Contributors
Jon Coupal- Columnist

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers Association -- California's largest taxpayer organization with offices in Los Angeles and Sacramento. [go to website]

The Car Tax is the Squeaky Wheel
The Vehicle License Fee is a Tax...
[Jon Coupal and Trevor Grimm] 10/1/03

Each month a new ripple of anger sweeps across our state as one-twelfth of California car owners open their bills from the Department of Motor Vehicles and find that their car tax has been tripled.

No one wants to take responsibility for this $4.5 billion tax increase. State officials confuse the issue by talking about "triggers," prior legislation and state deficits; but make no mistake -- Governor Gray Davis signed the tax increase authorization in June and it was implemented without the approval of the Legislature.

For years, many drivers assumed that what they were paying the state each year was to cover the cost of registering a vehicle and that any additional funds went for roads and services to the car-owning public.

But in fact, the largest portion of most auto owners' bills is the Vehicle License Fee (VLF), which is used by the state to subsidize local services totally unrelated to automobiles, such as mental health care. So while the VLF may incorporate the word "fee" this is a misnomer because this fee is actually a tax on vehicles.

For most car owners, as they reach for their checkbooks, arguments over the semantics of tax law may seem trivial, but the outcome can mean billions of dollars more or less to the motoring public.

The Howard Jarvis Taxpayers Association has filed a lawsuit challenging the hike in the car tax, absent a two-thirds vote of both houses of the Legislature. Under Proposition 13 (Article 13 A, et seq., of the California Constitution) "...any changes in State taxes enacted for the purpose of increasing revenues...whether by increased rates or changes in the method of computation must be imposed by an Act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature."

But with the VLF we are dealing with a self-described "fee," and where, you ask, does the California Constitution say that a "fee" increase needs a two-thirds vote? Answer: Nowhere.

In a 1997 decision (Sinclair Paint Company vs. State Board of Equalization) the California Supreme Court held that a "fee" is a charge collected in connection with governmental regulatory activities -- such as a fee collected to pay for the cost of registering and licensing vehicles -- and is "OK" without a vote, to the extent that such a "fee" does not exceed the reasonable cost of providing the services necessary to the activity for which the fee is charged, and which is not levied for unrelated revenue-raising purposes.

Does the regulatory activity of the Department of Motor Vehicles in registering and licensing motorists' vehicles require the collection of more than four billion dollars per year to be raised by the VLF in its "hiked" form? Obviously not.
By their very complaints local bureaucrats make clear that the money collected by the VLF will pay for services not related to the registration and licensing of motor vehicles and that it is nothing more than "unrelated revenue-raising." Therefore, the VLF really is a car tax and subject to the strictures of Prop. 13.

The Howard Jarvis Taxpayers Association has listened to two justifications for the car tax increase by state officials. Arguments that the VLF is a fee, or that, if it is a tax, it can be increased without a two-thirds vote of the Legislature because the increase is actually the elimination of a tax rebate, are clearly self-serving and specious. The organization also takes the position that a successful outcome for taxpayers in the suit to overturn the car tax increase will not relieve the state of its obligation to local government.

While taxpayers have asked for expedited consideration of their suit, many new higher car tax bills may have been paid before there is a legal resolution.

In the meantime, Gov. Davis has come to the realization that it was the car tax increase that generated hundreds of thousands of additional signatures to put the recall on the ballot. The heat is on and both Gray Davis and replacement candidate Lt. Gov. Cruz Bustamante have come out strongly against the car tax.

The state's top officials now want to increase taxes on income and on tobacco in place of the car tax. They say that this should not require a two-thirds vote as mandated by Proposition 13 because they are not "raising" taxes they are just "replacing" one tax with another – this after they claimed that the car tax increase wasn't a tax in the first place. If this seems confusing and disingenuous on their part, welcome to the world of Sacramento tax politics.

Other candidates have noted the unpopularity of the car tax and come out against it, but only two -- Arnold Schwarzenegger and State Senator Tom McClintock -- have come out for its rollback without the strings of raising other taxes. They say that if Davis can raise the car tax with a stroke of a pen, then they should be able to eliminate it just as quickly.

If one of these candidates wins the replacement race, taxpayers may not have to wait for the result of a protracted legal battle to achieve car tax relief. However, with Schwarzenegger and McClintock dividing the taxpayer vote, the result could just as easily be a Governor Cruz Bustamante who is committed to raising taxes by another $8 billion, or the maintenance of the existing higher car tax if Davis is retained.

So for now, taxpayers must cross their fingers and hope for a favorable ruling on the Jarvis suit that includes refunds* for the overcharges already paid. If this fails, it may require a grass roots initiative effort to drive the car tax out of California.

[Note: For information on how to establish a claim to a refund on your Vehicle License Fee, visit HJTA]

Jon Coupal is president of the Howard Jarvis Taxpayers Association
and Trevor Grimm is general counsel.