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Contact: Tony Francois
Senior Attorney
Pacific Legal Foundation
(916) 419-7111


PLF will ask state Supreme Court to hear cap-and-trade auction challenge

Sacramento, CA; April 14, 2017: Pacific Legal Foundation announced today that it will appeal to the California Supreme Court in its challenge to California’s cap-and-trade permit auction, after a divided appellate court exempted the costly financial mandate from Proposition 13’s requirement that new taxes receive supermajority approval in the Legislature.

Ted Hadzi-Antich, PLF Attorney
Tony Francois
Senior Attorney

“This case presents urgent issues that only California’s highest court can effectively review and resolve,” said PLF Senior Attorney Tony Francois.  “Driven by a ravenous appetite for revenue, the state has given some of our most significant businesses and employers an offer they can’t refuse — either buy emissions permits or get out of California.  The state Supreme Court needs to decide whether this strong-arm ultimatum is really, as the appellate court majority called it, a ‘voluntary’ arrangement that is somehow different and distinct from compulsory taxation.  One thing seems clear:  If this ‘pay up or shut down’ ultimatum is not a tax, then many forms of traditional taxation — think gas taxes — could also be defined as ‘voluntary,’ and exempted from the taxpayer protections in the state Constitution.”

The cap-and-trade permit auction requires many California employers to bid billions of dollars for “allowances,” or permits, that are now required in order to continue operating boilers and other equipment that emits carbon dioxide — or be faced with closing their doors in the state, laying off their employees, and moving their businesses elsewhere.

The regulation was devised by the California Air Resources Board (CARB), purportedly as authorized by AB 32, the greenhouse-gas reduction law.  PLF’s lawsuit contends that this massive revenue-generating mandate is a tax, yet AB 32 was not enacted by two-thirds majorities in the Assembly and Senate, as required for new state taxes.

Appellate majority labeled a “pay up or shut down” demand as “voluntary”

In a 2-1 ruling earlier this month upholding the regulation, the state Third District Court of Appeal asserted that the billions of dollars that the state is collecting through the cap-and-trade allowance auction are not taxes under Prop. 13.  The majority reached this conclusion by asserting that the purchase of state-issued emission permits is “voluntary” and the permits provide the purchaser with a unit of “property.”  In dissent, Associate Justice Harry E. Hull, Jr., observed that for businesses such as PLF’s lead client – Woodland-based Morning Star Packing Company – the program is “compulsory if they are to remain in business in California,” and “the auction program creates, in actual effect, general revenue” for the state; therefore, it amounts to a “tax” subject to Prop. 13’s requirements.

“The bureaucrats and politicians who concocted this cap-and-trade auction scheme have created a gusher of taxation while avoiding Prop. 13’s two-thirds-vote requirement for new taxes,” said Lew Uhler, Founder and President of the National Tax Limitation Committee, one of the organizations represented by PLF in petitioning the Supreme Court.  “These billions of dollars in auction revenues flow directly into the state’s coffers, and they’re being doled out for a smorgasbord of politicians’ wish lists and general state programs.  In other words, this is a revenue-generating machine that operates like any general tax – only on a much larger scale and even more damaging to the economy than most.  The California Supreme Court needs to accept this case and make it clear that the courts can’t eviscerate Prop. 13’s protections by calling a mammoth tax program by another name.”

In challenging the cap-and-trade permit auction, PLF represents, free of charge, a broad coalition of businesses, individuals, and taxpayer defense organizations.  They include:

  • The Morning Star Packing Company, headquartered in Woodland, California. Because its three tomato processing facilities emit carbon dioxide, Morning Star must participate in CARB auctions in order to continue operating.
  • Merit Oil Company, a family business whose operations include storing, transporting, and selling a variety of petroleum products.
  • California Construction Trucking Association (CCTA).
  • Dalton Trucking, Inc., a California corporation in the business of operating and leasing loaders, dozers, blades, and water trucks.
  • Loggers Association of Northern California (LANC).
  • Ron Cinquini Farming, of Chico.
  • Robinson Enterprises, Inc., headquartered in Nevada City, engaged in several businesses, including logging, construction services, heavy equipment fleet operation, and trucking.
  • Construction Industry Air Quality Coalition (CIAQC), a California trade association founded in 1989 by four Southern California trade associations:  Associated General Contractors, Building Industry Association of Southern California, Engineering Contractors Association, and Southern California Contractors Association.
  • California taxpayers and small business owners Norman R. “Skip” Brown and his wife Joanne, and Robert Michael McClernon.
  • The National Tax Limitation Committee (NTLC),one of the oldest and most strategically oriented pro-taxpayer/entrepreneur organizations in America.

The case is Morning Star Packing Company v. CARB.  More information, including explanatory blog post, may be found at PLF’s website:

About Pacific Legal Foundation
Pacific Legal Foundation, America’s most powerful ally for justice, litigates in courts nationwide for limited government, property rights, individual liberty, free enterprise, and a balanced approach to environmental regulations.  PLF represents all clients free of charge.


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