SINCLAIR PAINT COMPANY, Plaintiff and Respondent, v. BOARD OF EQUALIZATION, Defendant and Appellant; Department of Health Services et al., Interveners and Appellants.
The Legislature enacted the Childhood Lead Poisoning Prevention Act (the Act; Health & Saf.Code, § 105275 et seq., formerly Health & Saf.Code, § 372 et seq.) 1 by a simple majority vote in 1991 to provide evaluation, screening, and medically necessary followup services for children at risk for lead poisoning. The Act required that the program be fully supported by fees assessed on manufacturers engaged in the stream of commerce for products containing lead. (Legis. Counsel's Dig., Assem. Bill No.2038, Stats. 1991 (Reg.Sess.).) 2
Sinclair Paint Company (Sinclair) paid $97,825.26 in fees for 1991. After the Board of Equalization (the Board) denied its administrative claim for refund, Sinclair filed a complaint for refund alleging the fees assessed under section 105310 were “actually taxes imposed by the California [L]egislature in violation of Proposition 13, Article XIIIA, Section 3 of the California Constitution.” The court granted the Department of Health Services's (the Department) request for leave to intervene. It also granted a similar request to intervene by Ray Cochenour and Cardaryl Commodore, representatives of a class of children suffering from lead poisoning, and People United for a Better Oakland, an unincorporated association whose members include the Act's intended beneficiaries (collectively Cochenour).
Sinclair moved for summary judgment claiming the Act was invalid on its face because it was not passed by the requisite two-thirds majority vote of the Legislature. The court agreed the Act imposed an unconstitutional tax and granted Sinclair's motion.
The Board, the Department, and Cochenour appeal. They contend the Act involves a regulatory fee, not a tax. Appellants also argue the court erred in granting Sinclair summary judgment without compelling Sinclair to produce discovery and improperly relied on legislative history in determining the Act's constitutionality. We affirm the judgment.
In June 1978, California voters added article XIII A (commonly known as the Jarvis–Gann Property Tax Initiative or Proposition 13) to the California Constitution. The purpose of the initiative was to cut local property taxes. (County of Los Angeles v. Sasaki (1994) 23 Cal.App.4th 1442, 1451, 29 Cal.Rptr.2d 103; see also Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 231, 149 Cal.Rptr. 239, 583 P.2d 1281.)
As we explained in Northgate Partnership v. City of Sacramento (1984) 155 Cal.App.3d 65, 202 Cal.Rptr. 15, “Article XIII A is comprised of six sections. The first and second respectively limit tax rates and provide assessment standards for real property. Section 3 limits the method of changes in state taxes: ‘From and after the effective date of this article, any changes in State taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods of computation must be imposed by an Act passed by not less than two-thirds of all members ․ of the Legislature, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed.’ ”
“Section 4 imposed similar restrictions upon local entities: ‘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.’ ” (155 Cal.App.3d at pp. 67–68, 202 Cal.Rptr. 15, emphasis omitted.)
Tax or Fee?
The language of article XIII A, section 3 provides little help in determining what constitutes a “tax” subject to a two-thirds majority vote, and we have found no cases which construe the section 3 limits on legislative action. In contrast, California courts have developed a substantial body of law distinguishing between a local government agency's regulatory fees and “special taxes” which are subject to the two-thirds majority requirement under article XIII A, section 4. The term “special tax” found in section 4 and defined in Government Code section 50076 does not appear in article XIII A, section 3.3
The parties to this appeal maintain the distinctions between fees and taxes applicable to local agencies also apply to the Legislature. They cite liberally from the cases testing various local government assessments against the requirements of article XIII A, section 4. (See, e.g., Pennell v. City of San Jose (1986) 42 Cal.3d 365, 228 Cal.Rptr. 726, 721 P.2d 1111 [rental unit fee under rent control ordinance]; San Diego Gas & Electric Co. v. San Diego County Air Pollution Control Dist. (1988) 203 Cal.App.3d 1132, 250 Cal.Rptr. 420 [emissions-based formula for recovering direct and indirect costs of permit programs]; Trent Meredith, Inc. v. City of Oxnard (1981) 114 Cal.App.3d 317, 170 Cal.Rptr. 685 [payment of developer fees or dedication of land as a precondition for building permit]; Mills v. County of Trinity (1980) 108 Cal.App.3d 656, 166 Cal.Rptr. 674 [fee for processing land use applications].)
We agree the section 4 cases apply to the extent they distinguish between regulatory fees based on state or local police power and “taxes enacted for the purpose of increasing revenues collected” (Cal. Const., art. XIII A, § 3) based on the taxing power. “[T]he police power is simply the power of sovereignty or power to govern—the inherent reserved power of the state to subject individual rights to reasonable regulation for the general welfare.” (8 Witkin, Summary of Cal. Law (9th ed. 1988) Constitutional Law, § 784, p. 311.) Where the police power is exercised through imposition of a fee, the amount of the fee “must not be more than is reasonably necessary for the purpose sought, ․ If it is so great that the court can plainly see that the purpose of its imposition was to realize a revenue under the guise of regulating the business, the provision for the fee cannot stand as an exercise of the police power.” (County of Plumas v. Wheeler (1906) 149 Cal. 758, 763, 87 P. 909; accord, Mills v. County of Trinity, supra, 108 Cal.App.3d at p. 661, 166 Cal.Rptr. 674.) Accordingly, the fundamental distinction between regulatory fees and taxes is the same as the distinction applied to article XIII A, section 4 in Mills: “[A tax] does not embrace fees charged in connection with regulatory activities which fees do not exceed the reasonable cost of providing services necessary to the activity for which the fee is charged and which are not levied for unrelated revenue purposes.” (Id. at pp. 659–660, 166 Cal.Rptr. 674.)
In United Business Com. v. City of San Diego (1979) 91 Cal.App.3d 156, 168, 154 Cal.Rptr. 263, the court applied the “regulation/revenue” distinction to conclude a sign inventory fee was a regulatory fee, not a revenue raising tax. In making this determination, the court looked to the substance of the ordinance, not merely its title and form. “ ‘ “If revenue is the primary purpose and regulation is merely incidental the imposition is a tax; while if regulation is the primary purpose the mere fact that incidentally a revenue is also obtained does not make the imposition a tax ․” [Citations.] ․ “In general, therefore, where the fee is imposed for the purpose of regulation, and the statute requires compliance with certain conditions in addition to the payment of the prescribed sum, such sum is a license proper, imposed by virtue of the police power; but where it is exacted solely for revenue purposes and its payment gives the right to carry on the business without any further conditions, it is a tax.” ’ ” (Id. at p. 165, 154 Cal.Rptr. 263, quoting City & County of San Francisco v. Boss (1948) 83 Cal.App.2d 445, 450–451, 189 P.2d 32.)
Other distinctions apply in the varied contexts within which state and local governments exercise police and taxing powers. For example, the term “tax” does not include amounts charged as payment for a government benefit or service. (Mills v. County of Trinity, supra, 108 Cal.App.3d at p. 660, 166 Cal.Rptr. 674.) The court made a distinction between a tax and special assessment for street improvements in County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 156 Cal.Rptr. 777. “Taxes are raised for the general revenue of the governmental entity to pay for a variety of public services. [Citation.] A ‘special tax’ is a tax collected and earmarked for a special purpose, rather than being deposited in a general fund. [Citations.] A special assessment is charged to real property to pay for benefits that property has received from a local improvement and, strictly speaking, is not a tax at all. [Citation.]” (Id. at pp. 983–984, 156 Cal.Rptr. 777.)
The same principle applies in cases involving exaction of developer fees to relieve overcrowding of school facilities caused by the development. This exercise of the police power is justified by the benefit obtained by the developer: “ ‘The subdivider, in return for the privilege of developing his land, is required to dedicate land to public use, make public improvements, or pay required fees, all needed to mitigate the adverse impact of the subdivision on the community, provide governmental services to subdivision residents, and implement the requirements of the local general plan. The position of the public entity is that this arrangement is only fair. The developer has created a new, and cumulatively overwhelming, burden on local government facilities, and therefore he should offset the additional responsibilities required of the public agency by the dedication of land, construction of improvements, or payment of fees, all needed to provide improvements and services required by the new development․’ ” (Trent Meredith, Inc. v. City of Oxnard, supra, 114 Cal.App.3d at p. 325, 170 Cal.Rptr. 685, quoting Longtin, California Land Use Regulations (1977) p. 617.)
Similarly, in Evans v. City of San Jose (1992) 3 Cal.App.4th 728, 730, 4 Cal.Rptr.2d 601, the court upheld against constitutional challenge an assessment on businesses “for the purposes of general downtown promotion, the furnishing of music, and other expenditures unrelated to capital improvements.” The court concluded the charge was not a true special assessment like that challenged in Malmstrom; nor was it a “special tax” within the meaning of article XIII A, section 4. The court explained that “The reasons the regulatory and development fee cases and the special assessment cases are exempt from the reach of Proposition 13 are the same reasons the [fee for downtown promotion] should also be exempt from its reach. With each of these cases, a discrete group receives a benefit (for example, a permit to build or inspection of produce) or a service (for example, providing and administering a rental dispute mediation and arbitration hearing process) or a permanent public improvement (such as a local park or landscaped median islands on a local road) which inures to the benefit of that discrete group. The public as a whole may be incidentally benefitted, but the discrete group is specially benefitted by the expenditure of these funds.” (Id. at p. 738, 4 Cal.Rptr.2d 601.)
With these principles in mind, we turn now to the relevant portions of the challenged legislation.
The Childhood Lead Poisoning Prevention Act
The Legislature described the background and purpose of the Act in findings adopted in conjunction with the statutory provision at issue in this appeal:
“(a) Legislation was enacted in 1986 (Chapter 481 of the Statutes of 1986) creating the Childhood Lead Poisoning Prevention Program within the State Department of Health Services.
“(b) The State Department of Health Services recently reported to the Legislature its findings and recommendations for the prevention of childhood lead poisoning in California, including, but not limited to, the following:
“(1) Because of differences in metabolism and excretion of lead, children are more vulnerable to lead toxicity than adults.
“(2) Exposure to even low levels of lead can result in brain damage and behavior problems that seriously impair a child's performance in school.
“(3) Severe lead poisoning can result in cerebral palsy, mental retardation, and loss of muscle control.
“(4) Ingestion of lead-contaminated dust and soil, lead-based paint chips, and water contaminated by lead solder in older plumbing continue to be sources of severe lead poisoning in children.
“(5) Lead in soil and dust is primarily derived from automobile exhaust from leaded gasoline, industrial emissions, and lead paint.
“(6) Although leaded gasoline use is declining, a large number of motor vehicles continue to use leaded gasoline. In addition, lead deposited in the environment from past leaded gasoline use persists in the environment.
“(7) Hand-to-mouth exposure is the primary cause of excessive lead accumulation in children. This exposure is exacerbated by the pronounced hand-to-mouth behavior of infants and toddlers.
“(c) It shall be the goal of the State of California to evaluate all children for risk of lead poisoning, to screen those children at risk, and to provide appropriate case management for lead-poisoned children.
“(d) It shall also be the goal of the State of California to identify those sources of lead contamination that are responsible for lead-poisoned children so that the sources can be eliminated.
“(e) It shall also be the goal of the State of California to identify and utilize existing programs to provide appropriate case management for children found to have lead poisoning, to the extent possible.
“(f) It shall also be the goal of the State of California to provide education on lead-poisoning detection and case management to health care providers throughout the state.” (Stats.1991, ch. 799, § 1.)
The Act directs the Department to adopt regulations establishing a standard of care for evaluation, screening, and medically necessary followup services for children determined to be at risk for lead poisoning. (§ 105285.) In addition, “On or after April 1, 1993, in those instances in which a child is identified with lead poisoning, the department shall ensure appropriate case management․” (§ 105290.) Section 105295 requires the Department to collect data and report on the effectiveness of case management efforts.
Section 105300 grants the Department “broad regulatory authority to fully implement and effectuate the purposes of [the Act].” This authority “include [s], but is not limited to, the following:
“(a) The development of protocols to be utilized in screening and the procedures for changing those protocols when more accurate or efficient technologies become available.
“(b) The designation of laboratories which are qualified to analyze whole blood specimens for concentrations of lead and the monitoring of those laboratories for accuracy.
“(c) The development of reporting procedures by laboratories.
“(d) Reimbursement for state-sponsored services related to screening and appropriate case management.
“(e) Establishment of lower concentrations of lead in whole blood than those specified by the United States Centers for Disease Control for the purpose of determining the existence of lead poisoning.
“(f) Establishment of lower acceptable levels of the concentration of lead in whole blood than those specified by the United States Centers for Disease Control for the purpose of determining the need to provide appropriate case management for lead poisoning.
“(g) Development of appropriate case management protocols.
“(h) Notification to the child's parent or guardian of the results of blood lead testing and environmental assessment.
“(i) The establishment of a periodicity schedule for evaluation for childhood lead poisoning.” (§ 105300.)
Section 105305 states in various ways that the program of evaluation, screening, and followup implemented by the Act is supported entirely by fees collected under section 105310: “Notwithstanding the scope of activity mandated by this chapter, in no event shall this chapter be interpreted to require services necessitating expenditures in any fiscal year in excess of the fees, and earnings therefrom, collected pursuant to Section 105310. This chapter shall be implemented only to the extent fee revenues pursuant to Section 105310 are available for expenditure for purposes of this chapter.”
The relevant portions of section 105310 on fees provide:
“(a) There is hereby imposed a fee on manufacturers and other persons formerly, presently, or both formerly and presently engaged in the stream of commerce of lead or products containing lead, or who are otherwise responsible for identifiable sources of lead, which have significantly contributed historically, currently contribute, or both have significantly contributed historically and contribute currently to environmental lead contamination.
“To the maximum extent practicable, the fees shall be assessed on the basis of the following criteria:
“(1) A person's past and present responsibility for environmental lead contamination.
“(2) A person's ‘market share’ responsibility for environmental lead contamination.
“(d)(1) No fee shall be assessed upon a person if that person can demonstrate, as determined by the department, that his or her industry did not contribute in any manner, as described in this section, to environmental lead contamination.
“(2) No fee shall be assessed upon a party if that party demonstrates, as determined by the department, that the lead, or the product containing lead, with which it is currently, or was historically, associated does not currently, or did not historically, result in quantifiably persistent environmental lead contamination.”
The Legislature authorized the Department to adopt regulations establishing specific fees to be assessed the parties identified in section 105310, subdivision (a). (§ 105310, subd. (b).) The formula for calculating fees attributable to leaded architectural coatings, including ordinary house paint, is set forth in California Code of Regulations, title 17, section 33020.
The Act Imposes an Unconstitutional Tax
We explained the relevant distinctions between taxes and regulatory fees. We also described various contexts within which the issue has arisen in the aftermath of Proposition 13. Placing the factors distinguishing taxes and fees along a continuum, we conclude the monies paid by Sinclair pursuant to the Act are more like taxes than fees.
There is nothing on the face of the Act to show the fees collected are used to regulate Sinclair. Apart from mere calculation of the payment, the Department's regulatory authority involves implementation of the program to evaluate, screen, and provide followup services to children at risk for lead poisoning. The Act does not require Sinclair to comply with any other conditions; it merely requires Sinclair to pay what the Department determines to be its share of the program cost. Where payment “ ‘ “is exacted solely for revenue purposes and its payment gives the right to carry on the business without any further conditions, it is a tax.” ’ ” (United Business Com. v. City of San Diego, supra, 91 Cal.App.3d at p. 165, 154 Cal.Rptr. 263.)
Appellants argue the state strictly regulates Sinclair and other manufacturers in the stream of commerce for products containing lead under various state and federal statutes. They say the Act is part of a broader regulatory scheme. There are several difficulties with appellants' argument. First, there is nothing on the face of the Act or the accompanying statement of legislative purpose which links the Act's programs for children at risk for lead poisoning with the cited state or federal statutes regulating lead. Second, none of the fees collected pursuant to section 105310 are used to fund those regulatory efforts.
The Board and Department cite San Diego Gas & Electric Co. v. San Diego County Air Pollution Control Dist., supra, 203 Cal.App.3d 1132, 250 Cal.Rptr. 420, as an example of a case in which “fee statutes have been upheld that include no regulatory requirements involving activities which are directly funded by the fee in question.” They misread the case. San Diego Gas & Electric involved the utility's challenge to San Diego County Air Pollution Control District's (APCD) new formula for apportioning the indirect costs of its permit programs among stationary pollution sources required to obtain operating permits under section 42311. (Id. at p. 1135, 250 Cal.Rptr. 420.) The APCD historically assessed direct and direct add-on costs of its permits program according to a labor-tracking system; the amended rules permitted the APCD to assess indirect costs (i.e., the cost of personnel matters, rule development, correspondence, complaint investigations, hearing board participation, and consultation with other agencies) based on the amount of emissions discharged. (Id. at pp. 1135–1136, 250 Cal.Rptr. 420.) However, fees assessed for both direct and indirect costs covered actual cost of the regulatory program applied to the fee payer. The problem in the case before us is that no part of the fee paid by Sinclair was used to regulate Sinclair.
In addition to the fact the fees collected pursuant to section 105310 are unrelated to regulation of Sinclair, those fees do not constitute payment for a government benefit or service. The program described in the Act bears no resemblance to regulatory schemes involving special assessments, developer fees, or efforts to recoup the cost of processing land use applications where the benefit analysis is typically applied. (See Evans v. City of San Jose, supra, 3 Cal.App.4th 728, 4 Cal.Rptr.2d 601; Trent Meredith, Inc. v. City of Oxnard, supra, 114 Cal.App.3d 317, 170 Cal.Rptr. 685; Mills v. County of Trinity, supra, 108 Cal.App.3d 656, 166 Cal.Rptr. 674; County of Fresno v. Malmstrom, supra, 94 Cal.App.3d 974, 156 Cal.Rptr. 777.) The face of the Act makes clear the funds collected pursuant to section 105310 are used to benefit children exposed to lead, not Sinclair or other manufacturers in the stream of commerce for products containing lead.
Appellants suggest Sinclair and other lead producing entities recoup indirect benefits from the Act through the potential reduction of tort liability for lead-poisoned children. The suggestion the Act might provide such a benefit is highly speculative. It is also arguable the evaluation and screening program for lead-poisoned children may identify a large body of potential plaintiffs. The cases which employ the benefit analysis involve direct and easily identifiable benefits to the fee payer.
Appellants also emphasize the flip side of the benefit analysis: the lead industry helped create the problem of lead poisoning in children; accordingly, the Legislature is justified in requiring lead manufacturers, rather than California taxpayers, to pay the reasonable cost of identifying and treating the children who are at risk. We acknowledge the Legislature is free to adopt and act on such a policy as long as it does not violate this or any other constitutional proscriptions. However, where, as here, the proposed fee to cover the public cost constitutes a tax, the Legislature must comply with article XIII A, section 3 and pass the legislation by a two-thirds majority.
The Court Did Not Err in Granting Summary Judgment Without Compelling Discovery from Sinclair
Appellants sought documents and written discovery from Sinclair. Sinclair refused to supply the requested discovery on grounds its claim for refund involved a pure question of law—specifically, a facial challenge to the fees collected under section 105310. A motion to compel discovery was pending when the court granted Sinclair's motion for summary judgment and entered judgment in its favor.
On appeal, appellants argue the motion for summary judgment was premature and the requested discovery would have provided evidence directly related to the “benefit” and “regulation” arguments raised by Sinclair.
The question whether monies collected constitute a fee or a tax is a question of law. (Neecke v. City of Mill Valley (1995) 39 Cal.App.4th 946, 953, 46 Cal.Rptr.2d 266; Carlsbad Mun. Water Dist. v. QLC Corp. (1992) 2 Cal.App.4th 479, 485, 3 Cal.Rptr.2d 318.) As we explained, the fundamental question is whether the fee is collected to fund regulation of the fee payer or to generate revenue. Here, nothing on the face of the Act shows the fees are used to fund regulation of Sinclair. The second question is whether the fee is expended to provide the fee payer with a government benefit or service. Again, nothing on the face of the Act demonstrates the fees are used to benefit Sinclair; instead, they fund the state program to evaluate, screen, and provide followup services for children at risk for lead poisoning. In this context, the discovery sought by appellants was irrelevant. We conclude the court did not err in granting summary judgment before completion of discovery. Given this resolution of the discovery question, we need not consider appellants' argument “The lead paint industry's unclean hands make the granting of summary judgment with no discovery on the issue of benefit/burden analysis that much more inappropriate in this equitable refund suit and equitable declaratory relief action.”
Any Error in Considering the Legislative History Offered by Sinclair Was Harmless
Appellants also complain the court erred in considering the legislative history supplied by amicus curiae Western States Petroleum Association et al., in ruling on the summary judgment motion. Having determined the court correctly ruled the Act is unconstitutional on its face, we conclude any error in considering the legislative history was harmless.
The judgment is affirmed. Plaintiff is awarded costs on appeal.
1. All statutory references are to the Health and Safety Code unless otherwise indicated.
2. The Act describes monies collected pursuant to section 105310 as “fees.” Although we use the statutory designation throughout this opinion, we acknowledge the question whether the assessment is a “fee” or “tax” is central to the appeal.
3. Government Code section 50076 states that a “special tax” imposed by cities, counties and districts pursuant to article XIII A, section 4 “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.”
BROWN, Associate Justice.
SIMS, Acting P.J., and MORRISON, J., concur.