On March 30, 2020, the California Court of Appeal overruled the city of Oakland’s demurrer regarding the validity of its waste management franchise fees on the grounds the plaintiffs sufficiently alleged that the fees were taxes. The city entered into waste management contracts with two companies. In turn, the companies agreed to pay the franchise fees (and likely pass them on to the city’s residents). Three plaintiff individuals filed complaints for declaratory relief, asserting that the fees were actually local taxes subject to voter approval pursuant to Proposition 218.
In California, a franchise fee may constitute a tax to the extent it is not reasonably related to the value received from the government. The plaintiffs alleged that the waste management contracts were not the product of bona fide negotiations and that various financial analyses were not performed. The plaintiffs also alleged that these fees were disproportionately higher than those paid to other nearby municipalities, and Oakland’s procurement process was “mishandled and subject to political considerations.” The court held these allegations were sufficient to state a claim that the franchise fees were not reasonably related to the value received from the government – and therefore were taxes – and overruled the trial court’s determination to the contrary.