed under . . . Section 4251 of the Internal Revenue
Code.” “The adopting body is presumed to be aware of existing
laws and judicial construction thereof.” (Lance W., supra,
37 Cal.3d at p. 890, fn. 11.) Thus, we are required to presume
that in 2003, the voters were aware that the IRS then interpreted
IRC section 4251 to apply to nearly all telephone service (with
limited exemptions described above and not relevant to this
discussion—see footnote 2, ante), and that the voters intended
the utility user tax to have the same reach.
Argument in Favor of Measure A: The “Argument in Favor
of Measure A” in the 2003 sample ballot told the voters as
follows: “Norwalk residents pay a surcharge on telephone, gas,
and electric bills. This surcharge, called a Utility Users Tax
(UUT), is critical to maintaining the current levels of City
services. This money is used for police protection, parks,
recreation, senior citizen programming, street repairs and other
vital services. Originally instituted at 8% in 1992 to combat a
budget crisis, the City Council has gradually reduced the UUT to
the current 5-1/2%. [¶] A recent California Supreme Court
decision now requires voter approval for the City of Norwalk to
continue collecting the UUT. [¶] . . . [¶] Approving Measure A
will not increase current taxes one penny; it just continues an
existing fee.”
Taken together, the language of the ballot initiative, the
language of the proposed law, and the “Argument in Favor of
Measure A” all compel the same conclusion—that the voters who
enacted Measure A intended to impose a 5.5 percent tax on all
telephone service billed to Norwalk residents.
20
IV.
The 2006 Change in Federal Law Did Not
Retroactively Change the Meaning of
Norwalk Municipal Code Section 3.36.060
Plaintiffs do not disagree that the voters who passed
Measure A in 2003 would have understood that Measure A
imposed a 5.5 percent tax on all telephone service billed to
Norwalk residents. They nonetheless urge that Norwalk’s tax of
long distance and bundled (i.e., combined local and long distance)
telephone services, both before and after 2007 was unlawful. We
understand plaintiffs’ theory to be as follows: (1) When Norwalk
voters approved a municipal telephone tax in 2003, they
exempted from taxation any telephone services not taxable under
section 4251 of the IRC. (2) In 2005 and 2006, five federal courts
held that IRC sections 4251 and 4252 did not permit the IRS to
collect federal taxes on some long distance telephone service, and
the IRS revised its tax collection practices accordingly. (3) The
interpretation of federal tax law announced by federal courts in
2005 and 2006 meant that the City’s municipal telephone tax,
passed by the voters in 2003, had never permitted the collection
of municipal taxes on all telephone service. (4) Therefore, when
the City Council deleted the reference to federal tax law in 2007,
it changed City law because it for the first time authorized the
collection of municipal taxes on all telephone service.
Plaintiffs’ unstated premise is that the 2006 change in the
interpretation of a federal statute retroactively changed the
meaning of the Norwalk Municipal Code. In other words,
plaintiffs assert that when the federal courts in 2005 and 2006
limited the ability of the IRS to collect federal excise taxes under
IRC sections 4251 and 4252, they altered the meaning of the
21
Norwalk Municipal Code—and did so not only prospectively, but
retrospectively as well. This appears to be the basis for plaintiffs’
assertion that even prior to 2007, the City had been “unlawfully
collecting a telephone users tax” on all telephone service “without
voter approval or legal authorization.”
Although this contention is the linchpin of plaintiffs’
analysis, plaintiffs do not cite any legal authority to support it.
We therefore may deem the contention waived. (E.g., Orange
County Water District v. Sabic Innovative Plastics US, LLC
(2017) 14 Cal.App.5th 343, 383 [“ ‘ “Appellate briefs must provide
argument and legal authority for the positions taken. ‘When an
appellant fails to raise a point, or asserts it but fails to support it
with reasoned argument and citations to authority, we treat the
point as waived.’ ” [Citation.] “We are not bound to develop
appellants’ argument for them. [Citation.] The absence of cogent
legal argument or citation to authority allows this court to treat
the contention as waived.” ’ [Citations.]”].)
Even if plaintiffs had not waived this argument, we would
find it unpersuasive. “ ‘It is a well established principle of
statutory law that, where a statute adopts by specific reference
the provisions of another statute, regulation, or ordinance, such
provisions are incorporated in the form in which they exist at the
time of the reference and not as subsequently modified, and that
the repeal of the provisions referred to does not affect the
adopting statute, in the absence of a clearly expressed intention
to the contrary.’ ” (Palermo v. Stockton Theatres (1948) 32 Cal. 2d
53, 58–59, italics added.) Thus, because the Norwalk Municipal
Code specifically referenced IRC section 4251, it incorporated
that section’s exemptions as they existed when the voters passed
Measure A in 2003.
22
Further, as we have said, when interpreting a ballot
initiative, our primary purpose is to ascertain and effectuate the
voters’ intent. (People v. Park (2013) 56 Cal. 4th 782, 796; People
v. Briceno (2004) 34 Cal. 4th 451, 459; Robert L. v. Superior Court
(2003) 30 Cal. 4th 894, 901.) Lacking clairvoyant powers, the
Norwalk voters cannot have intended to incorporate an
interpretation of a federal statute that had not yet been
promulgated.
As discussed above, the central purpose of Measure A was
to effectuate the “continued collection of a utility users tax as a
general tax at a rate not to exceed five and one-half percent” in
order to avoid “a fiscal emergency [that] now exists in the City
due to the lack of municipal revenue necessary to provide an
acceptable level of municipal services.” We decline to conclude
that the Norwalk voters intended in 2003 to incorporate federal
law into Measure A in a manner that would have undermined the
measure’s central purpose.
Accordingly, we conclude that the 2006 change in the
interpretation of federal law did not mean, as plaintiffs suggest,
that Norwalk “had unlawfully been collecting a telephone users
tax on services exempt from taxation under . . . the 2003 tax
ordinance passed by the City’s voters.” In 2003, and 2007, and
every year in between, Norwalk Municipal Code section 3.36.060
meant precisely what the voters understood and intended it to
mean—that the 5.5 percent utility user tax applied to all
telephone service.
V.
The 2007 Ordinance Therefore Did Not
Impose a New Tax on Telephone Service
Having concluded that the 2006 change in federal law did
not retroactively change the meaning of Norwalk Municipal Code
23
section 3.36.060, we now reach the final question raised by this
appeal: Whether the 2007 ordinance imposed, extended, or
increased the utility user tax without voter approval. It did not.
As we have discussed, before 2007, section 3.36.060 (as approved
by the voters in 2003) applied a 5.5 percent utility user tax to all
telephone service. After the City Council adopted the 2007
ordinance, section 3.36.060 continued to apply a 5.5 percent
utility user tax to all telephone service. Accordingly, the 2007
ordinance did not “impose,” “extend,” or “increase” a general tax
within the meaning of Propositions 62 or 218.4
VI.
Our Conclusion Is Consistent with
AB Cellular LA, LLC v. City of Los Angeles
Plaintiffs urge that AB Cellular LA, LLC v. City of Los
Angeles (2007) 150 Cal. App. 4th 747 (AB Cellular) compels the
conclusion that the 2007 ordinance constituted an unlawful
increase in local taxes. We disagree.
In AB Cellular, the Los Angeles City Council adopted an
ordinance that, as applied, including through instructions issued
by the city’s tax and permit division, taxed fixed monthly cell
4 Although not relevant to the constitutional issue before us,
we note that the City Council’s action was specifically authorized
by Measure A, which stated that that the City Council “is hereby
authorized to amend any . . . provisions of Chapter 3.36 of the
Code [other than the 5.5 percent tax rate] by three (3) affirmative
votes of its members to, without limitation, carry out the general
administrative purposes of Chapter 3.36 of the Code to
reasonably implement the collection of the utility user tax
through public utilities and other service suppliers as authorized
in Chapter 3.36 of the Code.”
24
phone fees, but not “airtime” fees—i.e., fees charged for the
number of minutes during the billing period that customers used
their cellular service to make phone calls. (AB Cellular, supra,
150 Cal.App.4th at p. 757.) Subsequently, after the passage of
Proposition 218, the city issued new instructions directing cell
phone providers to collect a tax on both fixed monthly fees and
airtime charges. (Ibid.) The city projected that the revised
instructions would increase 2003 tax revenues by $1 million and
2004 tax revenues by $4 million. (Ibid.)
Cell phone carriers filed a petition for writ of mandate,
seeking a declaratory judgment that the revised instructions
violated Proposition 218. (AB Cellular, supra, 150 Cal.App.4th at
p. 757.) Both the trial court and the Court of Appeal agreed that
the revised instructions were not permitted by Proposition 218.
(Id. at p. 758.) The Court of Appeal explained that
Proposition 218 required voter approval of all tax “increases,”
which included revisions in the methodology by which a tax is
calculated if the revision results in an increased tax being levied
on any person. “The word ‘calculated’ denotes the math behind a
tax. The dictionary definition of ‘revision’ is ‘alteration.’ In
practical terms, a tax is increased if the math behind it is altered
so that either a larger tax rate or a larger tax base is part of the
calculation.” (Id. at p. 763, fn. omitted.) Accordingly, because the
revised instructions changed the taxing methodology in a manner
that increased city revenue without voter approval, they violated
Proposition 218. (Id. at p. 767.)
Applying AB Cellular’s analysis to the present case compels
the conclusion that the adoption of the 2007 ordinance did not
violate Proposition 218. Under AB Cellular, a revision to the
methodology by which a tax is calculated constitutes a tax
25
“increase” only if it increases the amount levied on taxpayers.
The AB Cellular approach is a practical one: It asks not simply
whether a taxing agency has revised the methodology by which a
tax is calculated, but also whether that revised methodology has
resulted in a greater tax burden for taxpayers. In the present
case, although the 2007 ordinance changed the language of the
section 3.36.060, it had no effect on the amount of the telephone
tax paid by taxpayers—after 2007, as before, taxpayers paid a 5.5
percent user tax on all telephone service. Thus, under the
practical approach articulated in AB Cellular, the 2007 ordinance
was not a tax increase.
26
DISPOSITION
The judgment is affirmed. The City is awarded its
appellate costs.
CERTIFIED FOR PUBLICATION
EDMON, P. J.
We concur:
LAVIN, J.
BACHNER, J.*
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
27