Thursday, October 15, 2009
Court of Appeal Rejects Millionaires’ Challenge to Income Tax
By STEVEN M. ELLIS, Staff Writer
A ballot initiative imposing a tax on millionaires to fund mental health services did not violate equal protection, this district’s Court of Appeal ruled yesterday.
Reasoning that taxpayers earning more than $1 million annually do not comprise a “suspect class” requiring strict scrutiny analysis, Div. Two rejected a challenge to Proposition 63 by two La Canada Scientologists.
Proposition 63 was passed in 2004 and expanded funding for mental health services for all Californians by imposing an additional tax of 1 percent on annual income exceeding $1 million. It also prevented future state funding for mental health services from falling below the amounts allocated in 2003.
The Church of Scientology views psychiatry as a barbaric and corrupt profession, and encourages alternative care based on spiritual healing.
Claim for Refund
Craig Jensen—the founder and chief executive officer of Burbank software company Diskeeper Corporation, formerly Executive Software International, Inc—and his wife, Sally Jensen, filed suit after the Franchise Tax Board took no action on their claim for refund of state tax imposed on the portion of their 2006 annual income exceeding $1 million.
The pair alleged they were victims of arbitrary discrimination in violation of the federal and state equal protection clauses because Revenue & Tax Code Sec. 17043—which was added by Proposition 63—singled out wealthy individuals to bear the burden of a public expense, while others were excused. They reasoned that wealth is not a rational basis for a tax assessed for a specific purpose, such as mental health services.
The Jensens also challenged Welfare & Institutions Code Sec. 5891, maintaining funding for mental health services at 2003 levels, as an unconstitutional suspension of the legislative and executive branches’ budgetary powers. They claimed the initiative “cast in stone” the budgets for mental health services, and should have been done through a constitutional amendment.
The Franchise Tax Board demurred and Los Angeles Superior Court Judge Rex Heeseman dismissed the suit, noting that states have great leeway in making classifications that produce reasonable systems of taxation. Heeseman similarly rejected the argument that a constitutional amendment was necessary.
On appeal, Presiding Justice Roger W. Boren agreed, writing that there was “no basis” to hold that wealthy individuals form a “suspect class” deserving a heightened degree of scrutiny.
A suspect class is traditionally denoted by a presumptively unconstitutional distinction between individuals on the basis of race, national origin, alienage, or religious affiliation.
“Wealth generally confers benefits, and does not require the special protections afforded to suspect classes,” he said.
Applying rational basis review, Boren said that Proposition 63 was not unconstitutional because an income tax may be rationally based on a taxpayer’s income level and ability to pay, and because there is no need to show that a particular taxpayer personally benefits from a tax assessed for the public good.
The justice also rejected the Jensens’ contentions that the provision locking in budgets exceeded the electorate’s right to raise taxes through the initiative process.
Noting that the Legislature does not have the exclusive power to raise taxes and that courts have upheld the initiative power against claims that it impairs the Legislature’s ability to balance the budget, he said that the Jensens had failed to show that Proposition 63 would “destroy or severely limit” the Legislature’s power to formulate a budget.
Boren further commented that the provisions of the initiative were not “cast in stone,” pointing out that Proposition 63 could be amended or repealed by the Legislature with the approval of the electorate, and that the Legislature amended Welfare & Institutions Code Sec. 5891 in 2008 to allow the state controller to use funds created for loans to the General Fund.
Justices Judith M. Ashmann-Gerst and Victoria M. Chavez joined Boren in his opinion.
The case is Jensen v. Franchise Tax Board, B211815.
Copyright 2009, Metropolitan News Company