sr-032310-7a~~
~;,YO, City Council Report
Santa Monica
City Council Meeting: March 23, 2010
Agenda Item: ~--}~
To: Mayor and City Council
From: Marsha Jones Moutrie, City Attorney
Subject: Proposed Ordinance Clarifying Procedures for Tax Challenges
Recommended Action
Staff recommends that the City Council introduce for first reading the attached
ordinance clarifying that the City follows the "pay first, litigate later" rule, which requires
payment of the full amount of an assessed tax, plus interest and/or penalties, prior to
instituting any challenge to the tax, interest and/or penalties.
Executive Summary
The City does not have an express requirement that the payment of disputed taxes,
plus interest and/or penalties, is a precondition to pursuing judicial or other review of
any tax assessed by the City. As such, a party may claim that it is entitled to delay
payment of assessed taxes due and owing to the City while litigation related to the
City's assessment is pending. The proposed ordinance expressly states that any
person wishing to challenge an assessed tax must comply with the "pay first, litigate
later" rule.
Background and Discussion
Article XIII, Section 32 of the California Constitution requires those who seek a refund of
a tax or fee paid to the State to pay the tax or fee in dispute and then sue for a refund.
This "pay first, litigate later" rule is intended to allow the State to predict and manage its
finances and to deny "hold-up" leverage to those who would prefer not to-pay .their
taxes. This rule has also been applied to taxes and fees imposed by local governments
and most public agency lawyers have long believed the rule extended to local
governments. Recently, however, the California Court of Appeal in Los Angeles ruled
differently in a dispute between the City of Anaheim and various online travel
companies, allowing them to challenge Anaheim's transient occupancy tax without first
paying the assessed amount.
1
To ensure that the City continues to have the benefit of this long-standing rule of
procedure, staff has prepared the attached ordinance for the Council's consideration.
Cities and counties around the State are considering and adopting similar ordinances in
response to the recent Court of Appeal decision.
Financial Impacts
The proposed ordinance should lower costs by barring refund suits that do not comply
with the "pay first, litigate later" rule. It will further protect City finances by preventing
taxpayers from unfairly disputing tax obligations merely to delay payment.
Prepared by: Roger C. Rees, Deputy City Attorney
Approved:
l
Mar a Jo a outrie
City Attor
Forwarded to Council:
~~~-~.. s
Rod Gould
City Manager
2
City Council Meeting: March 23, 2010 Santa Monica, California
ORDINANCE NUMBER (CCS)
(City Council Series)
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA
AMENDING SECTION 6.16.010 OF ARTICLE 6 OF THE SANTA MONICA MUNICIPAL
CODE; RELATING TO CHALLENGES TO TAXES ASSESSED BY THE CITY
WHEREAS, the City of Santa Monica imposes taxes on a variety of private
activities to provide the City with sufficient funds for public services; and
WHEREAS, the California Constitution, Article XIII, section 32 states that no
legal or equitable action may be brought to prevent or enjoin the collection of any tax,
but there has been some question as to whether this provision applies to municipalities
(the "pay first, litigate later rule"); and
WHEREAS, to clarify that the pay first, litigate later rule is applicable to the City,
and that no challenge to aCity-imposed tax may be brought except after such tax,
including interest and any penalties, has been paid, the City finds it necessary to adopt
an express pay first, litigate later rule.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA
DOES HEREBY ORDAIN AS FOLLOWS:
SECTION 1. Section 6.16.010 of Chapter 6.16 of the Santa Monica Municipal
Code is amended to read as follows:
1
Section 6.16.010. Right of Appeal.
(a) Any person aggrieved by the action of any officer or
employee of the City suspending, revoking, or denying any
permit or license under Article 6 of this Code may appeal to
a Hearing Examiner in accordance with Section 6.16.020.
For purposes of this Code, revocation shall include a
decision to deny an application to renew a license or permit.
Any reference. in this-Code to the License Review Board or
License Appeal Board shall be deemed to refer to a Hearing
Examiner.
(b) There shall be no right of administrative appeal as to
the determination of the amount of any tax, fee,. interest, or
penalties due, nor shall there be any right to administrative
appeal as to any determination concerning business
classification or refunds.
(c) No injunction, writ of mandate, or other legal or
equitable process shall issue in anv suit, action, or
proceeding in-any court against the City or ah officer thereof,
to prevent' or enjoin the collection of taxes assessed
pursuant to this Article.
(d) No person may commence or maintain any
proceeding; or assert any .legal or eauitable claim of anv
kind, whether affirmatively or by defense, against the City
2
challenging or disputing in anv way the imposition,
assessment or collection of anv tax, interest, or penalty,
unless the person first deposits with the City the full amount
of anv tax, interest or penalty imposed or assessed or
otherwise challenged or claimed to be in dispute. Only after
~avment of a .tax, including interest. and any penalties
assessed or imposed, claimed to be illegal or otherwise
i~ro~er, may a person maintain an action to recover the tax
and other amounts paid and in dispute, with interest, in such
manner as provided by law.
SECTION 2. Any provision of the Santa Monica Municipal Code or appendices
thereto inconsistent with the provisions of this Ordinance; to the extent of such
inconsistencies and no further, is hereby repealed or modified to that extent necessary
to effect the provisions of this Ordinance.
SECTION 3. If any section., subsection, sentence, clause, or phrase of this
Ordinance is for any reason held to be invalid or unconstitutional by a decision of any
court of competent jurisdiction, such decision shall not affect the validity of the
remaining portions of this Ordinance. The City Council hereby declares that it would
have passed this Ordinance and each and every section, subsection, sentence, clause,
or phrase not declared invalid or unconstitutional without regard to whether any portion
of this Ordinance would be subsequently declared invalid or unconstitutional.
SECTION 4. The Mayor shall sign and the City Clerk shall attest to the passage
3
of this Ordinance. The City Clerk shall cause the same to be published once in the
official newspaper within 75 days after its adoption. This Ordinance shall become
effective 30 days from its adoption.
APPROVED AS TO FORM:
% ~
MAR A JO UT IE
City ttorre
4