Prop. 26 confusion: What’s a tax?

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When should a ‘fee’ be called a ‘tax’?

Is it a tax or a fee when the government slaps a 20-cent-per-pack levy on cigarettes to help clean up litter -- as San Francisco has?

Is it a fee or a tax when the state Legislature gets paint companies to pay for a program to collect leftover paint and keep it -- and its toxic chemicals -- out of landfills?

Is it a tax or a fee when petroleum companies must contribute to a fund for oil spill cleanup?

This isn’t semantics.

On Nov. 2, California voters, by 53% to 47%, approved Proposition 26, a ballot initiative that reclassifies most regulatory fees on industry as ‘taxes’ requiring a two-thirds vote in government bodies or in public referendums, rather than a simple majority.

Now, from the Capitol in Sacramento to the boardrooms of county supervisors and city councils, lawmakers and lobbyists are scrambling to assess the fiscal and political effects of the measure, one of the most sweeping ballot-box initiatives in decades.

Before the election, few paid heed to Prop. 26, besides the oil, tobacco and alcohol companies that funneled millions of dollars into promoting it in the final weeks of the campaign.

Oil companies, led by Chevron, contributed $5 million to the Proposition 26 campaign, the most of any industry. Besides the fee vs. tax provision, the initiative contains a section outlawing revenue-neutral funding bills, a legislative strategy recently aimed at passing an oil severance tax. California is the only major oil-producing state without an extraction tax. If a severance tax were enacted, it would likely cost them as much as $1.2 billion a year. Environmentalists and health advocates said the initiative makes it nearly impossible in the current political climate to boost industry fees for cleaning up air, water and toxic waste pollution; for curbing smoking and alcohol abuse; or for enacting new programs. Republicans control more than a third of the votes in the legislature, and would be able to block any levy now reclassified as a tax.

‘California just got a lot harder to govern,’ said Bill Magavern, California director of the Sierra Club. ‘This poorly drafted initiative is virtually a full-employment act for lawyers.’ Both industries and public interest groups can be expected to turn to the courts over what constitutes a fee, as opposed to a tax, under the Prop. 26.

In Bakersfield this week, city lawyers advised council members to hold off on a tobacco retailer fee to fund sting programs that catch stores selling cigarettes to minors, a program already operating in surrounding Kern County. The city attorneys plan to ask the state attorney general if they will now have to get a two-thirds vote under Prop. 26.

‘We think it was a fair way to go,’ said Allan Zaremberg, chief executive of the California Chamber of Commerce, the biggest contributor to the Proposition 26 campaign. ‘It clarifies what is a tax and what is a fee. Right now, the public doesn’t want any taxes.’

Read more about the looming battle over Proposition 26.

-- Margot Roosevelt

RELATED: Prop 26: a new strategy for Big Oil?

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Cartoon: Ted Rall / For The Times