The major issue facing the legislature at this time is the budget deficit. Budget committees are chipping away at excess spending in an attempt to bring state finances in balance. The Governor and the Republican Caucus have publicly stated that tax increases would not be apart of the solution to the state's accounting discrepancy. The Republican's resolve in this matter helps taxpayers; under Proposition 13 there is a two-thirds vote requirement on tax increases which allows the spendthrift party to limit how much Californian's lose per paycheck. But there is another way taxes can be increased without regard to the two-thirds protection, and that is through fee proposals.

A "fee" requires only a majority vote for approval. This creates a "loophole" in some instances where a tax can be classified as a fee for the purposes of bypassing the two-thirds requirement. The courts have not helped clarify the situation for taxpayers. In a case heard before the California Supreme Court in 1997, Sinclair Paint v. State Board of Equalization (15 Cal.4th 866), the state's high court held that a health care assessment on manufacturers that were thought to be contributors to environmental lead poisoning was a fee because there was a sufficient connection between the damage and the mitigation sought through assessment. The decision further stated that regulatory agencies have the police power to impose fees to remedy negative effects caused by industry products that cause societal harm. This standard is vague when trying to determine if a fee is a tax.

CalChamber came up with a Three C's Test that I think does a very good job of ascertaining if a fee is a tax under Sinclair Paint. The first question to ask is if there is a connection between the proposed fee and the program or service it purports to fund. The person/group that caused the damage should be the only ones assessed a fee to mitigate the damage. If the group being assessed is larger than the group causing damage, then the fee is a tax. The group should be narrowly tailored to include only those who caused injury. The second question to ask is if the cost is reasonable to alleviate the harm. If the state charges more than necessary to complete a task, the excess money will go to other things, which is not a specific fee to address a societal grievance. The last question is if there are ample controls in place to guarantee that only monies collected under the charge are used to fund a mitigation program. No general funds should be used to fund the effort, and no fees should be used in general fund spending.

If the answers to these questions are all no - even if labeled a fee - the proposed assessment is most definitely a tax. This is a good test for our legislators to employ while they decide how to balance our state budget.