Kennedy Wholesale, Inc. v. Board of Equalization

• Decision Date: 14 December 1989
• Docket Number: No. C,C
• Citation: 227 Cal.App.3d 228,265 Cal.Rptr. 195
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 227 Cal.App.3d 228 227 Cal.App.3d 228 KENNEDY WHOLESALE, INC., Plaintiff and Appellant, v. BOARD OF EQUALIZATION, Defendant and Respondent. iv. C006406.

Page 195

265 Cal.Rptr. 195

Previously published at 227 Cal.App.3d 228

227 Cal.App.3d 228

KENNEDY WHOLESALE, INC., Plaintiff and Appellant, v. BOARD OF EQUALIZATION, Defendant and Respondent.

No. Civ. C006406.

Court of Appeal, Third District, California.

Dec. 14, 1989.

Review Granted Mar. 1, 1990.

Ron Olson, Law office of Munger, Tolles, and Olson, Los Angeles, Law office of Ball, Hunt, Hart, Brown and Baerwitz, for plaintiff and appellant.

John K. Van de Kamp, Atty. Gen., N. Eugene Hill, Asst. Atty. Gen., Richard M. Frank, Supervising Deputy Atty. Gen., and Floyd D. Shimomura, Deputy Atty. Gen., for defendant and respondent.

Daniel G. Nauman, Sacramento, on behalf of Amicus Curiae for appellant.

Olson, Connelly, Hagel and Fong, George Waters, Sacramento, on behalf of Amicus Curiae for respondent.

DAVIS, Associate Justice.

INTRODUCTION

In this case we are called upon to determine the constitutionality of Proposition 99, the Tobacco Tax Initiative, passed by a 58 percent vote of the electorate in November 1988. Plaintiff Kennedy Wholesale, Inc. ("Kennedy"), a tobacco distributor, sues for a refund of taxes paid pursuant to Proposition 99, urging that the initiative is unconstitutional on a variety of grounds.

We affirm and hold that Proposition 99 does not violate Proposition 13; the single subject rule applicable to initiatives; the equal protection clause of either the United States or the California Constitution; and does not infringe on the Legislature's constitutional appropriations power.

FACTUAL AND PROCEDURAL BACKGROUND

Proposition 99, the "Tobacco Tax and Health Protection Act of 1988," ("The Act") was a statutory initiative measure approved by the electors on November 8, 1988. The Act included the following findings and declarations: "Sec. 2. The people find and declare as follows: [p ] (a) Tobacco use is the single most preventable cause of death and disease in America. [p ] (b) Tobacco-related diseases create immense suffering and personal loss, and a staggering economic cost which all Californians have to pay. [p ] (c) Tobacco-related diseases are a major burden on state and local governments by requiring them to provide medical care and health services. [p ] (d) Tobacco use causes substantial environmental damage, and property damage and loss of life due to fire. [p ] (e) To reduce the incidence of cancer, heart, and lung disease and to reduce the economic costs of tobacco use in California, it is the intent of the people of California to increase the state tax on cigarettes and tobacco products and do all of the following: [p ] (1) Reduce smoking and other tobacco use among children. [p ] (2) Support medical research into tobacco-related cancer, heart, and lung diseases. [p ] (3) Treat people suffering from tobacco-related diseases. [p ] (4) In recognition of the uncompensated costs of tobacco-related illness, support treatment of patients who cannot afford to pay for services." Proposition 99 added sections 30121 through 30130 to the Revenue and Taxation Code. ¹ The Tobacco Initiative imposes additional taxes on distributors of cigarettes and tobacco products and creates a Cigarette and Tobacco Products Surtax Fund in the State Treasury into which all revenues generated by its terms are to be deposited. (Rev. & Tax.Code, §§ 30123 and 30122(a).) ² The fund consists of six separate accounts: a Health Education Account; a Hospital Services Account; a Physician Services Account; a Research Account; a Public Resources Account; and an Unallocated Account. (§ 30122(b).) The monies in the fund may be appropriated only for the following four purposes and only to supplement existing levels of service: (1) Tobacco-related school and community health education programs; (2) Tobacco-related disease research; (3) Medical and hospital care and treatment of patients who cannot afford to pay for those services, and for whom payment will not be made through any private coverage or by any program funded in whole or in part by the federal government; and (4) Programs for fire prevention; environmental conservation; protection, restoration, enhancement, and maintenance of fish, waterfowl, and wildlife habitat areas; and enhancement of state and local park and recreation purposes." (§§ 30122, subd. (a) and 30125.) A deposit formula is mandated for all monies raised by the new tax: twenty percent to the Health Education Account; thirty-five percent to the Hospital Services Account; ten percent to the Physician Services Account; five percent to the Research Account; five percent to the Public Resources Account; and twenty-five percent to the Unallocated Account. (§ 30124, subd. (b).)

The new law became effective on January 1, 1989. (§ 30128.) On January 3, 1989, plaintiff Kennedy, a distributor of cigarettes and tobacco products, paid an increased tax of $50,510.49 pursuant to the Initiative. It simultaneously filed a claim for refund with the Board of Equalization ("Board"), alleging that the initiative is unconstitutional under the California and U.S. Constitutions. On January 12, 1989, the Board promptly notified Kennedy of the denial of its claims for refund. On January 17, 1989, pursuant to section 30403, ³ Kennedy instituted this action in the superior court for a refund of taxes paid under protest, raising identical constitutional issues.

Kennedy alleges that Proposition 99 violates section 3 of article XIII A of the California State Constitution, commonly known as "Proposition 13," which provides that no statewide tax may be increased or added except by two-thirds vote of both houses of the state legislature; that it violates the "single subject" rule of article II, section 8(d) of the state Constitution by embracing and funding more than one subject; that it violates the equal protection clauses of the California and United States Constitutions by enforcing a statute which burdens one class of persons with a tax which benefits the public generally; and finally, that it violates article IV, section 12 of the state Constitution by restricting the appropriations power of future legislatures. Kennedy requests a determination that Proposition 99 is unconstitutional and a refund of taxes paid plus interest.

The parties stipulated to a motion for judgment on the pleadings by the Board based on arguments previously presented and deemed the Board's motion submitted for decision. On March 31, 1989, the court granted the Board's motion for judgment on the pleadings and entered judgment in favor of the Board. Plaintiff timely appeals.

STANDARD OF REVIEW

In reviewing the constitutional authority of the people to enact a statutory initiative the Supreme Court has recently stated that: "[i]n adjudicating such constitutional issues, our duty is clear: 'We do not consider or weigh the economic or social wisdom or general propriety of the initiative. Rather, our sole function is to evaluate [it] legally in the light of established constitutional standards.' (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 219 [149 Cal.Rptr. 239, 583 P.2d 1281]; see Ferguson v. Skrupa (1963) 372 U.S. 726, 730 [83 S.Ct. 1028, 1031, 10 L.Ed.2d 93, 97, 95 A.L.R.2d 1347].) '[A]ll presumptions and intendments favor the validity of a statute and mere doubt does not afford sufficient reason for a judicial declaration of invalidity. Statutes must be upheld unless their unconstitutionality clearly, positively, and unmistakably appears.' (In re Ricky H. (1970) 2 Cal.3d 513, 519 [86 Cal.Rptr. 76, 468 P.2d 204]; In re Dennis M. (1969) 70 Cal.2d 444, 453 [75 Cal.Rptr. 1, 450 P.2d 296]; Lockheed Aircraft Corp. v. Superior Court (1946) 28 Cal.2d 481, 484 [171 P.2d 21, 166 A.L.R. 701].) If the validity of the measure is 'fairly debatable,' it must be sustained. (Associated Home Builders, etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 605 [135 Cal.Rptr. 41, 557 P.2d 473, 92 A.L.R.3d 1038]; Hamer v. Town of Ross (1963) 59 Cal.2d 776, 783 [31 Cal.Rptr. 335, 382 P.2d 375] and cases there cited.)" (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814-815, 258 Cal.Rptr. 161, 771 P.2d 1247.)

I PROPOSITION 13 AND THE STATUTORY INITIATIVE ⁴

Plaintiff argues that Proposition 99, a statutory initiative, violates section 3 of article XIII A, which was enacted by constitutional initiative in 1978, and appeared as part of Proposition 13 on the ballot. That section, entitled "Changes in State Taxes--Vote Requirement", provides "[f]rom and after the effective date of this article, any changes in State taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods 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, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed."

Plaintiff argues that the plain and unambiguous language of section 3 prohibits tax increases by statutory initiative; that to allow a tax increase by statutory initiative would violate the purpose of Proposition 13; and that an interpretation allowing tax increases by statutory initiative would violate the established rule that the voters' power of initiative is no greater than the Legislature's power. Plaintiff relies on Legislature v. Deukmejian (1983) 34 Cal.3d 658, 194 Cal.Rptr. 781, 669 P.2d 17, for the proposition that the initiative and legislative powers are coextensive, even where the restriction by its own terms applies only to acts by the Legislature. Plaintiff further argues that an interpretation which would allow a statewide tax increase by statutory initiative passed by a majority vote would create anomalies in Proposition 13's restrictions on tax increases, as indicated by section 4 which provides that "special taxes" may be increased by cities, counties and special districts only...