SACRAMENTO, Calif. (Legal Newsline) - California cities can collect sales taxes on soda and sugar-sweetened drinks despite a state law that would have penalized them by cutting them off from all sales taxes, an appeals court ruled, upholding a trial court decision declaring the law unenforceable.
California legislators passed the Keep Groceries Affordable Act in 2018 after several cities passed tax ordinances to discourage consumers from ingesting sugary foods on the belief that would curb obesity. The beverage industry also floated an amendment to the California Constitution making it harder for local governments to pass new taxes and fees.
Lawmakers intended the law to comply with existing statutes as well as Article 13 of the California Constitution, which prohibits sales taxes on “food products for human consumption.” But the new law ran head-on into another provision of the state Constitution granting charter cities broad powers to pass laws to govern “municipal affairs,” including taxes, and restricting the power of state legislators to override them.
After several cities including Santa Cruz decided against passing soda taxes out of fear of losing all sales tax revenue, a nonprofit called Cultiva La Salud and a Santa Cruz City Council member sued to block the law. They argued the Groceries Act violated the Constitution by penalizing charter cities for exercising their home rule powers.
Judge Shelleyanne Chang of the Sacramento County Court agreed and barred the state from enforcing the law. The Third Appellate District Court of Appeal agreed, upholding the ban in a March 27 opinion.
First, the court rejected the state’s argument the question wasn’t ripe for decision until a city actually suffered penalties. The threat of enforcement is enough, the court ruled.
Second, the court said the law’s wording made it effectively unenforceable. The law says the penalty kicks in when a tax “is a valid exercise” of the city’s authority under the home rule doctrine. But if that’s the case, then the state can’t penalize the city for exercising its rights under the Constitution, the court ruled.
The court noted that the Groceries Act was modeled on another California law, the Bradley-Burns Uniform Local Sales and Use Tax Law, which is still in effect. That law requires cities to hand off the collection of sales taxes to a state agency and threatens them with the loss of all revenue if they try to charge higher local taxes. The appeals court focused on the slightly different “valid exercise” language in the Grocery Act to strike it down.
“If a tax imposed by a charter city truly is a valid exercise of the city’s authority then the legislature can’t prohibit it or penalize the city,” the court said. “The Legislature wanted to discourage charter cities from enacting a tax, fee, or assessment on groceries, even if it could not lawfully prohibit them from doing so.”