CITY AND COUNTY OF SAN FRANCISCO v. MARKET STREET CO (1937)

The City and County of San Francisco seeks by this action to recover $11,062.50 claimed as a license tax upon street cars operated by the defendant company between July 1, 1926, and September 30, 1927. There is no dispute as to the facts. It was stipulated that during that period the Market Street Railway Company operated 421 cars and that, if it were determined that the tax was due from the company, it should be calculated upon the basis of $15 per annum on each car in operation, payable quarterly. The city relies upon the various ordinances and orders granting the franchise under which the company operates and a general license tax ordinance applicable to franchises which did not contain a clause fixing the amount of the tax. The Market Street Railway Company resists the collection of the tax on the theory that, under section 14 of article 13 of the California Constitution and the appropriate sections of the Political Code, imposing upon street railways a franchise tax measured by gross receipts from operation, it was relieved from the payment of all license taxes to the city and county. The trial court granted the defendant company's motion for a nonsuit, and the plaintiff city and county appeals from the judgment in favor of the defendant.

Section 14 of article 13, which was added to the Constitution in 1910, provides that the tax upon the gross receipts of the name utilities ‘shall be in lieu of all other taxes and licenses, state, county and municipal, upon the property above enumerated (operative) of such companies except as otherwise in this section provided; provided, that nothing herein shall be construed to release any such company from the payment of any amount agreed to be paid or required by law to be paid for any special privilege or franchise granted by any of the municipal authorities of this state.’ It is stipulated that the defendant company paid to the state the tax imposed by this section for the period under discussion, but the plaintiff municipality contends that the right to collect the license taxes referred to in the franchises and ordinances is saved to the city by the proviso quoted and italicized above. It is argued that the liability to pay the license tax is a contractual obligation, and that the license taxes are a part of the consideration for the franchises. The defendant takes the position that the license taxes were imposed upon the grantees of the franchise in the exercise of the taxing power of the state which was delegated by it to the municipality.

Up to January, 1900, when the charter of the City and County of San Francisco went into effect (St.1899, p. 241), franchises were granted under provisions of the general law. Section 497 of the Civil Code provided that the governing body of the city or city and county might grant franchises to street railways for not exceeding 50 years ‘under such restrictions and limitations, and upon such terms and payment of license tax, as the city, city and county, or town authority may provide.’ Section 508 of the Civil Code provided: ‘Each street railroad corporation must pay to the authorities of the city, town, county, or city and county, as a license upon each car, such sum as the authorities may fix, not exceeding fifty dollars per annum in the city of San Francisco, nor more than twenty-five dollars per annum in other cities or towns.’ Since 1893 the general law has contained the requirement, in some form or other, that the franchise shall be sold to the highest bidder. Stats.1893, p. 288; Stats.1897, p. 135, and the Broughton Act, Stats.1905, p. 777. The act of 1897 required the bid to be of a percentage of the gross annual receipts and the Broughton Act requires the annual payment to the city of 2 per cent. of the gross receipts after 5 years, in addition to a sale for the highest cash bid. The San Francisco charter, under which the franchises were granted after January 8, 1900, empowered the board of supervisors to grant franchises to construct and operate street railways for a term not to exceed 25 years, to the highest bidder, the bids to be of ‘a stated percentage of the gross annual receipts * * * arising from its use, operation, enjoyment, or possession’ and to be at least 3 per cent. for the first 5 years, 4 per cent. for the next succeeding 10 years and 5 per cent. for the next succeeding 10 years. Article 2, chap. 2, § 6.

Article 2, chapter 2, § 1, subd. 15, of the charter empowered the board of supervisors ‘To impose license taxes and to provide for the collection thereof; but no license taxes shall be imposed upon any person who, at any fixed place of business in the city and county, sells or manufactures goods, wares or merchandise, except such as require permits from the board of police commissioners as provided in this charter.’

The franchise orders and ordinances mentioned in the record, by authority of which the defendant operated its street railway, fall into three groups with reference to license tax provisions. The majority specify payment of an annual license tax on each car in operation which the city agrees not to increase. A second, but smaller group, provides for payment of a license tax to be fixed by the board of supervisors, as provided by law or other similar general language, while the third group, slightly larger than the second, makes no mention at all of a license tax. With one or two exceptions, those franchises granted after 1889 appear to have provided for an annual payment to the city of 2 per cent. of the gross annual receipts, regardless of whether they also contained a provision for payment of a license tax. One at least, containing no reference to a license tax, was awarded to the highest cash bidder.

A license is a permit to do business which could not be done or to exercise a privilege which could not be exercised without the permit. A license tax or fee may be imposed as a condition of the doing of the business. An additional license tax may be imposed for revenue purposes on a business already licensed. And a license may be required as a police regulation (City of Sonora v. Curtin, 137 Cal. 583, 585, 70 P. 674), or license fee may be exacted, as in the case of a franchise, as compensation for the granting of a special privilege. (McQuillan, Municipal Corporations, vol. 3, § 1091, vol. 4, § 1772.) As generally used in statutes and opinions, the term ‘license tax’ includes any charge on the doing of a business, and in a particular case the grant of power to make the exaction, the connection in which it is used, the substantive provisions of the taxing act and the purpose of the charge determine its nature. City of Sonora v. Curtin, supra; Ex parte Braun, 141 Cal. 204, 206, 74 P. 780; In re Johnson, 47 Cal.App. 465, 190 P. 852; John Rapp & Son v. Kiel, 159 Cal. 702, 708, 115 P. 651.

Under the charter provision quoted above, the city had power to exact a license tax either for revenue or regulatory purposes (John Rapp & Son v. Kiel, supra), and the state law required the payment by street railways of a license tax on each car. (Civ.Code, §§ 497 and 508.) There is no contention that the Civil Code provisions do not apply to the franchises under consideration. If the license tax was required to be paid as a part of the compensation for the special privilege of operating street railways, it is saved to the city by the proviso in section 14 of article 13 whether specifically mentioned in the franchise or not. Under that section the city may not tax the business of operating street railways nor the property used in the operation of that business, but it may exact a charge in the nature of rental for the use of those portions of the city streets covered by the defendant's franchises. Whether it has done so is our only concern here. The gross receipts charge under the Broughton Act has been held to be ‘neither a tax nor a license, but * * * obviously a toll or charge, which the holder of the franchise undertakes to pay as part of the consideration, for the privilege of using the avenues and highways occupied by the public utility, just as it obligates itself to pay the amount of its cash offer as the highest bidder for the franchise.’ County of Tulare v. City of Dinuba, 188 Cal. 664, 206 P. 983, 985. In California Jurisprudence the license tax required to be paid under section 508 of the Civil Code is classified with the payments under the Broughton Act. It is there said: ‘Furthermore municipalities are authorized to impose license taxes upon street cars and to require a percentage of the gross receipts collected under a franchise as a toll or rental for the use of the streets.’ 23 Cal.Jur. 864.

The power of the municipality to grant franchises is a delegated authority from the state, which may prescribe, and alter from time to time, the conditions upon which the grant shall be made. County of Tulare v. City of Dinuba, supra. Looking at the general law, the most reasonable interpretation of the statutes seems to be that the Legislature has by its various provisions attempted to prevent the granting of valuable privileges and franchises by a municipality without the exaction of a fair compensation for the use of the public property of which the municipality is the trustee. The payment of an annual fee per unit of property in operation in the exercise of the franchise is a recognized form in which to cast the requirement of compensation. See McQuillan, Municipal Corporations, vol. 4, § 1772, and authorities there cited. It is further reasonable to infer that with the passage of years the Legislature considered this an inaccurate measure of the value of the franchise bestowed and an inadequate price to pay for the privilege and so added the requirement of sale to the highest bidder, and later, payment of a percentage of the gross receipts realized from the exercise of the privilege. It is not argued by the defendant that the purpose of the license tax was police regulation, but its entire argument is that it was imposed for revenue only. This contention is out of line with the general rule that license taxes for revenue only are, in general, municipal affairs and governed by general state law. Trebilcox v. City of Sacramento, 91 Cal.App. 257, 266 P. 1015; Ex parte Braun, supra. The charge here considered is imposed by the state as a condition of granting the franchise. It is inconsistent with the principle that the power to raise its own revenue is an inherent attribute of a municipality. That it was intended to have some relation to the value of the privilege granted is apparent from the setting of a higher maximum rate for the City and County of San Francisco than for other cities and towns. Civ.Code, § 508. We conclude that the license tax in dispute is ‘an amount agreed to be paid or required by law to be paid for’ a ‘special privilege or franchise granted by’ a municipality within the meaning of the phrase as used in section 14 of article 13 of the Constitution, and hence the defendant is not exempted from its payment.

The judgment is therefore reversed, and the case remanded, with directions to enter judgment in favor of the plaintiff city and county for the amount of the tax as calculated in accordance with the stipulation of the parties.

THOMPSON, Justice.

We concur: WASTE, C. J.; SHENK, J.; CURTIS, J.; SEAWELL, J.; LANGDON, J.; EDMONDS, J.