California Taxpayers Ass'n v. Franchise Tax Board

We conclude here that Revenue and Taxation Code section 19138, 1 a corporate tax penalty provision for understating such taxes by more than $1 million, is just that—a penalty—and therefore not subject to the two-thirds legislative vote requirement for a “state tax” increase as required by article XIII A, section 3, of the state Constitution (enacted as part of Prop. 13 in 1978). We also conclude that this statute, as properly construed, affords due process. Accordingly, we shall affirm the judgment.

PROCEDURAL BACKGROUND

California Constitution, article XIII A, section 3 (hereinafter, article 13A, section 3), requires in relevant part that “any changes in state taxes enacted *1143 for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods of computation must be imposed by an Act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature . . . .”

In this lawsuit, a taxpayers group which represents individual and corporate taxpayers, the California Taxpayers Association (CalTax), has sued the state Franchise Tax Board (the Board). CalTax claims that section 19138 is…