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20050215_Salinas City Attorney Opinion on Tax Measure Options

20050215_Salinas City Attorney Opinion on Tax Measure Options

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Published by Mark Dierolf
Salinas City Attorney opinion on tax measure options. Dated Feb. 15, 2005. Written by Vanessa W. Vallarta. Advice resulted in a permanent sales tax increase within the city in two phases: Measure V in 2005 to persuade voters to impose a higher sales tax rate within the city. Then Measure E in 2012 to make the tax rate permanent after an attempt in 2010, Measure K aka "a penny for peace," failed. The tax money temporarily restored some cut services and bought short-term peace with labor unions that ended after 2007 because of huge pay increases that included unsustainable and unfunded health and retirement benefits.
Salinas City Attorney opinion on tax measure options. Dated Feb. 15, 2005. Written by Vanessa W. Vallarta. Advice resulted in a permanent sales tax increase within the city in two phases: Measure V in 2005 to persuade voters to impose a higher sales tax rate within the city. Then Measure E in 2012 to make the tax rate permanent after an attempt in 2010, Measure K aka "a penny for peace," failed. The tax money temporarily restored some cut services and bought short-term peace with labor unions that ended after 2007 because of huge pay increases that included unsustainable and unfunded health and retirement benefits.

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Published by: Mark Dierolf on Jun 10, 2013
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DATE
: February 15, 2005
FROM
:
Vanessa W. Vallarta, City Attorney
SUBJECT
:
Informational Report re Tax Measure Options
Agenda Item Number Administrative Report 17:30 PMDepartment Director ApprovalFinance Review ________________________ Attorney Review ________________________ City Manager Approval
REPORT TO THECITY COUNCIL
City of Salinas, California
BACKGROUND:
Since April 2003, the City Council has had to reduce the General Fund budget a total of $15.3million dollars or 24%, including the elimination of 123.25 positions. These reductions havebroadly impacted services throughout the City and undermined the public health, safety andwelfare.In the November 2004, general election, Measure A (Temporary Transaction and Use Tax) andMeasure B (Utility Users Maximum Tax) failed to garner sufficient votes to pass. Both weresubmitted as general tax measures. Measure A failed by only 1,087 votes. There are 44,555registered voters in the City of Salinas. At its December 14, 2004 meeting, the Council directed staff to return to the Council with a reportanalyzing the alternatives for presenting a ballot measure to the voters as soon as possible tosecure a permanent source of funding for the library as well as other City services that have beenreduced and eliminated.
ISSUE
:What options do the Council and the voters have to propose other taxes to the electorate?
DISCUSSION
:
Types of Taxes
Taxes are either imposed on real property or they are imposed on an activity.Since the passage of Proposition 13 in 1978, cities have not had the power to impose propertytaxes. Although there is a property tax, it is imposed by Art. XIIIA, §1 of the California Constitution.
 
Taxes that are imposed on an activity are generally referred to as “excise taxes,” “license taxes” or “privilege taxes.” These include:
Transient occupancy taxes (TOT);
Business license taxes;
Utility users taxes;
Real property transfer taxes;
Sales and use taxes;
Parcel taxes;
Development taxes; and
Transactions and use taxes. Any tax that the Council may wish to propose to the voters would thus be an excise tax.The City’s ability to enact some excise taxes has been preempted by the state. For example, theability to enact a sales and use tax was preempted by the Bradley Burns Uniform Sales and UseTax Law (Rev. & Tax Code, §7200 et seq.); although the City has enacted a sales and use tax, itcan only do so consistent with the authority of the Bradley Burns Act. Similarly, since 2004, citieshave had the ability to impose transactions and use taxes because the Legislature enacted Rev. &Tax Code §7285.9 providing that authority. One of the taxes the Council proposed in November 2004 was a transactions and use tax.One practical matter that a council will want to consider prior to proposing a tax to the voters is whowill pay the tax. For example, the transactions and use tax that was proposed in November 2004would be imposed on retailers but would be paid by the general public; the utility users tax wouldbe paid by utility users; and the business license tax would be paid by the business owners. Aparcel tax would be paid by the occupants of real property for the availability and use of Cityservices. Another practical matter to consider is how the tax will be collected. A transient occupancy taxwould be collected by the hotel/motel operator; a business license tax would be collected by theCity; a utility users tax would be collected by the utility; a real property transfer tax or documentarytransfer tax is collected by the County Recorder; a sales and use tax is collected by the StateBoard of Equalization; a development tax would be collected at issuance of building permits; and atransactions and use tax would be collected by the State Board of Equalization. Parcel taxes maybe collected by the County Tax Collector along with real property taxes, if the County agrees tocollect the tax and if there is a high correlation between ownership and occupancy of property.
General vs. Special Taxes
Taxes are categorized as either “general” or “special” taxes for purposes of determining:
o
When is the election?
o
What is the vote required for passage?
o
How can the tax revenues be used?
2
 
 A
general tax
must be submitted to the electors at a regularly scheduled general election at whichmembers of the Council will be elected, unless the Council by unanimous vote finds there is anemergency which justifies placing the proposed tax before the voters at a special election. (Cal.Const. Article XIIIC §2.) A proposed general tax will take effect if approved by a majority of thevoters voting at the election. (50% +1) The proceeds of the tax may be placed in the general fundand used for any governmental purpose. A
special tax
may be submitted to the electorate at a general or special election. (Cal. Const. Article XIIIC §2(d).) A proposed special tax will take effect if approved by two-thirds of the votersvoting at the election. (
See also
, Salinas City Charter, Section 69: “No special tax shall be leviedby the Council unless such levy shall first have been submitted to an election of the people andapproved by at least two-thirds of the qualified electors who voted thereon….”) The proceeds of aspecial tax must be placed in a special fund and may be used only for the purposes specified in themeasure.
Procedural Requirements for the Adoption of General or Special Taxes
The Council would adopt a resolution calling an election. The resolution calling the election mustinclude the type of tax, the tax rate, the method of collection, and the date of the election. Theresolution calling an election on a special tax must describe the purpose of the tax (GovernmentCode § 53724(a)) and must include accountability measures restricting the tax revenue to theidentified purpose of the special tax, creating a special account for the proceeds, and requiring thepreparation of an annual report by the chief financial officer describing any expenditure of theproceeds and the status of any projects funded by the tax. (Government Code § 50075.1.)The proposed ordinance or resolution imposing the tax would be attached to the resolution callingthe election and, if approved by the voters, would be adopted by the people. It would becomeeffective ten days after the results of the election are certified. (Elections Code § 9217.)The resolution calling the election would also include the ballot question, which can be no longer than 75 words. The Council can designate one or more of its members to write the argument infavor of the measure. (Elections Code §9287.) If the Council were to designate one member towrite the argument in favor on behalf of the City Council, the Council could also authorize thatcouncilmember to allow representatives of “bona fide” organizations wishing to support themeasure to sign the ballot argument. There is a limit of five signatures on a ballot argument. Although the Council can place a measure before the voters, can endorse it and can authorize oneor more of its members to write the argument in favor of the measure, the Council cannot spendmoney to promote the passage of the measure. (
Stanson v. Mott 
(1976) 17 Cal.3d. 206, 221;Government Code §§82013(b), 82031.)
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