Weekes v. City of Oakland

Citation579 P.2d 449,21 Cal.3d 386,146 Cal.Rptr. 558
Decision Date30 May 1978
Docket NumberS.F. 23598
CourtUnited States State Supreme Court (California)
Parties, 579 P.2d 449 Beresford David WEEKES et al., Plaintiffs and Respondents, v. CITY OF OAKLAND et al., Defendants and Appellants, Richard K. Groulx et al., Interveners and Respondents.
[579 P.2d 450] David A. Self, City Atty., Ralph R. Kuchler, Asst. City Atty., and Douglas Dang, Deputy City Atty., for defendants and appellants

Burt Pines, City Atty. (Los Angeles), Thomas C. Bonaventura, Asst. City Atty., Pedro B. Echeverria and Thomas J. Theis, Deputy City Attys., Thomas M. O'Connor, City Atty. (San Francisco), John J. Doherty, Deputy City Atty., William J. Adams, City Atty. (Merced), and James P. Jackson, City Atty. (Sacramento), as amici curiae on behalf of defendants and appellants.

Berkley and Rhodes, Thomas L. Berkley, Oakland, Gene Rhodes, Fremont, and Leon H. Rountree, Jr., Oakland, for plaintiffs and respondents.

Van Bourg, Allen, Weinberg & Roger, Oakland, Van Bourg, Allen, Weinberg, Williams & Roger, Victor J. Van Bourg, Stewart Weinberg, William A. Sokol and Michael B. Roger, San Francisco, for interveners and respondents.

Evelle J. Younger, Atty. Gen., Ernest P. Goodman, Asst. Atty. Gen., and Gary A. Larson, Deputy Atty. Gen., as amici curiae on behalf of interveners and respondents.


May a chartered city, in the exercise of powers conferred by the home rule provision of the California Constitution (art. XI, § 5, subd. (a)), levy upon all persons employed within the city a tax measured by the compensation received from employers, notwithstanding an express statutory prohibition against municipal taxes "upon income"? (Rev. & Tax.Code, § 17041.5; all statutory references are to that code, unless otherwise cited.) This is the issue presented to us following the City of Oakland's adoption in June 1974 of Municipal Code section 5-1.65, which provides for an "employee license fee" upon the "privilege of engaging in or following any business, trade, occupation or profession as an employee." The fee is measured by the employee's "gross receipts" for services performed in Oakland and consists generally of 1 percent of Oakland-derived earnings. (Oakland Mun.Code, § 5-1.65.) Thus, we examine the interplay of a state constitutional authorization, a statutory prohibition, and a municipal ordinance enacted by a chartered city.

Plaintiffs and interveners, all subject to the ordinance and potential taxpayers, assert that the levy, although denominated a The city offers in support of the ordinance essentially two arguments, the ultimate validity of which is pivotal herein: first, that the license fee is not a tax upon income but a business or occupation tax measured by gross receipts; and second, that even if it is an income tax the levy is a legitimate exercise of a chartered city's revenue-raising power which the Legislature is without authority to prohibit.

"license fee," is essentially a municipal income tax, which has been imposed in contravention of the following express legislative prohibition of section 17041.5: "Notwithstanding any statute, ordinance, regulation, rule or decision to the contrary, no city, county, city and county, governmental subdivision, district, public and quasi-public corporation, municipal corporation, whether incorporated or not or whether chartered or not, shall levy or collect or cause to be levied or collected any tax upon the income, or any part thereof, of any person, resident or nonresident. (P) This section shall not be construed so as to prohibit . . . any otherwise authorized license tax upon a business measured by or according to gross receipts."

We conclude that the fee is what it purports to be, namely, an occupation tax substantially resembling the type of municipal license fee long approved by us and expressly authorized by the final paragraph of section 17041.5. In view of our conclusion in this regard, we need not, and do not, reach the further question whether the Legislature is prevented by the home rule provision of the California Constitution from imposing an absolute ban upon revenue-raising measures of this nature enacted by chartered cities.

We briefly examine certain characteristics of the subject ordinance, and observe that it exacts an employee license fee for the privilege of engaging, within the city, in any business, trade, occupation or profession (other than that of domestic servant in a private home) as an employee. The fee is measured by the employee's "gross receipts" in excess of $1,625 per quarter. The ordinance defines "gross receipts" as "compensation," which includes "the total gross amount of all salaries, wages, commissions, bonuses, or other money payments of any kind or any other considerations having monetary value, which a person receives from or is entitled to receive from or be given credit for by his employer" for services rendered within the City of Oakland (Oakland Mun.Code, § 5-1.65(g).) Travel and business-expense allowances or reimbursements are excluded from gross receipts, but there is no deduction for business-related expenses. If an "employee" has an ownership interest in a business and is thereby liable for a portion of the city business license fee already imposed upon owners and operators of businesses, he is entitled to an appropriate credit against the employee license fee. Provision is made for an apportionment between compensation earned in Oakland, which is subject to tax, and compensation attributable to activities outside Oakland, which is tax exempt.

Although the employee is the actual taxpayer, the ordinance requires employers to collect the license fee by withholding tax from each employee's paycheck. The employer must remit payments to the city treasurer on a quarterly basis, but if he fails to do so, or if the license fee liability of a particular employee is not completely accounted for by withholding, the employee himself is obliged to file an annual return. The ordinance does not provide for the actual issuance of any certificate of compliance or "license," although it makes payment of the license fee a condition precedent to continued employment in the city.

It will thus be seen that any person employed in Oakland, whether a resident or nonresident, owes the city 1 percent of his Oakland-generated compensation for the privilege of earning a living there. Residents of Oakland who are employed elsewhere are not subject to the license fee.

In reviewing the applicable law we acknowledge, preliminarily, the long standing principle that the power to raise revenue for local purposes is not only appropriate but, indeed, absolutely vital for a municipality. (United States v. New Orleans Thus, Oakland's right to enact a revenue-raising tax is not at issue unless the city's own charter imposes restrictions upon its taxing power (which the parties concede it does not), or the city ordinance is in direct and immediate conflict with a state statute or statutory scheme. (Bishop v. City of San Jose (1969) 1 Cal.3d 56, 62, 81 Cal.Rptr. 465, 460 P.2d 137; Pipoly v. Benson (1942) 20 Cal.2d 366, 370, 125 P.2d 482.) Since section 17041.5 by its terms bars only a municipal tax "upon income," there exists no conflict between statute and ordinance if the license fee under examination is not a tax upon income. (Cf., Rivera v. City of Fresno (1971) 6 Cal.3d 132, 98 Cal.Rptr. 281, 490 P.2d 793.)

(1878) 98 U.S. 381, 393, 25 L.Ed. 225; Ex parte Braun (1903) 141 Cal. 204, 209, 74 P. 780.) Moreover, the power to tax for local purposes clearly is one of the privileges accorded chartered cities by the home rule provision of the California Constitution (Cal.Const., art. XI, § 5, subd. (a); West Coast Adver. Co. v. San Francisco (1939) 14 Cal.2d 516, 524, 526, 95 P.2d 138; Ex parte Braun, supra, 141 Cal. at pp. 211-212, 74 P. 780; Franklin v. Peterson (1948) 87 Cal.App.2d 727, 732, 197 P.2d 788.)

In the ordinance itself, the levy at issue is described as a "license fee," and the city refers to it as an "occupation" or "business" tax. We have said, of course, that the legislative designation of a particular tax, though persuasive, is not determinative as to its nature. (Ex parte Braun, supra, 141 Cal. 204, 206, 74 P. 780; In re Johnson (1920) 47 Cal.App. 465, 466, 190 P. 852; see Beamer v. Franchise Tax Board (1977) 19 Cal.3d 467, 475, 138 Cal.Rptr. 199, 563 P.2d 238.) The character of a tax is ascertained from its incidents, not its label. (Ainsworth v. Bryant (1949) 34 Cal.2d 465, 473, 211 P.2d 564; Ingels v. Riley (1936) 5 Cal.2d 154, 159, 53 P.2d 939.)

Approaching the difficult task of classification of the particular levy before us, we note first numerous differences between the license fee and the typical income tax. For example, the provision which defines "gross income" for state income tax purposes (§ 17071, substantially identical to its federal counterpart, Int.Rev.Code, § 61), includes not only "compensation for services" and "gross income derived from business" but "interest," "rents," "royalties," "annuities," "income from discharge of indebtedness," "income from an interest in an estate or trust," and other items and sources of revenue which the Oakland tax does not purport to reach. Moreover, the traditional assessment commonly recognized as an income tax is ordinarily a tax upon net income that is, gross income reduced by other taxes, business expenses, and costs incurred in the production of the income. The Oakland ordinance, in contrast, expressly includes, as compensation subject to the levy, sums deducted "before 'take home' pay is received" (Oakland Mun. Code, § 5-1.65(g)) and forbids deduction of business-related expenses, except that the taxpayer may claim a credit for any other business license tax paid to the city. The city contends, accordingly, that the "gross receipts" characteristic of the license tax, together with the availability of a credit for license fees exacted from...

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