19. First reading administrative remedies ordinanceOFFICE OF THE CITY ATTORNEY
20410 TOWN CENTER LANE, STE 210• CUPERTINO, CA 95014
TELEPHONE: (408) 777-3403 • FAX: (408) 777-3401
CUPERTINO
SUP/iMARY
Agenda Item No.
SUBJECT
Meeting Date: February 16, 2010
Conduct the f rst reading of Ordinance No. a05 _ adopting Section 1.18.040 of the Cupertino
Municipal Code regarding claims against the City.
BACKGROUND
Article XIII, Section 32 of the California Constitution requires those who seek a refund of a tax or
fee paid to the State to pay the tax or fee in dispute and then sue for a refund. This "pay first,
litigate later" rule is intended to allow the State to predict and manage its finances and to deny
"hold-up" leverage to those would prefer not to pay their taxes. This nzle has also been applied to
taxes and fees imposed by local governments grid most public lawyers have long believed the rule
to apply to local governments. Recently, however, the California Court of Appeal in Los Angeles
ruled to the contrary in a dispute between Anaheim and Internet resellers of hotel rooms, allowing
those resellers to challenge Anaheim's hotel beci tax without first paying the sums owed to the city.
Accordingly, to ensure that the City continues to have the benefit of this long-standing rule of
procedure, my office has prepared the attached ordinance for the Council's consideration. Cities
and counties around the state are considering similar ordinances in response to the Anaheim
decision.
It should also be noted that, if the City were to lase a tax or refund case, the tax- or fee-payor would
be entitled to a refund of the disputed tax or fee and 7% interest. Thus, the City has no incen#ive to
force tax- and fee-payors to sue to obtain refunds to which they are entitled. The City has had no
refund litigation in recent years, so this proposa:! is simply routine- Code maintenance.
Alternatives
1. Adopt an Ordinance adopting Section 1.18.040 of the City of Cupertino Municipal Code
regarding claims against the City.
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February 16, 2010
Page 2
2. Do not adopt an Ordinance adopting Section 1.18.040 of the City of Cupertino Municipal
Code regarding claims against the City. This will deny the City the protection of Article XIII,
Section 32 of the California Constitution if the Anaheim case is not reversed by the California
Supreme Court. It could also expose the City to liabilities which would otherwise be avoided.
Fiscal Impact
Adoption of this ordinance provides clarification that the City's ordinances require a tax payment in
advance of settling a tax dispute. It will bar or reduce the number of refund suits that do not comply
with the pay first, litigate later rule and the corresponding legal costs. This protects City finances
from those who would seek to exert hold-up leverage against the City by unfairly disputing tax and
fee obligations merely to delay payment.
STAFF RECOMMENDATION
Conduct the first reading of Ordinance No dos adopting Section 1.18.040 of the Cupertino
Municipal Code regarding claims against the City.
Submitted by:
Carol Korade, City Attorney
Approved for submission to the City Council:
David W. Knapp, City Manager
Attachment A: Draft Claiming Ordinance
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/tTfuCh~~~T p
~~
ORDINANCE 1~I0. 10-2054
AN ORDINANCE OF THE CITY COUI\'CIL OF THE CITY OF CUPERTINO
ADOPTING SECTION 1.18.040 OF THE CUPERTINO MUNICIPAL CODE
REGARDING EXHAUSTION OF ADArIINISTRATIVE REMEDIES WITH
RESPECT TO CLAIMS AGAINST THE CITY
THE CITY COUNCIL OF THE CITY OF CUPERTINO DOES HEREBY
ORDAIN AS FOLLOWS:
Section 1. Code Amendment. Section. 1.18.040 of the Cupertino Municipal Code
is hereby adopted to read as follows:
Section 1.18.040 Exhaustion of Administrative Remedies
Prior to seeking judicial relief with respect to a dispute regarding a tax, fee or
other charge imposed by the city, an aggrieved taxpayer, fee payer or other person must
exhaust administrative remedies by: {i) exhau:~ting any administrative remedies specified
by any other provision of this code or other applicable law, {ii) paying the full amount
owed, including applicable penalties and interest, and {iii} presenting a claim for refund
under section 1.18.015 of this code.
Section 2. Statement o, f Purpose. 'This Ordinance is intended to apply the
requirements of Article XIII, Section 32 of thf; California Constitution to disputes
involving taxes and fees imposed by the City. These requirements include the "pay first,
litigate later" rule that requires those who dispute their taxes to pay them before suing for
a refund. In the absence of such a Wile, any taxpayer could impose significant hardship
on the City and undermine its ability to predict its revenues and manage its resources for
the benefit of the public it serves. Absence o#'such a rule would give unwarranted hold-
up leverage to every taxpayer, no matter how unfounded his or her refund claim might
be.
Section 3. Severability. Should ar~y provision of this Ordinance, or its
application to any person or circumstance, be determined by a court of competent
jurisdiction to be unlawful, unenforceable or c-therwise void, that determination shall
have no effect on any other provision of this trdinance or the application of this-
Ordinance to any other person or circumstance and, to that end, the provisions hereof are
severable.
Section 4. Effective Date. This Ordinance shall take effect thirty days after
adoption as provided by Government Code Section 36937.
Section 5. Certi rcation. The City Clerk shall certify to the passage and
adoption of this Ordinance and shall give notice of its adoption as required by law.
Pursuant to Government Cade Section 36933, a summary of this Ordinance may be
published and posted in lieu of publication an~i posting of the entire text.
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Ordinance No. 10-2054
2
INTRODUCED at a regular adjourned meeting of the Cupertino City Council the
16th day of February and ENACTED at a regular meeting of the Cupertino City Council
the day of 2010 by the following vote:
Vote Members of the Citv Council
Ayes:
Noes:
Absent:
Abstain:
ATTEST:
City Clerk
APPROVED:
Mayor, City of Cupertino
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