Unreported / Non-Citable
Background
Article XIII C of the California Constitution prohibits local governments from imposing, extending, or increasing any tax without voter approval. A "tax" is broadly defined as any levy, charge, or exaction imposed by a local government, subject to exemptions including charges imposed for entrance to or use of local government property (subdivision (e)(4)) and charges for a specific benefit conferred directly to the payor that do not exceed the reasonable costs of conferring the benefit (subdivision (e)(1)). The local government bears the burden of proving by a preponderance of the evidence that a charge is not a tax.
In 2018, after a compliance order, the City of Commerce transitioned from a license-based system to a semi-exclusive franchise agreement model for commercial waste hauling. Resolution No. 18-21 and Ordinance No. 695 restructured licensing without specifying fees. In October 2018, Resolution No. 18-133 awarded semi-exclusive agreements to eight haulers and increased the hauler license fee from 11 percent to 15 percent of gross receipts. Key Disposal & Recycling, Inc., an existing hauler not awarded an agreement, received a cease-and-desist notice in April 2023.
Key Disposal filed a petition for writ of mandate alleging the fee increase was an invalid tax. The trial court denied the writ, finding the fee exempt under both subdivisions based on a city declaration, then sustained a demurrer without leave to amend. Key Disposal appealed.
The Court’s Holding
The Court of Appeal reversed and remanded. It first rejected the City's procedural challenges to the notice of appeal, treating the prematurely filed notice as filed immediately after entry of judgment under California Rules of Court, rule 8.104(d)(1), and concluding the notice encompassed the earlier nonappealable order denying the writ petition.
On the merits, the court held the City failed to meet its burden of proving the fee increase was exempt from the constitutional definition of a tax. Regarding exemption 4 (use of government property), the City relied on a declaration from Deputy Director Gina Nila asserting franchisees received unique street-use privileges, such as operating slow-moving trucks that make frequent stops and impede traffic. The court found this conclusory and insufficient: those uses are not meaningfully different from those available to the general public, since buses and delivery trucks also operate in that manner. Citing Zolly v. City of Oakland, the court held this did not establish a special use of government property beyond the general prerogative to drive on public roads.
Regarding exemption 1 (specific benefit not exceeding reasonable costs), the court found the City's evidence similarly lacking. The only justification for the 15 percent fee was Nila's assertion that it was based on a survey of average hauler fees charged by other cities and represented fair market value. Without details about which cities were surveyed or their comparability, the court held this could not prove the fee was a reasonable estimate of the franchise's value or did not exceed the reasonable costs of granting the privilege. The court remanded for the trial court to decide in the first instance whether the fee increase can be severed from the valid franchise awards and whether Key Disposal meets the standard for writ relief.
Key Takeaways
- A local government seeking to prove a fee is exempt from Article XIII C voter approval requirements must provide specific, non-conclusory evidence; a declaration asserting fair market value based on an unspecified survey of other cities is insufficient.
- To qualify for the "use of government property" exemption, a franchise fee must grant a use beyond the generally available prerogative to drive on public roads; assertions that waste haulers operate slow-moving trucks do not establish such a special use because buses and delivery trucks do the same.
- The burden of proving a fee is not a tax rests squarely on the local government, and the challenger is not required to present contradictory evidence when the government's own evidence is inadequate.
- A premature notice of appeal filed after an order sustaining a demurrer but before entry of judgment may be treated as filed immediately after entry of judgment under California Rules of Court, rule 8.104(d)(1).
- On remand, the trial court must determine whether the invalid fee portion can be severed from valid franchise contracts.
Why It Matters
This decision reinforces the stringent evidentiary burden local governments face when defending fees against challenges under Propositions 218 and 26, signaling that conclusory declarations and unsupported fair-market-value assertions will not suffice to exempt a fee from voter approval requirements. Applying the California Supreme Court's framework from Zolly v. City of Oakland, the court clarified that waste hauler franchise fees are not automatically exempt as charges for the use of public streets. The ruling also provides procedural guidance on premature notices of appeal and leaves open important remedial questions on remand, including whether only the fee increase or the entirety of Resolution No. 18-133 must be invalidated and whether Key Disposal meets the standard for writ relief.