Environmental -- 2017

California Chamber of Commerce v. California Air Resources Board   (California Supreme Court)

Challenging CARB cap-and-trade auction allowance revenues

In 2013, the NAM intervened in a case challenging a greenhouse gas cap-and-trade auction system created by California's Air Resources Board (ARB). The system generates extraordinary revenues, far beyond what is needed for administering the program. In the lower courts, we argued that the fees constitute a tax that must be approved by a two-thirds majority of the legislature.

The trial judge upheld the auction system, but said it was a close call. His ruling was affirmed 2-1 on appeal, and, on May 16, 2017, the NAM appealed to the California Supreme Court.

We argued that the lower court should have used the controlling legal precedent to assess whether a charge imposed for regulatory purposes is a tax. By rejecting that precedent, the court provided "a roadmap for the evasion of Proposition 13," which requires a two-thirds vote of the legislature to increase taxes.

"ARB purposely designed the allowance auctions to raise billions in excess revenue that could be used for general public benefit purposes," we argued. The Board endorsed the view that the auction revenue could "reduce the extent of the government's reliance on ordinary taxes for financing expenditures." We urged the court to review the ruling, which "concerns the constitutionality of a multi-billion dollar transfer of wealth from California businesses to the State." The ruling "effectively grants ARB a blank check to raise unlimited revenue, free and clear of any meaningful restraint."

We also challenged the appellate court's view that auction allowances are voluntary because a company is free to "choose to leave the state." We argued that that "holding defies precedent, the record evidence, and common sense, and taken to its logical conclusion, would mean that virtually all taxes are 'voluntary.'" The idea that business in California are simply "volunteering" to pay billions of dollars to the State out of the goodness of their hearts is nonsensical. Every tax can be avoided by leaving the state, but that does not make the tax voluntary. Moreover, while the auction allowances may be a valuable asset, that is true for other taxes that are paid to acquire valuable assets (sales taxes) or to engage in a valuable activity (income taxes).

On June 28, the Court declined to hear this appeal.

Related Documents:
NAM reply brief  (June 26, 2017)
NAM petition for review  (May 16, 2017)


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