State and local tax initiatives rarely garner national attention. However, when California, a state with a reputation for progressive tax structures and strategies, becomes embroiled in litigation over such matters, it warrants closer scrutiny.
The California legislature has proposed two constitutional amendments aimed at expanding state and local governments’ adaptability to the evolving requirements of civil services and their budgets. In opposition to this approach, an initiative has been proposed for a ballot measure aimed at preventing these tax increases.
An ensuing dispute has made its way to the California Supreme Court, whereupon the justices will have to decide whether the Taxpayer Protection and Government Accountability Act can be included in the November 2024 Ballot. Should the proposed measure pass, new thresholds would be imposed on any new taxes or tax increases adopted as of January 1, 2022.
The core legal questions that the court must answer are: does the proposed measure revise or amend the California Constitution? Furthermore, would its passing inhibit essential government functions?
The outcome of this case and the subsequent ballot could significantly impact tax professionals, potentially reshaping the intricacies of their work and the services they provide to their clients.
The proposed measure could potentially complicate efforts by state and local governments to increase tax rates by two principle routes. Raising a state tax rate would necessitate a two-thirds majority vote in the legislature and a majority vote on the ballot. If a municipality was seeking to increase a special tax via a citizen initiative, the voter threshold would have to grow from a simple majority to a two-thirds majority.
The California League of Cities and multiple Democratic city mayors have proactively filed amicus letters supporting Governor Gavin Newsom’s opposing action. These opponents have contended that the measure contains vague provisions and purports to make unlawful revisions to the state constitution, potentially adversely impacting fiscal planning by local governments.
In the midst of this legal entanglement, the California state legislature has gone on the offensive, passing two tax-related measures which will appear on the ballot for voter approval; ACA-1, and ACA-13.
ACA-1 seeks to reduce the approval threshold for certain local taxes from a two-thirds majority to 55%, while ACA-13, an attack on the measure, aims to make the raising of approval thresholds more challenging.
Intriguingly, regardless of the overall outcome of this case, ACA-1 and ACA-13 will appear on the ballot, making the measure’s potential inclusion even more intriguing for those invested in the tax landscape.