City of S.F. v. Regents of the Univ. of Cal.

The Court of Appeal affirmed in a published opinion, agreeing with the trial court that the Means - Hall doctrine exempts the state agencies from collecting and remitting the parking tax. ( City and County of San Francisco v. Regents of University of California (2017) 11 Cal.App.5th 1107 , 218 Cal.Rptr.3d 466 ( City and County of San Francisco ).)

Justice Banke dissented. In her view, the state's sovereignty is "not impinged" ( City and County of San Francisco , supra , 11 Cal.App.5th at p. 1149, 218 Cal.Rptr.3d 466 (dis. opn. of Banke, J.)) by the "minimal burden" ( ibid. ) of "collecting a general local tax imposed on third parties, particularly where the costs of such are reimbursed" ( id. at p. 1146, 218 Cal.Rptr.3d 466 ). She also observed that other authorities have, contrary to the majority's holding, concluded that a municipality may require a state entity to collect a general tax imposed on third parties doing business with the entity,

Many of California's local governments predate California's statehood, and the framers of the 1879 California Constitution dedicated an entire article to the subject of their powers. From the outset, the 1879 Constitution expressly recognized the police powers of local government, and continues to do so today: As relevant here, any city "may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws." ( Cal. Const., art. XI, § 7.) The 1879 Constitution also permitted cities of a certain size to adopt charters for their own government. ( Weekes v. City of Oakland (1978) 21 Cal.3d 386 , 399, 146 Cal.Rptr. 558 , 579 P.2d 449 ( Weekes ), citing Cal. Const., art. XI, §§ 6, 8 (1879).) In 1896, voters approved a so-called "home rule" provision granting charter cities "supremacy over local matters." ( Weekes , at p. 399, 146 Cal.Rptr. 558 , 579 P.2d 449 .) This provision, as presently written, permits charter cities to "make and enforce all ordinances and

The relationship between the federal and state governments is by no means identical to the relationship between state universities and charter cities. But the federal cases nevertheless offer several important lessons that have proved influential in our own case law. The federal cases recognize that "inferior" governments may levy taxes on private parties, even if the economic burden of that

The only municipal tax case in which we have invalidated a city's assertion of the power to tax parties regulated by or doing business with the state is California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1 , 283 Cal.Rptr. 569 , 812 P.2d 916 ( California Federal ). Not surprisingly, the universities rely heavily on California Federal , but it does not help them. In California Federal , we held that a state statute imposing a tax on banks and financial corporations in lieu of all other taxes and licenses preempted a municipal business tax that the City of Los Angeles, a charter city, sought to collect from a savings and loan association operating within its jurisdiction. The core of the ruling concerned the conflict between the municipal tax and the state taxation law, which had been designed to displace all other taxation laws. ( Id. at pp. 18-19, 283 Cal.Rptr. 569 , 812 P.2d 916 .) We explained that although taxation is a "necessary and appropriate power of municipal government, aspects of local taxation may under some circumstances acquire a 'supramunicipal' dimension, transforming an otherwise intramural affair into a matter of statewide concern warranting legislative attention." ( Id. at p. 7, 283 Cal.Rptr. 569 , 812 P.2d 916 .) "In the event of a true conflict between a state statute reasonably tailored to the

To the extent CSU or the other universities argue San Francisco's parking tax is impliedly preempted because it imposes an economic burden that threatens interference with the universities' performance of their assigned duties, we have already explained that the law is to the contrary; indirect economic consequences alone are insufficient to invalidate a nondiscriminatory municipal tax on third parties doing business with the state or its agencies. This is, in substance, the same argument that was rejected in Oakland Raiders . And it is an argument inconsistent with the basic principles we applied in Weekes . Any municipal tax will produce economic ripples that reach every significant market participant. If state agencies could invalidate municipal taxes based on these indirect effects on their operations, little would be left of the city's revenue power. Rather than attempt to draw granular distinctions based on the degree to which a tax on third parties affects government operations, the law instead generally confers on municipal

Here, too, we conclude that the constitutional task before us calls for a sensitive balancing of constitutional interests, rather than a simple invocation of constitutional rank. To be sure, this is not a preemption case like California Federal ; we are not asking whether an ordinance that would otherwise represent a lawful exercise of the charter city's powers is invalid, either on its face or as applied, because the Legislature has claimed the relevant regulatory area exclusively for the state. But the basic task is similar. Here, much as in California Federal ,

The Court of Appeal rejected this argument. The court held, as an initial matter, that a collection requirement that affects a state agency in its

San Francisco is a consolidated city and county that has adopted a charter for its own governance under article XI, section 3 of the California Constitution. Exercising its constitutional power to regulate its "municipal affairs" as a charter city ( Cal. Const., art. XI, § 5, subd. (a)), in the early 1970's San Francisco enacted a tax on the cost of "rent" for any parking space at a parking lot or garage in the city. (S.F. Bus. & Tax Regs. Code, art. 9, § 601.) Since 1980, the parking tax rate has been set at 25%. ( Id. , § 602.5.)

The San Francisco parking tax is imposed on drivers. But like many taxes of its kind, the parking tax is not paid directly to the city; drivers instead pay

In 1983, San Francisco attempted to collect parking lot taxes from UCSF, but the Regents asserted immunity and San Francisco declined to pursue the matter. That

San Francisco contends that its power to raise municipal revenue through taxation permits it to apply its tax ordinance to paid university parking lots within San Francisco borders, just as it applies the ordinance to other paid parking lots operated by private entities. The universities, on the other hand, argue that their status as agencies of the sovereign state government, engaged in duties assigned to them by state law and addressing matters of statewide importance, places private parties' use of their paid parking lots beyond the reach of San Francisco's revenue power. No provision of the state Constitution expressly resolves this controversy; the parties thus rely primarily on inferences from constitutional structure and this court's precedent resolving other types of intergovernmental conflicts. To answer the question, we must disentangle two separate threads of the inquiry. First, does San Francisco have the power to tax drivers who use paid university parking lots? Second, if so, may San Francisco enlist the universities' help in collecting and remitting the taxes?

We begin with the first issue, which goes to the substantive validity of the parking tax. The answer follows from settled precedent. As we have described it, the tax in question is not imposed on the state universities or their property. It is, rather, imposed on private parties-namely, drivers who use parking lots. This is a critical distinction. Since the days of M'Culloch v. State of Maryland (1819) 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 , it has been understood that the law forbids one government from imposing a tax on another. But it is also understood that the law does not forbid a government from imposing a tax on private third parties who happen to do business with another government (provided, that is, the tax does not discriminate against the parties because they are doing business with the government). (E.g., Weekes , supra , 21 Cal.3d at p. 398, 146 Cal.Rptr. 558 , 579 P.2d 449 , citing Graves v. N. Y. ex rel. O'Keefe (1939) 306 U.S. 466 , 486-487, 59 S.Ct. 595 , 83 L.Ed. 927 ( Graves ).) The parking tax here, which applies to drivers in precisely the same way regardless of whether they use the university parking lot or a private parking lot across the street, belongs to this second category of taxes. There is no assertion here that the drivers here stand in the shoes of the universities themselves. Principles of governmental tax immunity do not bar the parking tax.

The universities do not take direct aim at this settled understanding of the limits of governmental tax immunity or their application to this case; the primary focus of their challenge to San Francisco's ordinance is, rather, the

In elaborating these principles, these cases drew on a body of federal case law applying similar principles to uphold similar taxes imposed by state governments on federal employees and contractors. (See

California cases adopting this general view have not been limited to the realms of employment or contracting. For example, in Board of Trustees v. City of Los Angeles (1975) 49 Cal.App.3d 45 , 122 Cal.Rptr. 361 ( Board of Trustees ), the court upheld a municipal permitting requirement as applied to a circus held on CSU property. The court noted the ordinance would affect CSU "only in whatever manner enforcement might affect the revenue production" of the property, which was insufficient to bar the tax under preemption or sovereign immunity principles. ( Id. at p. 49, 122 Cal.Rptr. 361 .) And in Oakland Raiders v. City of Berkeley (1976) 65 Cal.App.3d 623 , 137 Cal.Rptr. 648 ( Oakland Raiders ), the court upheld a city gross receipts tax on the Oakland Raiders for professional football games played in California Memorial Stadium at the University of California, Berkeley. The court acknowledged "the University of California is not subject to local regulations with regard to its use or management of the property held by the Regents in public trust." ( Id. at p. 626, 137 Cal.Rptr. 648 .) Nonetheless, the court concluded, "[a] tax upon the operation of a business by a lessee of publicly owned property constitutes a tax upon the privilege of performing the business rather than a tax upon the property." ( Id. at p. 627, 137 Cal.Rptr. 648 .) And " 'where it

This case involves no similar conflict between the Legislature's resolution of a

Applying these principles here, we conclude that the San Francisco parking tax ordinance is not invalid as applied to drivers who park in paid university parking lots even though the tax will have secondary effects on the universities. This conclusion in no way calls into question the genuineness or importance of the universities' interest in providing accessible parking to staff, students, and guests, while minimizing the impact on their own budgets. We instead conclude that such interests, important though they may be, are not a sufficient basis for setting aside a nondiscriminatory municipal tax where the legal incidence falls on private parties who do not actually " 'stand in the Government's shoes.' " ( New Mexico , supra , 455 U.S. at p. 736, 102 S.Ct. 1373 .)

To put the matter simply: Private parties transacting on state property may not appropriate to themselves the state's immunity from local taxation, and state agencies may not nullify local taxes on account of unfavorable secondary economic effects. (See Oakland Raiders , supra , 65 Cal.App.3d at p. 627, 137 Cal.Rptr. 648 ;

What makes this case unusual is that one government has sought to impose such a requirement on another. While governments have often agreed among themselves to lend such assistance (see, e.g., 5 U.S.C. § 5517 [authorizing federal employers to withhold state income taxes]; Rev. & Tax. Code, § 7204 [authorizing the State Board of Equalization to remit sales and use taxes collected on behalf of local governments] ), here no such agreement has been reached. The universities contend that principles of "hierarchical sovereignty" embodied in the California Constitution forbid a municipality from imposing any sort of requirement on the sovereign state or state agencies engaged in their assigned functions-including a requirement to collect and remit local taxes from users of their facilities-unless the state consents to the imposition.

The centerpiece of the universities' argument is a series of cases holding that otherwise legitimate exercises of municipal regulatory power cannot be enforced against state agencies engaged in pursuit of their constitutionally or statutorily assigned duties. The line of cases begins with Means , supra , 14 Cal.2d 254 , 93 P.2d 105 , which concerned the constitutionality of applying a municipal plumber certification ordinance, which required plumbers to sit for examination and deliver a bond, against a state employee working on state property. ( Id. at pp. 256-257, 93 P.2d 105 .) We held the ordinance could not be constitutionally applied to the state employee, explaining that when setting qualifications for its employees, the state "acts in an exclusive field [citations], and is not subject to the legislative enactments of subordinate governmental agencies." ( Id. at p. 258, 93 P.2d 105 .) Thus, "[i]f one who has been employed by the state may not work on state property within a municipality without the consent of the municipality obtained after examination, the city has, in effect, added to the requirements for employment by the state, and restricted the rights of sovereignty." ( Ibid . )

In so holding, Means outlined a set of general limits on a charter city's power over "municipal affairs." The rule, we explained, "is not entirely a geographical one. Under certain circumstances, an act relating to property within a city may be of such general concern that local regulation concerning municipal affairs is inapplicable." ( Means , supra , 14 Cal.2d at p. 259, 93 P.2d 105 .) For

In questions concerning the division of authority between the state and charter cities, in particular, we have recognized the need to maintain a sensitive balance between competing prerogatives. In California Federal , we emphasized the fact- and circumstance-specific nature of the determination whether an ordinance governs a " 'municipal affair,' " ( California Federal , supra , 54 Cal.3d at p. 17, 283 Cal.Rptr. 569 , 812 P.2d 916 ) over which charter cities maintain ultimate authority ( Cal. Const., art. XI, § 5, subd. (a)), or a " 'statewide concern,' " which means the charter city measure must yield in the face of conflicting state interests ( California Federal , at p. 17, 283 Cal.Rptr. 569 , 812 P.2d 916 ). "In cases presenting a true conflict between a charter city measure-whether

Defendants are the Regents of the University of California (Regents), which oversees the University of California at San Francisco (UCSF); the Board of Directors of Hastings College of the Law (Hastings); and the Board of Trustees of the California State University (CSU), which operates San Francisco State University (SFSU) (collectively, the universities). All of the university defendants own and operate private parking facilities in San Francisco in order to serve the needs of their respective campuses. Specifically, the Regents own and operate parking facilities at UCSF's educational and healthcare facilities for the use of faculty, staff, students, researchers,

Hearing the call, we granted review.

II.

The general problem in this case is familiar to any constitutional system in which two governments exercise authority within the same territory. The specific task before us is to determine the proper allocation

Although the universities offer these arguments in service of their arguments for avoiding collection of San Francisco's parking tax, their true target is plainly the tax itself. If San Francisco's parking tax ordinance interferes with their judgments about how best to provide affordable access for guests and affiliates, it is because of San Francisco's chosen tax rate as applied to the third parties who park in university lots, not because of the requirement that parking lot operators collect these taxes along with other parking charges.

The answers to this set of objections, however, also follow from settled precedent. Our cases have made clear that a particular private activity may be a matter of particular concern to the state and nonetheless subject to municipal taxation. Even when the state has exclusive regulatory authority in a particular area, a local tax on the conduct of the regulated activity, without more, is not an impermissible " 'interference with state affairs.' " ( In re Groves (1960) 54 Cal.2d 154 , 157, 4 Cal.Rptr. 844 , 351 P.2d 1028 , quoting In re Galusha (1921) 184 Cal. 697 , 195 P. 406 [municipality may tax attorney engaged in practice of law, notwithstanding exclusive state regulation of legal practice].)

Our cases have also held that it is permissible for a municipality to tax such private activities even though the tax imposes an indirect economic burden on the state government. General taxes on government employees and contractors are prime examples. In Weekes , supra , 21 Cal.3d 386 , 146 Cal.Rptr. 558 , 579 P.2d 449 , for example, this court upheld the application of a municipal occupation tax to state workers notwithstanding the clear, if indirect, impact on the state's choices regarding employee compensation. Similarly, in City of Los Angeles v. A.E.C. Los Angeles (1973) 33 Cal.App.3d 933 , 109 Cal.Rptr. 519 (

We turn then, to the crux of the case before us: whether the California Constitution permits San Francisco to require the state university parking lot operators to collect the parking tax and remit the proceeds to the city.

And outside of the context of federal-state relations, the high court has concluded that one government-the state-does have the authority to require another government-an Indian tribe-to bear " 'minimal burdens' " in collecting any applicable state taxes on its behalf, even though the tribe is in no way answerable to the state. ( Oklahoma Tax Comm'n v. Chickasaw Nation (1995) 515 U.S. 450 , 459, 115 S.Ct. 2214 , 132 L.Ed.2d 400 .)

Having exhausted the relevant precedent in this area, it remains to consider whether the structure of our state Constitution requires us to erect a rigid bar against the sort of intergovernmental tax collection assistance requirement at issue here. We conclude that it does not. In matters concerning the structural division of authority under our Constitution, we have generally avoided the type of absolutist approach the universities urge in favor of a

This conclusion accords with the only appellate decision to consider this issue before the Court of Appeal decision in this case. In City of Modesto , supra , 34 Cal.App.3d 504 , 110 Cal.Rptr. 111 , Modesto, a charter city, sought to compel irrigation districts-state agencies that distribute and sell electrical energy-to collect utility taxes owed by the service user. The irrigation districts conceded the utility users' tax was a "valid exercise of a chartered city's power to tax for revenue purposes." ( Id. at p. 506, 110 Cal.Rptr. 111 .) But much like