San Francisco Parking Lot Tax Set for High Court Argument

April 3, 2019, 8:46 AM

Millions of dollars in taxes from university parking lots are at stake in a long-time fight between San Francisco and the University of California now at the California Supreme Court.

The battle, set for oral argument April 3, centers on San Francisco and other “home rule” cities that have broad powers to enact taxes colliding with a 63-year-old doctrine exempting state entities from local regulation when performing state functions.

In this case, it’s San Francisco’s 42-year-old tax on parking fees slamming into the University of California, San Francisco’s and San Francisco State University’s sprawling campuses, medical centers, and two dozen parking lots that feed into them.

The intergovernmental brawl centers on whether a home rule city’s taxing authority supersedes state agencies’ immunity from local rule. The case also has implications for other third-party taxes, including hotel and utility users’ taxes, the California League of Cities said in a brief supporting San Francisco.

Parking lot taxes are a significant source of local and university revenue. Parking lot taxes on average make up 2 percent of California cities’ general fund revenue, according to the league, which represents California’s 474 cities.

In San Francisco alone, nearly $4.3 million in annual taxes are at issue from the 25 percent parking tax, the city’s opening brief said. The court’s decision could affect millions more in uncollected taxes at other campuses in cities around the state.

The University of California, which has 10 campuses and 125,626 parking spaces, and California State University, which has 23 campuses (including San Francisco State University) and 161,113 parking spaces, contribute millions in revenue to their systems, the league said. The University of California, San Francisco’s 2013 parking revenue was $17.1 million, the U.C. Board of Regents said in a reply brief.

Rule Easily Applied?

The University of California and California State University want the state high court to sustain a May 2017 appeals court decision in their favor. The 2-1 appeals court held there was no exception to the long-recognized doctrine that exempts state entities from local regulation when they are performing governmental functions

“The majority opinion is simply the latest iteration of an established principle—state agencies engaged in sovereign activities are exempt from local law, unless the state has expressly agreed to be bound by those laws,” the University of California, Hastings said. “Courts have applied this rule without difficulty for decades, and nothing suggests they will have any difficulty in applying it in the future.”

One government may impose a nondiscriminatory tax on private parties doing business with another government, “even if the effect of that tax is to increase the economic burden on government or those who do business with it,” San Francisco said in its opening brief. While the San Francisco Tax Code exempts public entities from directly paying the parking tax, it doesn’t exempt the operator from a duty to collect and remit taxes paid by customers.

No state law compels state universities to collect local taxes on campus parking lots, the University of California, Hastings said in a brief. San Francisco misstates and misinterprets the immunity rule and advocates for a new rule under which cities could impose “reasonable” tax collections on state agencies “whenever they want, with or without the State’s consent.”

Justices will file a written opinion within 90 days.

36-Year Fight

The fight between San Francisco and the universities dates back to 1983 when the city dropped an attempt to recover an alleged tax deficiency from the University of California, San Francisco and revived the effort in 2011 when the city directed the University of California, San Francisco; University of California, Hastings College of the Law; and San Francisco State University to start collecting and remitting taxes. Litigation ensued.

The Court of Appeal in May 2017 held a state agency need not collect taxes when the entity is engaged in governmental functions.

“This decision creates a troublesome conflict about the role of state agencies in collecting and remitting city taxes that their customers owe,” San Francisco said in its petition seeking court review.

The 121 charter cities under the California Constitution can enact laws that trump state law, as opposed to general law cities that are bound by the state’s general law even with respect to municipal affairs.

The University of California serves a wide swath of the public. It’s also an employer whose situation is further complicated by systemwide union contracts that can limit parking rate increases, the regents said. About 40 percent of University of California San Francisco permits sold in 2013 were to individuals in bargaining units.

The case is City and Cty. of San Francisco v. Regents of the Univ. of Calif., Cal., No. S242835, oral arguments 4/3/19.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editor responsible for this story: Jeff Harrington at jharrington@bloombergtax.com

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