August 19, 2009
California Court Calls a Tax a Tax, Agreeing with Tax Foundation Amicus Brief
Court Mandate to Refund Disguised Tax Should Send Signal to Cities with Similar "Fees"
Washington, DC, August 19, 2009 -- The Tax Foundation today lauded California's Fourth District Court of Appeal ruling that San Diego's "fee" associated with collecting a rental tax is really an unconstitutional tax on landlords. Joseph Henchman, Tax Counsel for the Tax Foundation, authored a friend-of-the-court brief in the case arguing that the "fee" indeed is a tax and should be repealed. Today he issued the following statement:
"All over the country, politicians are increasingly trying to label taxes as 'fees' in an effort to get around voter-approval requirements or otherwise discreetly raise revenue. This case, Weisblat v. City of San Diego, shows that we're making progress in clarifying those definitions. The purpose of a tax is to raise revenue, while the purpose of a fee is to cover the cost of providing a service.
In San Diego's case, money raised from the so-called 'fee' on rental property owners provided no services to the landlords, but simply went into the city's general fund to help fill a revenue shortfall. Mislabeling what are really taxes as 'fees' is problematic for a number of reasons, which the Tax Foundation outlined in its amicus brief. Other than being unconstitutional under a state law that requires voter approval for tax increases, blurring the line between taxes and fees also conflates the purposes for which the revenue may be used.
Clearly identifying taxes as taxes and fees as fees increases government transparency and helps taxpayers understand where their money is going. It's only under that kind of a system that voters and policymakers can make sound, informed choices."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact No. 160, "Charging Taxpayers for Tax Collection is a Tax: Weisblat v. City of San Diego," is available online at http://www.taxfoundation.org/research/show/24309.html. The Tax Foundation's brief may be found here: http://www.taxfoundation.org/publications/show/24307.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.