special report
The Riddle of Fee Versus Tax Solved:
California's Proposition 26
by Thomas H. Steele, Andres Vallejo, and Scott M. Reiber
Thomas H. Steele is a partner, Andres Vallejo is special
counsel, and Scott M. Reiber is a tax associate with
Morrison & Foerster LLp, San Francisco.
One of the authors of this artic;le, Thomas H. Stee.le,
served as trial counsel for Equilon in Equilon Enterprises
LLC v. Board of Equalization.
The onerous requirements that California state
and local governments must meet to impose new
taxes under propositions 13 and 218 provide substantial incentives for state and local governments
to generate increased revenue through the use of
fees rather than taxes. Many of the fees imposed
resemble what one would typically consider a fee in
that they cover the costs of providing a particular
benefit sought out by a taxpayer (fees for hunting or
fishing licenses, admission fees to enter government
parks, and so on), or the costs of burdens created by
particular taxpayers (emissions fees, fees charged to
regulate public utilities, and so on). However, the
appetite of state and local governments for increased
revenues, coupled with the public's reluctance to
support any increase in taxes, has led state and local
governments to impose "fees" that bear no direct
relationship to the benefits inuring to, or the burdens caused by, particular taxpayers.
This article explores the evolution ofthe legal test
in California for determining when a fee is actually
a tax. It begins with a brief description of the
relevance of the tax versus fee distinction and the
test supplied by the California Supreme Court in
Sinclair Paint Co. u. State Board ofEqualization, for
making that distinction. l It then compares the application of the legal standard in Sinclair Paint in
two recent cases: California Farm Bureau Federation u. State Water Resources Control Board and
ISee Sinclair Paint, 15 Cal. 4th at 866 (1997). (For the
decision, see Doc 97-19083 or 97 STN 127-3.)
State Tax Notes, March /4, 20//
Equilon Enterprises LLC u. Board of Equalization. 2
Finally, it describes how Proposition 26, enacted by
the voters in November, should accomplish what the
California courts have been unable to: bring clarity
to the distinction between taxes and fees.
A The Relevance of the Tax Versus
Fee Distinction and the
Test Provided in Sinclair Paint
In 1978 the California electorate added Article
XIII A, commonly referred to as Proposition 13, to
the California Constitution. Section 3 ofArticle XIII
A requires any increase in state taxes to "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." Similarly, section 4 of Article XIII A
requires approval by two-thirds of the electorate
before the imposition of any local special tax. In
1996 the voters added to the California Constitution
Article XIII C, commonly referred to as Proposition
218, which essentially extended Proposition 13 to
local governments. Article XIII C, section 2 prohibits
local governments from passing general or special
taxes without a majority or two-thirds vote of the
electorate, respectively. Because of the "close, 'interlocking' relationship between the various sections of
article XIII A," courts have applied the same standards at the state and local level in determining
whether an imposition is a tax or fee. 3
The California Supreme Court addressed the distinction between taxes and fees in Sinclair Paint.
Sinclair Paint involved a challenge to a levy imposed to fund a program designed to:
• evaluate, screen, and provide case management
for children at risk of lead poisoning;
2California Farm Bureau Federation v. State Water Resources Control Board, No. 8150518 (Cal. ,Jan. 31, 2011), and
Equilon Enterprises LLC v. Board of Equalization, 189 Cal.
App. 4th 865 (2010). (For the decision in California Farm
Bureau Federation, see Doc 2011-2250 or 2011 STT 22-3; for
the decision in Equilon, see Doc 2010·23578 or 2010 STT
211·5.)
3See Sinclair Paint, 15 Cal. 4th at 873 (1997).
793
Special ReporT
• identify sources of lead contamination responsible for that poisoning;
• identitY and use programs providing adequate
case management for children found to have
lead poisoning; and
• provide education on lead poisoning detection
and case management to state healthcare professionals_ 4
The levy was imposed on entities that significantly
contributed or currently contribute to environmental lead contamination. 5
In describing the tax versus fee distinction, the
court in Sinclair Paint stated that "[t]he cases
recognize that 'tax' has no fixed meaning, and that
the distinction between taxes and fees is frequently
'blurred,' taking on different meanings in different
contexts."6 The court stated that in general, taxes
are imposed for revenue purposes, as opposed to in
return for a specific benefit, and that taxes are
typically compulsory, rather than being imposed in
response to a voluntary decision to seek government
privileges. 7 That said, in some situations fees also
may be compulsory.8
Following those parameters, the court in Sinclair
Paint enumerated three categories into which fees
may be classified: special assessments, based on the
value of benefits conferred on property; development
fees, exacted in return for permits or other government privileges; and regulatory fees, imposed in
accordance with the state's police power. 9 The levy
in Sinclair Paint was clearly not a special assessment or development fee. Also, the plaintiff in Sinclair Paint argued that the levy at issue in Sinclair
Paint could not be a valid regulatory fee because the
statute at issue was not regulatory in that it was
aimed primarily at producing revenue. lO The court
held that as a fundamental matter, under the police
power, the state may enact regulatory fees despite
having revenue-raising as a primary purpose. In so
holding, the court in Sinclair Paint cited San Diego
Gas & Electric Co. v. San Diego County Air Pollution
Control District (SDG&E),ll a case involving a challenge to a locally assessed levy, for the requirements
for a valid regulatory fee:
[T]o show a fee is a regulatory fee and not a
special tax, the government should prove (1)
the estimated costs of the service or regulatory
activity, and (2) the basis for determining the
manner in which the costs are apportioned, so
41d. at 87l.
51d. at 872.
61d. at 874 (citations omitted).
71d.
8Id.
9Id.
lOld. at 877.
11203 Cal. App. 3d 1132 (1988).
794
that the charges allocated to a payor bear a fair
or reasonable relationship to the payor's burdens on or benefits from the regulatory activity.12
Based on this formulation, the court in Sinclair
Paint found that the levy is a legitimate fee as long
as the revenue from the levy does not exceed the
costs of the regulatory activity and the levy is not
imposed for an unrelated revenue purpose, and the
levy allocated to the payer bears a fair or reasonable
relationship to the payer's burdens on or benefits
from the regulatory activity.I:\ The court held that
the levy was a valid regulatory fce, but indicated
that the payer would have the opportunity on remand to prove that the amount of the levy exceeded
the costs of the program, that the levy was imposed
for unrelated revenue purposes, and that the levy
lacked the requisite relationship between the burdens generated by the payer and the amount of the
levy charged to the payer.
The Court in Sinclair Paint stated
that 'the cases recognize that
"tax" has no fixed meaning, and
that the distinction between taxes
and fees is frequently blurred, '
taking on different meanings in
different contexts.
Showing that the revenue from a regulatory fce
does not exceed the costs of the associated regulatory activity and that the charges are not imposed
for unrelated revenue purposes is typically straightforward_ The more complex question is often
whether the charges allocated to the payer bear a
fair or reasonable relationship to the payer's burdens on or benefits from the regulatory activity. In
general, the cases addressing this issue have held
that the relationship between the amount charged
to a payer and the burdens from or benefits to that
payer need only be reasonable. For example, in
SDG&E the local taxing district allocated a portion
of its permit charges, which funded its regulation of
stationary sources of pollution, based on the emissions of the permit holder. 14 In finding that the
permit charges were fees and not special taxes
under Article XIII A, section 4 of the California
Constitution, the court stated that a precise showing
of how greater emissions increased the burdens on
the agency was not required, because "ft]he purpose
l2Sinclair Paint, 15 Cal. 4th at 878.
nld. at 876.
14San Di£{{o Gas & Electric Co. lJ. San Diego Air Pollution
Control District, 203 Cal. App. 3d at 1146.
SWle Tax Notes, M{lrch 14, 2011
Special Report
for the district's existence is to achieve and maintain
air quality standards ... land] thus from an overall
perspective it is reasonable to allocate costs based on
a premise that the more emissions generated by a
pollution source, the ~'Teater the ref,'lllatory job of
the district."J5
As an initial matter, the Calif()rnia Supreme
Court placed the burden on the fee payers to "establish a prima facie case showing that the fee is
invalid."IH The court also held that the fee payers
had the burden of producing evidenceYl However,
the court said:
B. The California Supreme Court's Decision
in California Farm Bureau
IO]nce plaintiffs have made their prima facie
case, the state bears the burden of production
and must show "'(1) the estimated costs of the
service or regulatory activity, and (2) the basis
for determining the manner in which the costs
are apportioned, so that the charges allocated
to a payor bear a fair or reasonable relationship to the payor's burdens on or benefits from
the regulatory activity."'20
Sinclair Paint's analytical framework for distinguishing between a tax and a fee was recently
interpreted by the California Supreme Court in Cal.
Farm BureauJ6 At issue in Cal. Farm Bureau were
annual fees that the State Water Resources Control
Board's Division of Water Rights imposed on holders
of water rights permits and licenses. The division
lacked the authority to impose permit and license
fees on some holders of water rights, including those
with riparian or pueblo rights, those who had acquired rights before 1914, and the federal government. Despite not having authority to license those
parties, the division's activities benefited those parties by protecting their water rights from all post1914 applications and permits regarding water appropriations,
providing complaint resolution
services, and adjudicating their water rights. The
water rights held by the parties not subject to the
annual permit or license fees represented approximately 60 percent of the water subject to water
rights.
Because the division was not permitted to impose
a fee on 60 percent of the water rights holders, 40
percent of the water rights holders paid fees to
support the costs of the entire program. Permit
holders filed suit against the division alleging, in
part, that the license fees were actually unconstitutional taxes that were not passed by a supermajority
of the electorate. 17 The court of appeal held that
although the fees were facially constitutional, they
were illegal taxes as applied by the division's regulations because the fees did not bear a reasonable
relationship to the plaintiffs' burdens on or benefits
from the regulatory activity. The division appealed
to the California Supreme Court.
15Id. at 1147-1148; see also Cal. Ass'n. of Profl Scientists v.
Dep't of Fish and Game, 79 Cal. App. 4th 935 (2000) (upholding a flat fi.~e for conducting environmental reviews on the
ground that the flat fee allocation was a reasonable basis for
distributing the cost among payers, even though there may
not be an exact correlation between each payer and the
benefits received or burdens imposed by the payer's activity).
16Both sides have petitioned for rehearing in the case,
although none of the grounds for the rehearing appear to
affect the portions (}f the opinion relevant to the analysis
herein.
17The plaintiffs also raised an issue regarding the fees
charged to federal contractors.
State Tax Notes. March 14, 2011
Thus, the fee payers bear the initial burden to
establish a prima facie case regarding the costs of
the regulatory activity and to establish that those
costs do not bear a reasonable relationship to the
burdens on or benefits from the regulatory activity.
Thereafter, the burden shifts back to the state to
show that the requirements of a valid fee are met.
In determining whether the challenged levy was a
fee or a tax, the court in Cal. Farm Bureau first said
that "[t]he question of proportionality is not measured on an individual basis. Rather, it is measured
collectively, considering all rate payors."21,22 The
state supreme court agreed with the court of appeal
that the fees were not facially unconstitutional because the statutes imposing the fees did not require
J8Cal. Farm Bureau, No. 8150518, slip op. at 13 (Cal. Jan.
31,2011).
19Id. at 14.
2oId. at 14-15 (citations omitted).
21We understand this to mean that a fee need not be
directly proportional to the costs that each individual fee
payer imposes on the program. Rather, the requirement of
proportionality is determined by looking at how the fee is
apportioned to various classes of fee payers. Because in the
Cal. Farm Bureau case there was a single class of fee payers
- permit holders - t.he question on remand is whether the
costs (burdens) creat.ed by those fee payers are reasonably
reflected in the fees charged to them. In contrast, if there is
more than one class of fee payers, the test presumably is
proportionality (once it is established that the fees are not
used for purposes other than the program costs). For example,
if instead of charging no fees to non-permit-holders the
division in Cal. Farm Bureau charged the non-permit-holders
a total fee of $1, the relevant question would not simply be
whether the total fees charged to all holders of water rights
(permitted and non-permitted) were reasonably related to the
total costs that all water rights holders imposed on the
program. The relevant inquiry would also involve whether
the fee charged to the permit holders was reasonably related
to the costs those permit holders imposed on the program, and
whether the $1 fee charged to the non-permit-holders was
reasonably related to the costs those non-permit-holders
imposed on the program.
221d. at 16-17
795
Special Report
the division to collect fees in excess of the costs
incurred in carrying out the division's permit functions. 2:1
The court then addressed whether the fees were
unconstitutional as applied to the fee payers because the charges allocated to payers under the
division's regulations did not bear a fair or reasonable relationship to the payers' burdens on or benefits from the regulatory activity. The plaintiffs
argued that the proportionality had to be measured
by the benefits conferred by the division, and that
because 40 percent of those benefiting were paying
100 percent of the fees, the fees did not bear a fair
relationship to the benefits from the regulatory
activity.24 The division, on the other hand, argued
that the relevant focus was not on the "broad benefits of the program" but rather on the costs incurred
by the division. 25 Because the division claimed that
"some 95 percent of its time and expense are directed toward servicing and regulating those licensees and permittees against whom the challenged
fees were assessed," the 100 percent allocation ofthe
fees to the license and permit holders was reasonable. 26
The court agreed with the division that "central to
the resolution of this issue is an understanding of
the extent and costs of the Division's regulatory
'activity.'"27 Indeed, the court said that Sinclair
Paint "directed courts to examine the costs of the
regulatory activity and determine if there was a
reasonable relationship between the fees assessed
and the costs of the regulatory activity."28 Because
the trial court did not make adequate factual findings regarding the costs of the regulatory activity,
the court remanded the case to the trial court "to
make detailed findings focusing on the Board's evidentiary showing that the associated costs of the
regulatory activity were reasonably related to the
fees assessed on the payors."29 The court said that
the trial court "must determine whether the statu-
23Id. at 19.
24Id. at 19-20.
25Id. at 20.
261d.
27Id. at 19 (citing section 1525(d)(3)).
281d. at 21 (citing Sinclair Paint at pp. 870 and 878).
291d. at 22 (citing Sinclair Paint at p. 870).Justice
Moreno's concurring opinion, joined by Justice Werdegar,
clarified the issue on remand as follows:
In the present case, the State Water Resources Control
Board claims that "some 95 percent of its time and
expense are directed toward servicing and regulating
those licensees and permittees against whom the challenged fees were assessed." (Maj. opn., ante, at p. 20)
The support for this contention stems primarily from a
document produced by the board on April 15, 2004,
shortly after the present litigation commenced. Because of the uncertain reliability of this document, as
well as the trial court's lack of findings, remand is
tory scheme and its implementing regulations provide a fair, reasonable, and substantially proportionate assessment of all costs related to the regulation
of affected payors."30
C. The Court of Appeal's Decision in Equilon
Three months before the decision in Cal. Farm
Bureau, the Third District Court ofAppeal issued its
decision in Equilon>ll Equilon involved the same
statutes and regulations at issue in Sinclair Paint,
but addressed issues that the court in Sinclair Paint
did not decide, including whether the fees imposed
were reasonably related to the payers' benefits from
or burdens on the regulatory program. The fee in
Equilon was allocated approximately 85 percent to
the gasoline industry based OIl its alleged contribution to "environmental lead contamination," while
evidence showed that the majority ofthe costs ofthe
program at issue in Equilon were tied to cases of
lead poisoning, which the court of appeal acknowledged do not correspond directly to environmental
lead contamination. 32
The fee payer in Equilon, Equilon Enterprises
LLC, argued, similar to the California Supreme
Court's holding in Cal. Farm Bureau, that the "feepayers' 'burdens on' the 'regulatory activity' should
be determined by looking at the burdens actually
addressed by the regulatory program, as evidenced
by the program's activities and expenditures."33 Because there was evidence that the program spent the
vast majority of its resources on cases of childhood
lead poisoning, and because there was evidence that
that the gasoline industry was not primarily responsible for cases of childhood lead poisoning, Equilon
argued that the fees allocated to the gasoline industry were not reasonably related to the industry's
burdens on the program. 34
Relying primarily on San Diego County Air Pollution Control District and Cal. Ass'n. of Prof'l.
Scientists u. Dep't of Fish and Game, the court of
appeal in Equilon rejected the arguments of the fee
payer. Rather, the court of appeal held:
While we certainly agree that identifying and
addressing cases of lead poisoning in children
is at the core of the lead program, it does not
follow that in allocating the fee imposed to fund
the program's activities the department was
appropriate to determine whether the board's decisions
regarding who would be subject to the fee were reasonable.
Cal. Farm Bureau, No. 8150518, slip op. concurrence at 2
(Cal. ,Jan. :n, 2(11).
:lOid. at 2:1.
3lEquiloll, 189 Cal. App. 4th at 865.
:12Id. at 886-887.
33Eqlliloft, 189 Cal. App. 4th at 883.
:J4Id.
(Footnote continued in next column.)
796
State Tax Notes. March 14, 20JJ
\
Special Report
.. ~ ..
(
constrained to an allocation method based only
on responsibility fi)r actual cases of lead poisoning in order for the fee to be a legitimate
regulatory fee rather than ataxY"
The Equilon court noted that despite the program's expenditures, the State Legislature had determined that the broad focus of the program was to
address "the consequences of childhood lead exposure resulting from lead contamination in the environment and not simply cases of lead poisoning."36
In other words, the court of appeal determined that
the relevant focus was on the broad purposes of the
program as defined by the Legislature and not on
the costs of the activities actually undertaken by the
program.
Because the decision in Equilon appears to conflict with the more recent decision of the California
Supreme Court in Cal. Farm Bureau, Equilon may
no longer be good law. Certainly, it is difficult to
reconcile the court of appeal's holding in Equilon
(that the "burdens" to which the fee allocation must
bear a reasonable relationship are the broad purposes of the regulatory program as defined by the
Legislature) with the supreme court's holding in
Cal. Farm Bureau (that the relevant "burdens" were
the costs actually incurred by the regulatory program as a result of the fee payers). Indeed, these
conclusions appear to be directly at odds with one
another since the Equilon test essentially relates
the fees to a legal finding while the Cal. Farm
Bureau test looks to a correlation with the program
as it actually exists.:17 Had the court of appeal in
Equilon applied the test from Cal. Farm Bureau, it
may have reached a different result given its finding
that "identifying and addressing cases of lead poisoning in children is at the core of the lead program,"
and the court's conclusion that environmental lead
contamination, on which basis the fee was allocated,
was not proportional to childhood lead poisoning. 3s
D. Proposition 26
Given the ambiguity with which the California
courts have addressed the tax versus fee distinction,
and given the propensity of state and local governments to overreach in situations in which the legal
restrictions on thf~ir authority is unclear, taxpayers
:l5Equilon, 189 Cal. App. 4th at R85.
:l6Equi!on, 189 Cal. App. 4th at 884.
:17 Although one may argue that the cases may be reconciled based on the fact that the Legislature as interpreted in
Cal. Farm Bureau appears to have intended that the fees be
allocated based on cost, while the Legislature as interpreted
in Equi!on appears to have intended that the fees be allocated
based on the broad purpose of the program, it seems illogical
that the findings of the Legislature would modify the legal
standard for determining whether the actions of the Legislature are constitutional.
38See Equilon, 189 Cal. App. 4th at 885, 886-887.
State Tax Notes, March 14, 20ll
should welcome the clarity that Proposition 26
brings to the tax versus fce distinction. Proposition
26, passed by the California electorate in November
2010, amends the California Constitution to provide
a detailed definition ofthe term "tax" as used at both
the state and local levels. It also definitively places
the burden of proving that a levy is a fee and not a
tax on the state or local agency. The amendment
says that every levy, charge, or other exaction imposed by the state is deemed to be a tax except for:
(1) A charge imposed for a specific benefit
conferred or privilege granted directly to the
payor that is not provided to those not charged,
and which does not exceed the reasonable costs
to the State of conferring the benefit or granting the privilege to the payor.
(2) A charge imposed for a specific government
service or product provided directly to the
payor that is not provided to those not charged,
and which does not exceed the reasonable costs
to the State of providing the service or product
to the payor.
(3) A charge imposed for the reasonable regulatory costs to the State incident to issuing
licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof.
(4) A charge imposed for entrance to or use of
state property, or the purchase, rental, or lease
of state property, except charges governed by
Section 15 of Article XI.
(5) A fine, penalty, or other monetary charge
imposed by the judicial branch of government
or the State, as a result of a violation of law. 39
The definition of "tax" at the local level is similar,
although it also excepts from the definition of tax
charges imposed as a condition of property development and assessments and property-related fees
imposed in accordance with Article III D of the
California Constitution.
The burden of proving "that a levy, charge, or
other exaction is not a tax, that the amount is no
more than necessary to cover the reasonable costs of
the government activity, and that the manner in
which those costs are allocated to a payor bear a fair
or reasonable relationship to the payor's burdens on,
or benefits received from, the governmental activity"
falls squarely on the state and local government
entities. 40
Although the levy in Cal. Farm Bureau may meet
the strict requirements of Proposition 26 so that it
3!)Cal. Const. art. XIII A, section 3.
40Cal. Const. arts. XIII A, section 3(d), and XIII C, section
1.
797
Special Report
could still possibly be sustained if it had been
enacted after January 1,2010 (the effective date of
Proposition 26), the fee in Equilon does not. The
California Supreme Court remanded Cal. Farm Bureau for a determination regarding whether the levy
imposed by the division fits requirements similar to
those under the third exception to the definition of
tax, above; namely, whether the levy is imposed for
the reasonable regulatory costs to the division incident to issuing and enforcing its licenses and permits. The "fee" upheld by the court of appeal in
Equilon, on the other hand, does not appear to fit
within any of the above categories.
Although Proposition 26, by its own terms, appears to apply only to levies adopted after January
1, 2010, such that its substantive provisions should
not affect the levies at issue in Cal. Farm Bureau
and Equilon, the burden of proof provisions in
Proposition 26 may apply to pending and future
suits involving levies adopted before January 1,
2010. "Courts have consistently recognized the principle that a new statute addressing the conduct of
trials may actually be prospective in nature when
applied to a trial occurring after its effective date,
even though the trial deals with facts existing prior
to that date,"41 the court in Murphy v. City of
Alameda said. That principle does not apply, however, when the newly enacted provision, even though
seemingly procedural, "[c]hanges the legal consequences of the parties' past conduct, as by imposing
new and different liabilities based on that conduct"
or "by imposing an evidentiary requirement with
which it is impossible to comply."42
On their face, the burden of proof provisions in
Proposition 26 appear procedural in nature in that
they address the burden of proof of the parties at
trial, and they appear to adopt the same legal
standards as those enumerated in Sinclair Paint
such that they do not appear to alter the substantive
rights of the parties. Moreover, like the provision at
issue in Murphy, the provisions in Proposition 26
require only evidence that the exaction is currently
not a tax, rather than requiring evidence from the
time the levy was enacted, which may be impossible
to produce. 43 Thus, taxpayers appear to have a
41Murphy Ii. City of Alameda, 11 Cal. App. 4th 906, 911
(1992) (upholding the application of a statute that shifted the
burden of proof in actions challenging the validity of some
growth control ordinances to claims involving ordinances
enacted before the statute that shifted the burden of prooD.
42Id. at 912.
43See Murphy, 11 Cal. App. 4th at 912 ("The statute directs
that in any action challen!,>ing the validity of a growth control
ordinance, the city or county shall bear the burden of proof
that the ordinance 'is' necessary, not that it was necessary at
the time it was enacted.").
798
relatively strong argument that the burden of proof
provisions in Proposition 26 apply to levies regardless of when they were enacted. 44
The outcomes in Cal. Farm Bureau and Equilon
do not appear to turn on the burden of proof applied
by the courts in those cases, so the burden of proof
provisions in Proposition 26 would not have affected
the outcomes of these cases. The supreme court in
Cal. Farm Bureau, despite initially placing the burden on the plaintiff: appears to have remanded the
case for a determination of the "Board's evidentiary
showing," and the court of appeal in Equilon appears
to have based its decision on its legal conclusion,
rather than on whether either party had satisfied its
burden of proof under their respective legal theories.
However, because the burden of proof in lawsuits
often shapes, as a practical matter, how the lawsuit
proceeds, payers challenging levies as unconstitutional taxes should consider whether the burden of
proof provisions in Proposition 26 would apply to
their case even if the levy itself falls outside the
definitional provision of Proposition 26 because the
levy was enacted before January 1, 2010.
Payers challenging levies as
unconstitutional taxes should
consider whether the burden of
proof provisions in Proposition 26
would apply to their case even if
the levy itself falls outside the
definitional provision of
Proposition 26.
In short, Proposition 26 has fundamentally altered the dynamic surrounding the tax versus fee
question in California. It has done so both by significantly tightening the definition of a tax and by
clarifying that the burden of proof falls on the
government to prove that the levy at issue is not a
tax. As noted above, Proposition 26's clarification of
the burden of proof may even apply to challenges to
levies enacted well before the effective date of Proposition 26.
-tc
41Whether the burden of proof provisions in Proposition 26
apply to a levy will likely be a fact-specific inquiry that will
have to he addressed in the context of the levy being challenged. For example, because the court of appeal found that
there was no requirement for the state to periodically review
the levy at issue in Equilon, it may be argued that any
shifting of the burden of proof would necessarily impose an
evidentiary requirement on the state with which it would be
unable to comply, thereby affecting its substantive legal
rights. See Murphy, 11 Cal. App. 4th at 912.
State Tax Notes, March /4, 2011