Filed 9/9/04
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
CITY AND COUNTY OF SAN
FRANCISCO,
A102026
Plaintiff and Appellant,
v.
(San Francisco County
Super. Ct. No. 321376)
FLYING DUTCHMAN PARK, INC. et al.,
Defendants and Appellants.
I.
INTRODUCTION
Respondent and cross-appellant Flying Dutchman Park, Inc. (Flying Dutchman)
provides commercial parking and valet parking services alleged by appellant and crossrespondent City and County of San Francisco (CCSF) to be subject to its parking tax
(S.F. Mun. Code, §§ 601-615).1 The parking tax imposes a tax of 25 percent (§§ 602,
602.5) on “rent” paid for “occupancy” of a space for parking a motor vehicle in a
“parking station” (§§ 601; 602A.).
CCSF’s appeal arises out of a successful defense by Flying Dutchman to an
enforcement action brought by CCSF to collect in excess of $800,000 in parking tax
arrearages. The trial court agreed with Flying Dutchman’s contention that the parking tax
was unconstitutional as violating the state’s guarantee of equal protection (Cal. Const.,
1
All undesignated article and section references are to excerpts from the version
included in the record before us of Article 9 of Part III of the Business and Tax
Regulations Code, which is part of the City and County of San Francisco Municipal
Code.
1
art. I, § 7, subd. (a)) because CCSF had no rational basis for subjecting Flying Dutchman
to the parking tax requirements, while exempting certain other groups. We conclude that
there exists rational bases for the exemptions allowed in the parking tax ordinance, and,
therefore, its enforcement against Flying Dutchman does not violate equal protection.
Accordingly, the trial court erred in ruling to the contrary.
Nevertheless, we agree with the trial court that, under the express provisions of the
parking tax ordinance, Flying Dutchman is not liable for any tax unless, with respect to
each transaction sought to be taxed, CCSF proves that rent was paid. Consequently, the
trial court properly reduced Flying Dutchman’s parking tax arrearages to eliminate
amounts derived from Flying Dutchman’s valet parking activities where no fee was paid
by Flying Dutchman for space used to park vehicles.
As to Flying Dutchman’s cross-appeal, we conclude that the parking tax does not:
(1) violate the state constitution’s privileges and immunities clause (Cal. Const., art. I,
§ 7, subd. (a)), or (2) amount to an improper double tax on real estate in violation of the
state constitution (Cal. Const., art. XIII, § 1). Moreover, we agree with the trial court that
the portion of the parking tax earmarked for senior citizens’ activities is void as a “special
tax,” which did not receive the requisite two-thirds approval by the voters as required by
relevant provisions of the California Constitution (art. XIIIA, § 4). However, that illegal
allocation does not require invalidation of the entire parking tax ordinance or reduction of
Flying Dutchman’s parking tax arrearages, because the offending clause is severable
under the ordinance’s savings clause, thereby allowing parking tax revenue to pass
exclusively into CCSF’s general fund.
II.
PROCEDURAL BACKGROUND
This is the second action concerning whether CCSF’s municipal parking tax is
constitutionally valid. The first was filed by Flying Dutchman and sought declaratory
and injunctive relief preventing CCSF from enforcing the parking tax law. In Flying
Dutchman Park, Inc. v City and County of San Francisco (2001) 93 Cal.App.4th 1129
(Flying Dutchman I), we affirmed the judgment entered in favor of CCSF after the trial
2
court sustained its demurrer to Flying Dutchman’s complaint. However, we affirmed
only on the procedural ground that governing law required Flying Dutchman first to pay
the disputed tax before becoming legally eligible to file an action contesting that tax.
Because Flying Dutchman had not done so, judgment was properly entered in favor of
CCSF.
On May 16, 2001, while Flying Dutchman I was pending, CCSF filed its own
action in San Francisco Superior Court seeking to recover unpaid parking taxes from
Flying Dutchman, and certain individuals under claims of alter ego. The amounts
allegedly owed were the subject of a first amended complaint (FAC), which sought to
recover a total of $451,848 in tax, $90,370 in tax penalties, and $344,783 in interest.2
Flying Dutchman asserted 24 affirmative defenses, including the four involved in this
appeal and cross-appeal: (1) violation of equal protection (Third and Fourth Affirmative
Defenses), (2) violations of the privileges and immunities clause of the state constitution
(Eighth and Ninth Affirmative Defenses), (3) invalid double taxation of real property
(Second Affirmative Defense), and (4) violation of Proposition 13 (Fifteenth Affirmative
Defense).
Evidence was thereafter presented to the court sitting without a jury in June 2002.
After submission of the evidence, the parties presented briefs, including supplemental
briefs, on the disputed legal issues. The trial court issued its 18-page statement of
decision on December 19, 2002, and judgment was entered on February 18, 2003. As
noted, both sides have appealed.
2
No determination was made below as to the claims against the individually named
defendants based on alter ego grounds, and the issue was deemed moot based on the trial
court’s ruling invalidating the parking tax on equal protection grounds. Accordingly, we
do not address the individual defendants’ potential liability for the taxes owed. Also,
although all respondents join in opposing CCSF’s appeal, and in pursuing Flying
Dutchman’s cross-appeal, for simplicity’s sake we refer to respondents and crossappellants collectively as “Flying Dutchman.”
3
III.
DISCUSSION
A. Equal Protection Claim
CCSF’s parking tax was enacted in the early 1970’s, and remains codified in
sections 601-615 of Article 9, Part III of the San Francisco Municipal Code. Quite
succinctly, section 602 provides: “Subject to the provisions of this Article, there is
hereby imposed a tax of 15 percent for the rent of every occupancy of parking space in a
parking station in the City and County. . . .”3
As noted, Flying Dutchman claims the parking ordinance violates the equal
protection clause of the California Constitution (art. I, § 7, subd. (a)), both facially (Third
Affirmative Defense), and as applied (Fourth Affirmative Defense), because there exists
no rational basis for exempting certain parking activities while making Flying Dutchman
potentially liable for the parking tax on its activities.4
The parking tax exempts revenues derived from: (1) parking by registered hotel
guests or apartment residents in parking stations or facilities that are part of the hotel or
apartment premises; (2) parking by registered hotel guests in parking stations or facilities
that are separate from the hotel premises so long as any parking charge to the guest is
included as part of the hotel room rent; and (3) long-term parking by members of the
United States military services while on active duty. (§ 606.) Under the ordinance,
parking “operators” are required to collect the tax from the “occupant” and thereafter
3
The tax was originally set at 15 percent of parking “rent” (§ 602), but was later
raised to 25 percent when a surcharge of 10 percent was added (§ 602.5). “Rent,”
“Parking Station,” “Occupant,” and “Operator” are defined in sections 601 and 602A.
These definitions are relevant only to CCSF’s additional claim that the trial court erred in
failing to impose the tax on certain of Flying Dutchman’s valet parking activities, an
issue we address later in this opinion.
4
The parties are in apparent agreement that, because the equal protection challenge
is not based on discrimination against a protected class, the “rational basis” test is
applicable. (See Gregory v. Ashcroft (1991) 501 U.S. 452, 470.)
4
remit them to CCSF. (§§ 603, 604, & 608, subd. (e).) It is undisputed that none of these
exemptions apply to Flying Dutchman’s parking operations.
The trial court agreed with Flying Dutchman and held that the parking tax was
unenforceable because it violated the equal protection clause in several respects. First,
the court concluded there was no rational basis for the exemption favoring hotel and
apartment guests who have “on premises” parking available to them, over guests and
residents who must pay for “off premises” hotel and apartment parking.
As to apartment residents, the court then noted: “Residents who are unable to
secure parking space on the same premises in which they reside must pay the tax on any
parking space they hire. This tax liability is imposed not just in particularly congested
areas of San Francisco, nor in particular areas in which there is a shortage of parking for
residents, nor is it imposed only on those who utilize large parking garages operated in
the city’s core. Rather, the liability for parking tax is imposed on any resident of San
Francisco who does not or cannot pay to park in a parking station which is part of that
person’s residential premises and therefore pays rent to park elsewhere, whether it is in
her neighbor’s vacant one-car garage, or a large parking lot. . . . No rational basis
appears in the evidence nor in any argument advanced by CCSF to discriminate against
the resident who is compelled to park off premises because no parking is available in the
premises in which she resides.”
The trial court had two concerns for the exemption favoring hotel guests who use
hotel provided on-premises parking.5 First, while no parking tax is imposed on charges
for on-premises hotel parking, guests are subjected to the parking tax if they must pay the
5
The trial court noted that the term “hotel” is undefined in the parking tax
ordinance. Nevertheless, like the undefined term “registered guest,” the court seemed
satisfied that the lawmakers’ intent was to adopt the definitions of both terms found in
San Francisco Police Code section 909, explaining that otherwise, “[i]t would be very
difficult indeed to conceive of a reason why registered guests of motels . . . should be
treated differently than occupants of something that has the word ‘hotel’ in its name.”
5
hotel to park “off premises.” The court found that “[n]o rational basis is suggested either
by evidence or argument for that discrimination.”
Additionally, the ordinance further offers a safe haven for some of those registered
hotel guests who must park “off premises” (and thus are nominally subject to the parking
tax). If the hotel includes “rent” for off-premises parking as part of the overall room
charge, no parking tax is imposed. Therefore, only registered hotel guests who are
charged a separate parking charge for off-premises parking are subject to the tax. The
trial court speculated that this latter distinction might derive from the fact that room rental
charges are subject to a separate tax on “Transient Occupancy of Hotel Rooms” (Art. 7,
§§ 501-515.2). If both an occupancy tax and a parking tax were applicable to a unitary,
undifferentiated room charge, it would subject the parking “rent” to a double tax (an
occupancy tax and a parking tax). Excluding such charges from the parking tax
eliminates this double tax dilemma. Nevertheless, because CCSF’s transient occupancy
tax was at a “much lower rate” than the parking tax, the trial court concluded that “[n]o
reason which could justify such discrimination in the rate charged appears from either the
evidence or argument.”
Lastly, the court addressed the parking tax exemption afforded to active duty
members of the United States military who pay to store vehicles owned by them for a
time period of at least 75 days. Concern was expressed because the exemption did not
require that the active duty station of the owner be outside of San Francisco. This could
allow a San Francisco-based active member of the military to avoid the parking tax under
circumstances where: (a) the stored vehicle was a second vehicle owned by the armed
forces member; (b) the vehicle was being stored while the member was outside of San
Francisco for non-military reasons; or (c) the principal user of the stored vehicle was
someone other than the military member who was storing the vehicle while the civilian
principal user was away (such as a child who used a vehicle owned by a parent-military
member, and who stored it while away at college or on an extended vacation).
CCSF makes two claims of error. As a threshold argument, CCSF asserts that the
trial court mistakenly placed the burden of proof on CCSF to come forth with evidence
6
tending to establish a rational basis for enacting the exemptions. CCSF claims that under
applicable constitutional law standards, it was incumbent on the court to determine if
there might be any rational basis justifying the exemptions, and it was irrelevant that
CCSF had not established facts explaining its reasoning. Secondarily, CCSF contends
that one basis for each and every one of the noted exemptions was for the “administrative
convenience” of CCSF, a legitimate rationale legally justifying the exemptions, and the
court erred in rejecting it. (City of San Jose v. Donohue (1975) 51 Cal.App.3d 40, 45;
Seegmiller v. County of Nevada (1997) 53 Cal.App.4th 1397, 1403.)
“A statute violates the equal protection clause if it selects one particular class of
persons for a species of taxation and no rational basis supports such classification.
[Citation.] Further, a discrimination that bears no reasonable relation to a proper
legislative objective is invalid. A legislative classification that is purely arbitrary and
capricious and based upon no reasonable or substantial difference between classes is
clearly unconstitutional. [Citation.]” (John Tennant Memorial Homes, Inc. v. City of
Pacific Grove (1972) 27 Cal.App.3d 372, 379.)
Under the applicable rational basis test, “ ‘[w]e will not overturn such a [law]
unless the varying treatment of different groups or persons is so unrelated to the
achievement of any combination of legitimate purposes that we can only conclude that
the [people’s] actions were irrational.’ ([Vance v.] Bradley [(1979)] 440 U.S. [93] at [p. ]
97 . . . . See also Pennell v. San Jose [(1988)] 485 U.S. 1, 14 . . . .” (Gregory v. Ashcroft,
supra, 501 U.S. at p. 471.) Therefore, “ ‘the Equal Protection Clause is satisfied so long
as there is a plausible policy reason for the classification, the legislative facts on which
the classification is apparently based rationally may have been considered to be true by
the governmental decisionmaker, and the relationship of the classification to its goal is
not so attenuated as to render the distinction arbitrary or irrational.’ (Nordlinger v. Hahn
[(1991)] 505 U.S. 1, 11-12 . . . .” (Fitzgerald v. Racing Assn. of Central Iowa (2003) 539
U.S. 103, 107.) This deference is particularly important “ ‘in the context of
classifications made by complex tax laws’ [citation].” (Id. at p. 107; Regan v. Taxation
7
With Representation of Wash. (1982) 461 U.S. 540, 547 [“Legislatures have especially
broad latitude in creating classifications and distinctions in tax statutes.”].)
Under this deferential standard, government action “ ‘must be upheld against equal
protection challenge if there is any reasonably conceivable state of facts that could
provide a rational basis for the classification. [Citations.] Where there are “plausible
reasons” for [the classification] “our inquiry is at an end.” ’ [Citations.]” (Warden v.
State Bar (1999) 21 Cal.4th 628, 644, italics in original (Warden).) “ ‘[A] legislative
choice is not subject to courtroom factfinding and may be based on rational speculation
unsupported by evidence or empirical data.’ [Citations.] [W]hen there is reasonably
conceivable justification for a classification, ‘[i]t is . . . “constitutionally irrelevant
whether [the] reasoning in fact underlay the legislative decision” ’ [citations], or whether
the ‘conceived reason for the challenged distinction actually motivated the legislature.’
[Citation.]” (Id. at p. 650, italics added and in original.)
While we agree with CCSF that, under the rational basis standard, the party
challenging a classification bears the burden of demonstrating its invalidity (Warden,
supra, 21 Cal.4th at p. 641), we disagree that the trial court improperly placed the burden
of showing the existence of a rational governmental basis for the parking tax exemptions
on CCSF. In this regard, the references in the court’s statement of decision to the
absence of “evidence” or “argument” pointing to rational bases for the exemptions are
ambiguous. Rather, we conclude that the court erred in not finding a rational basis to
support the parking tax exemptions, regardless of whether there was express evidence or
empirical data supporting the exemptions.
The historic context of the time at which the parking tax was passed plays a
significant role in the rational basis analysis we must perform. (See, e.g., Kasler v.
Lockyer (2000) 23 Cal.4th 472, 482 [reviewing “the circumstances giving rise” to the
challenged classification].) As to the military exemption, it must be remembered that the
parking tax and exemptions were enacted in the early 1970’s, at the height of the Vietnam
War. It was a time when city leaders were undoubtedly concerned about not having the
parking tax apply to vehicles stored for long periods of time while their owners were
8
called to arms in Southeast Asia. The need for this exemption is no less urgent,
compassionate and respectful for those serving in the Middle East today.6
While the concerns for misuse of the military parking tax exemption voiced by the
trial court may be more than hypothetical, it is not the role of a court considering an equal
protection challenge to scuttle the law because there may exist circumstances where the
purpose of the law could be eluded. “[U]nder the rational relationship standard, a court
may not strike down a classification simply because the classification may be imperfect
[citation] or because it may be ‘to some extent both underinclusive and overinclusive.’
[Citation.]” (Warden, supra, 21 Cal.4th at p. 649, fn. 13.) Instead, it is our role to
determine if any rational basis exists for the exercise of governmental discretion to enact
a law limiting economic protections to certain non-suspect classes. We have little
difficulty finding a rational basis for the military exemption here, as CCSF is entitled to
give preference to military personnel in light of their service to the country. (Regan v.
Taxation with Representation of Wash., supra, 461 U.S. at pp. 550-551.)
As to the residential apartment “on premises” tax exemption, we again disagree
with the trial court that there is no legitimate policy reason for the adoption of that
exemption. The 1970’s were also a time of great real estate development and economic
growth in San Francisco. By exempting apartment or long-term tenants from paying
parking taxes, landlords who provided on-site parking for those tenants could charge
more in rent or pass on the tax savings to tenants, in whole or part, depending on the
rental market. Thus, in one respect, CCSF was ensuring that multi-unit residential
developments were encouraged to build suitable, and necessary, parking facilities into
their plans. This, in turn, unquestionably helped alleviate pressure on, and competition
for, on-street parking—the bane of many city planners then and now. It also created a
6
We note that the trial court’s consideration of this case, as well as its statement of
decision, predate March 2003, when our present war with Iraq commenced.
9
safer, more convenient parking environment for tenants.7 herefore, we readily envision
several separate rational bases, any of which would support the on-premises residential
parking tax exemption in the ordinance in question.
Although not identical, economics similarly provide the rational basis for the
parking tax exemption for on-site hotel parking “rent.” Once again the 1970’s provide a
temporal backdrop, during which some of the largest commercial structures in San
Francisco were designed and built, including hotels. A hotel developer/owner providing
on-premises parking was more competitive for guest business than a hotel
developer/owner who did not, because of the added convenience to guests, and because
those hotels could charge guests less for parking rents than hotels offering only off-site
parking facilities (no need to add the 25 percent parking tax). Making hotel parking
convenient and more affordable was important to San Francisco during the 1970’s, when
this great city saw its industrial and maritime economic bases eroding. In their place,
international tourism and convention business arose to supplant industry and shipping as
the city’s commercial life-blood. Convenient, more affordable hotel guest parking
enhanced San Francisco’s draw as a venue for this lucrative tourism and convention
business.
At the same time, parking was becoming an increasingly pressing urban problem,
not only in the residential neighborhoods, but also in the city’s retail core. With the rise
in tourism came a great influx of daily retail business into the downtown. Encouraging
hotels to provide parking through an exemption from the parking tax, kept hotel guest
vehicles out of scarce downtown parking lots, thereby mitigating the need for shoppers
visiting San Francisco’s gold-plated shopping districts from having to compete for
precious parking with transient hotel guests. Surely, the San Francisco Board of
7
By eliminating the parking tax from that portion of a tenant’s rent attributable to
parking, landlords and tenants were also spared the nightmarish task of being forced to
allocate a portion of rent to parking, and deal with the potential complex income tax
issues raised by such an arbitrary allocation. Of course, in cases of off-premises
apartment parking, the separation of rents is much simpler to achieve.
10
Supervisors could have properly concluded that the city had much more in tax revenues
to be gained by encouraging tourism, conventioning, and retail shopping than those tax
dollars lost through granting an on-premises parking tax exemption for hotels. Indeed,
promoting tourism has been judicially confirmed to be a type of rational basis that is
alone sufficient to overcome an equal protection challenge. (Valley Bank of Nevada v.
Plus System, Inc. (9th Cir. 1990) 914 F.2d 1186, 1195.)
As to the further exemption for off-premises hotel parking taxes where the “rent”
is included as part of the room charge, we accept as reasonable the rationale rejected by
the trial court. While the tax rate may be lower for occupancy taxes than the parking tax,
granting the exemption can be justified in the interest of mollifying tourism interests by:
(1) preventing the imposition on hotel guests of double taxation (parking and occupancy
taxes) thereby reducing hotel costs; and (2) reducing the administrative burden on hotels,
which were required to collect the separate taxes.
Flying Dutchman’s reliance on John Tennant Memorial Homes, Inc. v. City of
Pacific Grove, supra, 27 Cal.App.3d 372 is unavailing. In that case, this division
determined that there existed no rational basis for Pacific Grove’s imposition of an
occupancy tax on residents of nonprofit retirement homes, while exempting from the tax
residents of for-profit homes. (Id. at pp. 379-381.) To the contrary, here we conclude
that rational bases do indeed exist legally justifying the different classes of parking
occupants offered exemptions from CCSF’s parking tax; consequently, the parking tax
does not violate the equal protection clause.8
B. Flying Dutchman’s Privileges and Immunities Claim
Relying on Saenz v. Roe (1999) 526 U.S. 489, Flying Dutchman alternatively
claims that even if its equal protection argument fails, CCSF’s parking tax violates
California’s privileges and immunities clause contained in the state constitution (Cal.
8
Because we find that rational bases exist which legally justify the parking tax
exemptions questioned by Flying Dutchman, we need not, and do not, address CCSF’s
further argument that the exemptions can be justified out of “administrative
convenience.” (City of San Jose v. Donohue, supra, 51 Cal.App.3d 40, 45.)
11
Const., art. I, § 7, subd. (b)). In pertinent part, that constitutional provision provides: “A
citizen or class of citizens may not be granted privileges or immunities not granted on the
same terms to all citizens. . . .” (Cal. Const. art. I, § 7, subd. (b).) Flying Dutchman
contends this clause applies because, unlike the federal constitution, the state provision is
not limited to prohibiting disparate treatment by law of citizens of California and
nonresidents, but also to laws that apply unequally to classes of citizens of this state.
The trial court treated this claim as one arising under the federal constitution, and
concluded as such that Flying Dutchman lacked standing to bring this claim on behalf of
nonresidents who might be aggrieved by the parking tax. Therefore, the trial court
declined to decide this alternative constitutional claim on the merits. We conclude that,
even analyzing Flying Dutchman’s claim under the state constitution, it fails both
because Flying Dutchman lacks standing to assert this claim under the facts of this case,
and on the merits of the argument.
In making its claim, Flying Dutchman poses the inequity under the state’s
privileges and immunities clause as follows: “The differing parking tax burdens put on
hotel occupants and residents offend the privileges and immunities clause. . . . A parker
staying in a ‘hotel’ with integral parking is not taxed yet a parker staying in a ‘hotel’
without integral parking is taxed. Similarly, for residents—those with integral parking
escape tax but those who rent from their friend or next door neighbor are taxed. . . .”
While the disparate treatment of both some hotel guests and residents exist under
the ordinance, the simple fact remains that Flying Dutchman is neither. It does not offer
any analysis indicating that it is aggrieved by this disparate treatment of hotel and
residential parkers, and ignores the trial court’s finding that it lacked standing to assert
such a claim.
The simple answer to the standing question is that the privileges and immunities
clause applies by its terms to “citizens.” Thus, unlike the due process and equal
protections rights, which attach to “persons,” corporations are not entitled to the
protection of the privileges and immunities clause because they are not “citizens.” (Blake
v. McClung (1898) 172 U.S. 239; Asbury Hospital v. Cass (1945) 326 U.S. 207.)
12
The merits of Flying Dutchman’s privileges and immunities argument are
answered by our analysis of Flying Dutchman’s equal protection claim. Under privileges
and immunities jurisprudence, legislation that favors one class of citizens over another
does not violate the clause unless the classification of citizens is unreasonable and
arbitrary. (People v. Housman (1984) 163 Cal.App.3d Supp. 43, 52-53.) Because we
have determined that the parking tax exemptions challenged by Flying Dutchman are
rationally related to a legitimate governmental interest or goal, we conclude that they are
not unreasonable or arbitrary under the privileges and immunities clause of the state
constitution.
C. Flying Dutchman’s Double Taxation on Real Property Claim
Another alternative argument raised by Flying Dutchman challenging enforcement
of the parking tax is that it violates the constitutional prohibition against double taxation
on real property. Flying Dutchman premises this contention on article XIII, section 1 of
the California Constitution, requiring that property be taxed on an ad valorem basis, a
requirement that effectively prohibits double taxation. (City of Oakland v. Digre (1988)
205 Cal.App.3d 99, 104; and see Flynn v. San Francisco (1941) 18 Cal.2d 210, 215.)
Because property taxes have been paid on the real estate upon which Flying Dutchman
conducts its parking operations, Flying Dutchman claims CCSF’s parking tax is a second,
and forbidden tax on that real estate. The trial court summarily denied this contention by
concluding the parking tax was not a tax on the real estate itself, but a separate and legal
tax on the use of that property. We agree.
Article XIII, section 1 of the California Constitution provides: “(a) All property is
taxable and shall be assessed at the same percentage of fair market value. When a value
standard other than fair market value is prescribed by this Constitution or by statute
authorized by this Constitution, the same percentage shall be applied to determine the
assessed value. The value to which the percentage is applied, whether it be the fair
market value or not, shall be known for property tax purposes as the full value.”
No other method of taxing property per se is allowed in this state, other than the
prescribed constitutional method. (Flynn v. San Francisco, supra, 18 Cal.2d 210; City of
13
Oakland v. Digre, supra, 205 Cal.App.3d at p. 104.) However, an important distinction
is made between the taxation of real estate ownership on an ad valorem basis, and a tax
on the use of that real property. It has long been recognized that a tax on the separate use
of the property, known as an excise tax, is permissible, and does not constitute double
taxation. (City of Berkeley v. Cukierman (1993) 14 Cal.App.4th 1331.) “The mere fact
that the state (or local authority) imposes one excise tax upon one activity does not
prevent the state or local authority from imposing another excise tax upon the same
privilege for the same period. (Fox etc. Corp. v. City of Bakersfield (1950) 36 Cal.2d
136, 140 . . . ].) To put it another way, the constitutional prohibition against double
taxation applies only to ad valorem property taxes, and property tax and excise tax can be
imposed simultaneously. (Pesola v. City of Los Angeles (1975) 54 Cal.App.3d 479, 485486 . . .].)” (City of Berkeley v. Cukierman, supra, 14 Cal.App.4th at pp. 1340-1341.)
Nevertheless, Flying Dutchman contends that the imposition of CCSF’s parking
tax is a tax on its “possessory interest” in real estate it holds, and therefore is a form of
prohibited double tax. This arises from the belief that the parking tax is one imposed on
Flying Dutchman’s possession of real estate—a parking space located within a parking
lot. In support it cites a host of cases in which ad valorem taxation of possessory
interests of real property have been upheld, including McCaslin v. DeCamp (1967) 248
Cal.App.2d 13 [terminable at-will monthly rental of residence owned by district was a
taxable property right under Rev. & Tax. Code, § 107] and Scott-Free River Expeditions,
Inc. v. County of El Dorado (1988) 203 Cal.App.3d 896 [exclusive use of river for
commercial purposes was a taxable interest in real property]; and City of San Jose v.
Carlson (1997) 57 Cal.App.4th 1348 [right to short term use convention facilities
sufficient possessory interest to be taxable under Rev. & Tax. Code, § 107].
While these cases, and the other similar decisions cited by Flying Dutchman,
clearly stand for the proposition that possessory interests in real estate are subject to
ad valorem property taxes, none of them hold that excise taxes on certain uses of real
property cannot also be imposed, not on the mere possessory interest, but on the use of
that property interest. For example, Flying Dutchman may own real estate or have
14
leasehold possessory interests in property located within San Francisco that is taxable as
such—a formula-based market value tax. But the use to which those property interests
are put can also be taxed. Such use taxes are not taxes against the property. (City of
Glendale v. Trondsen (1957) 48 Cal.2d 93, 103.) This distinction is precisely the holding
in cases such as Pesola v. City of Los Angeles, supra, 54 Cal.App.3d 479, and City of
Berkeley v. Cukierman, supra, 14 Cal.App.4th 1331, cases Flying Dutchman is
understandably unable to explain away.
Similarly, in its reply brief and at oral argument, Flying Dutchman relied on
Thomas v. City of East Palo Alto (1997) 53 Cal.App.4th 1084, a case out of Division Five
of this court. However, once again the challenged tax was a city-wide parcel tax that was
“levied based upon mere ownership and type of property, and not on any separate
incident to property ownership. . . .” (Id. at p. 1086.)
We agree with the trial court that CCSF’s parking tax is a proper excise or use tax,
and not a property tax. Consequently, it does not violate the prohibition in the California
Constitution against double taxation.
D. Flying Dutchman’s Claim That The Parking Tax
Is An Invalid “Special Tax” Under Proposition 13
Lastly, Flying Dutchman claims the trial court erred in rejecting its argument that
the parking tax was invalid to the extent that it violates Proposition 13. Proposition 13
amended the California Constitution by adding article XIIIA. Section 4 of that article
states: “Cities, counties, and special districts, by a two-thirds vote of the qualified
electors of such district, may impose special taxes on such district except ad valorem
taxes on real property or a transaction tax or sales tax on the sale of real property within
such City, County, or special district.” (Cal. Const., art. XIIIA, § 4.)
Flying Dutchman asserts that the parking tax is just such a special tax because,
rather than all of the collected taxes being deposited into CCSF’s general fund, by local
ordinance one-third of the parking tax is slated exclusively for use to support senior
citizen programs. The trial court ruled that the issue was mooted by its ruling on Flying
Dutchman’s equal protection argument. Nevertheless, the court also noted that if “it
15
subsequently be[comes] relevant,” the argument fails because the savings clause of the
parking tax ordinance (§ 616) would become operable, thereby voiding the allocation and
returning all funds to the general fund.
On November 25, 1977, then-Mayor George Moscone signed Ordinance No. 53477 (the 1977 Ordinance). The 1977 Ordinance directed that, for the 1977-1978 fiscal
year, no more than $3.5 million of parking taxes collected would be deposited into
CCSF’s general fund. Any balance “in fiscal year 1977-78 shall be used exclusively for
senior citizens’ programs, including, but not limited to, nutrition programs, escort service
programs, housing and rent supplements, and Municipal Railway operating
purposes . . . .”
The following June, Proposition 13 was passed by California voters, which
amended the constitution as noted above. By this amendment, local governments were
thereafter required to place on the ballot and obtain the approval of two-thirds of the
voters voting in the election before any “special taxes” could be passed and imposed. A
“special tax” has been judicially defined as one levied for a specific purpose, rather than
one imposed to generate revenues for general governmental uses, and which would be
deposited in the entity’s general fund. (City and County of San Francisco v. Farrell
(1982) 32 Cal.3d 47, 53-54.)
After Proposition 13 became effective, CCSF passed, and the mayor signed,
Ordinance No. 424-78 (the 1978 Ordinance), which added section 615, subdivision (a)(3)
to the Business and Revenue Code. That new section read9: “Effective July 1, 1978, 662/3 percent of the balance of the moneys collected, pursuant to the provisions of this
Article shall be deposited in the General Fund. The remaining 33-1/3 percent of the
balance of the moneys collected shall be used exclusively for senior citizens’ programs,
provided, however[,] that appropriations for said senior citizens’ programs shall be made
9
Apparently, section 615 has been amended twice since the 1978 Ordinance: in
1979 (Ordinance No. 433-79) and in 1998 (Ordinance No. 20-98). The text of the present
version of subdivision 3 is the same as that contained in the record, although there is no
longer any subdivision (a) designation under that section.
16
by the Board of Supervisors pursuant to the budget and fiscal provisions of the Charter;
and further provided that no portion of these funds shall be used for the studies or
consultant services for senior citizens’ services and programs; and provided further that
the Board of Supervisors shall expend a portion of said funds for the continual auditing
and monitoring of all senior citizens’ programs by the Budget Analyst.”
CCSF contends that the operative ordinance is the 1977 Ordinance, which was
passed before Proposition 13, and cites us to Kehrlein v. City of Oakland (1981) 116
Cal.App.3d 332, which held that where “the ordinance[] predate[s] article XIII A, no
compliance with the two-thirds requirement of section 4 was necessary.” (Id. at p. 340.)
However, we agree with Flying Dutchman that the 1977 Ordinance, by it own terms, was
applicable to fiscal year 1977-1978 only. It was followed by the 1978 Ordinance, which
was enacted after Proposition 13 was passed, and could not take effect unless and until
approved by a two-thirds vote. (Cal. Const., art. XIIIA, § 4.) Thus, CCSF’s argument
that the 1978 Ordinance relates back to the enactment date of the 1977 Ordinance,
because the second ordinance was a mere continuance of the first ordinance, is not
supported by the language of the ordinances themselves.
Furthermore, while the subject matters of the two ordinances are similar (both
concern allocating parking tax revenues to senior citizens programs), they are different in
certain material ways. The 1977 Ordinance required that the first $3.5 million of parking
taxes collected would be deposited into the general fund, and that all additional tax
revenues would go to the specified senior programs. On the other hand, the 1978
Ordinance allocated two-thirds of all collected revenues from the first dollar into the
general fund, and the remaining one-third of all collected revenues to be spent for
enumerated senior citizen purposes. Unlike the 1977 Ordinance, the 1978 Ordinance also
modified the uses to which the revenues allocated for senior citizen programs could be
spent: “[N]utrition programs, escort service programs, housing and rent supplements,
transportation and recreation . . . .” For these reasons, the two ordinances cannot benefit
from the exception noted in Kehrlein v. City of Oakland, supra, 116 Cal.App.3d 332.
17
Accordingly, section 615, subdivision (a)(3) violates the California Constitution, and is
unenforceable.
Nevertheless, we agree with the trial court that the fact that section 615,
subdivision (a)(3) violates Proposition 13 does not doom the entire parking ordinance
scheme. The incompatibility between section 615, subdivision (a)(3) and Proposition 13
can be rectified by invoking the savings clause of the parking ordinance (§ 616). That
clause states in important part: “. . . [N]or shall this ordinance be construed as requiring
the payment of any tax prohibited by . . . the Constitution of the State of California.
[¶] If any Section, SubSection, subdivision, paragraph, sentence, clause or phrase of this
Article or any part thereof is for any reason held to be unconstitutional, such decision
shall not affect the validity of the remaining portions of this Article or any part thereof.
The Board of Supervisors hereby declares that it would have passed each Section,
SubSection, subdivision, paragraph, sentence, clause or phrase thereof, irrespective of the
fact that any one or more Sections, SubSections, subdivisions, paragraphs, sentences,
clauses or phrases be declared unconstitutional.” (§ 616.)
Flying Dutchman acknowledges that resort to the savings clause quoted above
allows this court to enforce the parking ordinance by ordering taxes paid in future years
to be placed in CCSF’s general fund. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d
805, 821.) However, it asserts that any collected taxes applicable to preceding years must
be reduced by one-third, the percentage of the senior citizen “special tax” allocation.
Flying Dutchman’s argument for a tax liability reduction might have more
resonance were this a refund action.10 However, this action is one for the initial
collection of the tax, and Flying Dutchman cites us to no authority that would limit the
ability of this court to invoke the savings clause, strike section 615, subdivision (a)(3),
and order the tax arrearages to be paid in full and placed in CCSF’s general fund.
10
For example, one of the principal cases relied on by Flying Dutchman to support
its invalid special tax argument, Reich v. Collins (1994) 513 U.S. 106, was a tax refund
action.
18
E. Flying Dutchman’s Valet Parking Activities
Not only does CCSF claim the trial court erred by sustaining Flying Dutchman’s
equal protection challenge to the parking tax, but claims it also erred by ruling that the
parking tax did not apply to Flying Dutchman’s valet services where Flying Dutchman
did not pay for the property on which it parked cars. We agree with the trial court.
Among the services provided by Flying Dutchman was valet parking for which it
was hired by a “host” to take vehicles from “guests,” park them, and return them to the
guests as the guests left the host’s function. Flying Dutchman received a fee from the
host for providing these services. The statement of decision notes that when guest
vehicles were taken by Flying Dutchman’s valet attendants, they were parked: (1) on the
premises of the host (or on-the-street parking), for which Flying Dutchman paid no fee;
or (2) on private premises, such as an existing lot, for which Flying Dutchman paid a fee,
but also where it controlled use of the premises for at least the duration of the event.11
Were it not for the parking taxes’ equal protection violation, the trial court
concluded that Flying Dutchman would owe CCSF taxes only if it received “rent” for the
parking space used during valet operations, and then only where Flying Dutchman was
the “operator” of the “parking station” used (e.g., it did not pay rent to another who
“operated” the parking station). The importance of the definitions contained in the
parking tax ordinance cannot be overstated in analyzing this issue.
An “operator” is defined under the ordinance as: “Any person operating a parking
station in the City and County of San Francisco, including but not limited to, the owner or
proprietor of such premises, lessee, sublessee, mortgagee in possession, licensee or any
other person otherwise operating such parking station. A person who otherwise qualifies
11
The facts taken from the statement of decision on this point are undisputed by the
parties. What is disputed is how the parking tax ordinance should be interpreted in light
of these facts. The trial court also considered a third valet scenario, where Flying
Dutchman paid a per car fee to another parking station “operator.” However, because it
did not appear that there was any evidence offered showing this scenario actually
occurred, the trial court did not rule on the sub-issue.
19
as an operator as herein defined shall not, by reason of the fact that he was exempt from
the tax herein imposed, be exempted from the obligations of an operator hereunder.”
(§ 601, subdivision (b).)
An “occupant” is defined under the ordinance as: “A person who, for a
consideration, uses, possesses or has the right to use or possess any space for the parking
of a motor vehicle in a parking station under any lease, concession, permit, right of
access, license to use or other agreement or otherwise.” (§ 601, subdivision (c).)
“Occupancy” is defined under the ordinance as: “The use or possession or the
right to the use or possession of any space for the parking of a motor vehicle in a parking
station.” (§ 601, subdivision (d).)
A “parking station” as used in the ordinance “shall include, but is not limited to:
[¶] (1) Any outdoor space or uncovered plot, place, lot, parcel, yard or enclosure, or any
portion thereof, where motor vehicles may be parked, stored, housed or kept, for which
any charge is made. [¶] (2) Any building or structure, or any portion thereof in which
motor vehicles may be parked, stored, housed or kept, for which any charge is made.”
(§ 601, subdivision (e).)
Lastly, “rent” is defined under the ordinance as: “The consideration received for
occupancy valued in money, whether received in money or otherwise, including all
receipts, cash, credits and property or services of any kind or nature, and also the amount
for which credit is allowed by the operator to the occupant without any deduction
therefrom whatsoever.” (§ 601, subdivision (g).)
When the language of an ordinance provides a specific result, it is a court’s duty to
apply it as worded and equally its duty not to engage in construction. (Delaney v.
Superior Court (1990) 50 Cal.3d 785, 800.) Harmonizing these definitions with the
application of the parking tax, in the first instance it is the legal responsibility of one (the
“occupant”) who gives consideration to another (pays “rent”) to “occupy” a parking
20
space in a “parking station” in San Francisco to pay the parking tax. (§ 603.)12 However,
if the “operator” of a “parking station” fails to collect the tax, it becomes the
responsibility of the “operator” to make payment to CCSF. (§ 604.)13 Thus, in the
normal parking situation, one who wishes to park a vehicle must pay the tax if “rent” is
paid to “occupy” a parking space in a “parking station.” If the tax is not paid by the
occupant (e.g., person wishing to park), then that legal responsibility passes to the one to
whom the “rent” is paid, but only if that latter person or entity is an “operator” of a
“parking station.”
In April 1972, section 602A was added (and subsequently amended in 1998),
expanding the definition of “rent” for purposes of the parking tax ordinance. In material
part, the new section provided: “The term ‘rent,’ as defined in Section 601(g), shall be
deemed to include the total charges required to be paid by an occupant (including but not
limited to, any valet or service labor charge) in connection with the use or occupancy of
parking space . . . .” Perhaps with a spoonful of irony, the amendment concludes with:
12
“SEC. 603. OCCUPANT TO PAY TAX TO OPERATOR. [¶] Unless prohibited
by the laws of the United States, the State of California, or exempted by the provisions of
this Article, every occupant occupying parking space in a parking station in this City and
County shall be required to pay the tax imposed herein to the operator along with the rent
for occupancy. This obligation is not satisfied until the tax has been paid to the City and
County, except that a receipt indicating payment of the rent from an operator maintaining
a place of business in this City and County or from an operator who is authorized by the
Tax Collector to collect the tax shall be sufficient to relieve the occupant from further
liability for the tax to which the receipt refers.”
13
Section 604 states in pari materia: “Every operator maintaining a place of
business in this City and County as provided in Section 603 herein, and renting parking
space in a parking station in this City and County to an occupant who is not exempted
under Section 606 of this Article or elsewhere in this Code, shall at the time of collecting
the rent from the occupant, collect the tax from the occupant and on demand shall give to
the occupant a receipt therefor. In all cases in which the tax is not collected by the
operator, as aforesaid, the operator shall be liable to the Tax Collector of the City and
County for the amount of tax due on the amount of taxable rent collected from the
occupant under the provisions of this Article the same as though the tax were paid by the
occupant.”
21
“The Board of Supervisors hereby declares its intent that from its initial enactment, the
parking tax was intended to include and exclude the charges set forth in this
Section 602A. The Board of Supervisors further declares that the addition of this Section
602A is not intended to make any substantive change in the Parking Tax Ordinance, but
is enacted for clarification purposes only.” (Italics added.)
Important in our view was that, while it expanded the definition of “rent,” the law
still required that the person or entity to whom the “rent” was paid be an “operator” of a
“parking station” before it could be charged with the tax not paid by an “occupant.” The
trial court concluded essentially that Flying Dutchman’s valet parking “rent” was not
subject to the tax except under circumstances where the guest vehicle was “occupying” a
parking space in a “parking station” which Flying Dutchman “operated.” We agree.
One of the valet parking scenarios referenced in the court’s statement of decision
is where a guest vehicle was taken by Flying Dutchman’s valet attendants, and parked on
the premises of the host (or on-the-street parking), for which no remuneration was paid.
Under these facts, Flying Dutchman, even if deemed an “operator,” had no tax liability
because it was not operating a “parking station”; a “parking station” being limited to a
parking space for which “a charge is made.” (§ 601, subdivision (e)(1).) Since no charge
was being made for the parking space, the labor or valet fee charged is not taxable under
the parking tax ordinance as written.
However, where the guest’s vehicle was taken by Flying Dutchman’s valet
attendant and parked on premises for which some charge was made, then the “parking
station” requirement of the ordinance has been met. If, in addition, Flying Dutchman
qualified as the “operator” of that parking station, it was liable for the tax on the entire
rent received—that for the space and the valet service—if the tax was not paid by the
occupant/guest. We have no difficulty concluding that when Flying Dutchman controlled
the use of the premises where its valet attendants parked the vehicles for at least the
duration of the event, it was an “operator” as contemplated by the ordinance. (§ 601,
subdivision (a).)
22
CCSF urges that the trial court’s interpretation failed to give effect to the
amendment’s language specifically adding valet service charges to the definition of
“rent” under the ordinance. Not so. The purpose and effect of the amendment is to
include within the parking tax the valet service portion of a total rent charge paid for
parking in San Francisco. However, there is no intent in the ordinance to tax valet
service charges alone. After all, at bottom the scheme of the ordinance is to tax the use of
property, and not to tax a service business. In this regard, CCSF cannot now ignore its
own characterization of the tax an excise tax or one on the use of real property made in
response to Flying Dutchman’s ad valorem double taxation claim. Under these
circumstances, we find nothing “absurd” about exempting charges made by a valet
business to the extent it does not generate revenue from vehicle parking.
V.
DISPOSITION
The judgment is reversed. The case is hereby remanded to the trial court to enter a
new judgment consistent with this opinion, including the amount of tax due and owing,
together with any accrued interest. The subsequent judgment shall direct that the amount
of the judgment, when paid by Flying Dutchman, shall be deposited in CCSF’s general
fund and not be subject to the allocation provided for in section 615, subdivision (a)(3),
which provision we declare to be unconstitutional. Costs on appeal are awarded to
CCSF.
23
_________________________
Ruvolo, J.
We concur:
_________________________
Haerle, Acting P.J.
_________________________
Lambden, J.
24
Trial Court:
San Francisco County Superior Court
Trial Judge:
Hon. Thomas J. Mellon, Jr.
Counsel for Plaintiff and Appellant:
Dennis J. Herrera, City Attorney,
Julie Van Nostern, Chief Tax Attorney,
and Ellen Forman, Chief Appellate
Attorney
Counsel for Defendants
and Appellants:
Law Offices of J. Brian McCauley and
J. Brian McCauley
25
