By Harriet Steiner and Lutfi Kharuf.
Cherrity Weatherford, who was a resident of the City of San Rafael in Marin County, rented (but did not own) property in the City. Although Weatherford’s vehicle was not impounded, she nonetheless took issue with the City’s and County’s enforcement practices of impounding vehicles. Weatherford believed that the City’s enforcement practices to impound vehicles violated state law and procedural due process requirements, and she sued the City for wasteful or illegal expenditures under Code of Civil Procedure section 526a in Weatherford v. City of San Rafael et al.
Last month, the Supreme Court held that Section 526a, which authorizes taxpayer lawsuits for wasteful or illegal expenditures by a government agency, does not require such taxpayers to pay property taxes. The Court’s ruling broadens the class of eligible plaintiffs who can sue a local entity under section 526a to include resident taxpayers who do not own property in the agency’s jurisdiction.
Section 526a allows a taxpayer to bring a lawsuit to stop governmental entities from the illegal or wasteful expenditure of public funds, even if the taxpayer does not have a direct or substantial interest in the outcome. In order to have standing to bring a section 526a suit against the government, the suit must be maintained by “a citizen resident therein, or by a corporation, who is assessed for and is liable to pay… or has paid, a tax therein.”
In Weatherford, the trial court dismissed the case for lack of standing and the appellate court affirmed. The lower courts had interpreted section 526a to require a plaintiff to pay property taxes to satisfy the taxpayer standing requirement. As a renter, Weatherford did not pay property taxes. In her appeal to the California Supreme Court, Weatherford claimed that she had satisfied the taxpayer requirement because she had paid sales tax, gasoline tax, water and sewage fees, and “other taxes, charges and fees routinely imposed” in the City. Weatherford argued that section 526a allows all forms of taxes assessed by state and local governments to qualify as long as a plaintiff is a resident. In contrast, the City argued that a plaintiff must be “assessed for and liable to pay” a tax that the local entity directly imposes onto a plaintiff and which the plaintiff directly pays into the local entity. The issue before the Supreme Court was whether section 526a requires payment of property taxes to bring suit for wasteful or illegal expenditures.
The Supreme Court reversed the lower court decisions and held that section 526a does not require residents to pay property taxes in their city or county to have standing to sue the local entity for wasteful or illegal expenditures. Previously, a plaintiff had to show that he or she owned property and paid property taxes in the locality to have that standing.
While Weatherford establishes that property taxes are sufficient for taxpayer standing, the Court did not resolve which taxes qualify for taxpayer standing under section 526a. Two justices drafted separate concurring opinions urging the Legislature to amend section 526a to clarify which taxes applied.
As a result of Weatherford, cities and counties may be exposed to increased section 526a challenges not only by property owners, but also any resident who pays other taxes assessed by the city or county. Until further clarification is provided by courts or legislation, it may be safest to assume that such challenges may come from residents paying sales and gasoline taxes, utility users taxes, property-related fees or charges, and other taxes, fees or charges levied by a city or county.
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Harriet Steiner is a partner at Best Best & Krieger LLP. She focuses on public law, representing cities, special districts and joint powers agencies. She can be reached at harriet.steiner@bbklaw.com.
Lutfi Kharuf is an associate in Best Best & Krieger LLP’s Special Districts and Public Finance practice groups. He can be reached at lutfi.kharuf@bbklaw.com.