The Fourth District Court of Appeal has turned away a Proposition 218-based challenge to the City of San Diego's tax on rental residences. The court held that the tax is an excise tax that is not subject to the provisions of Proposition 218, the "Right to Vote on Taxes Act" of 1996. San Diego began assessing a "rental unit business tax" on apartments and hotels in 1942. The tax evolved over the years, and in 1992 was extended to cover all residential properties available for rent, including single-family homes. The city's last substantial amendment of the tax, codified at San Diego Municipal Code §31.0305, was in 1993, when the city raised the rates. The city assesses owners $50 plus $5 per unit for one to 10 units, $57 plus $9 per unit for 11 to 100 units, and $150 plus $8 per unit for more than 100 units. The city deposits the revenues into the general fund for general governmental purposes. Two property owners, Edward Teyssier and Robert McCarty, challenged the rental tax, claiming that the city had to put the assessment to a vote. But the property owners lost at separate trial courts, and, a unanimous three-judge panel of the Fourth District, in combined proceedings, upheld both rulings. Teyssier and McCarty pointed to the provision of Proposition 218 that "no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership." They argued that this language meant Proposition 218 applied to any assessment related to property ownership. But the Fourth District, Division One, panel refused to give Proposition 218 the broad reading that the property owners wanted. The court accepted the city's contention that the annual assessment is levied upon the use of property, not the ownership of property. "The plain meaning of ‘incident' as relevant here is ‘something that occurs … in connection with something else' or ‘something appertaining or attaching to something else,'" Acting Presiding Justice Don Work wrote, citing The Random House Dictionary. "By its plain language, [Proposition 218] applies to fees levied strictly as an incident of property ownership, without any additional condition present." Work continued, "Were Proposition 218 intended to include excise taxes imposed for the exercise of a privilege of ownership or a particular use of property, its drafters could have said so, clearly and expressly. They did not." As an excise tax, San Diego's assessment qualifies as a "general tax" under Proposition 218 (Articles XIII C and XIII D of the California Constitution), the court held. As a general tax, it would be subject to Proposition 218's voting requirement only if it were imposed, extended or increased after January 1, 1995, the court said. San Diego last increased the tax in 1993. The San Diego property owners presented an argument similar to one that was successful last year in a challenge to the City of Los Angeles's apartment inspection fee. (Apartment Association of Los Angeles v. City of Los Angeles, 74 Cal.App.4th 681; see CP&DR Legal Digest, October 1999.) In that case, the appellate court held that Proposition 218 did not distinguish between property owners in general and property owners who rent or lease their property. The state Supreme Court now has the case under review. But in a footnote to the San Diego case, the Fourth District said San Diego's ordinance is "significantly different" from Los Angeles' fee. In Los Angeles, the assessment was levied regardless of whether the unit was occupied, and the revenues were earmarked for anti-slum enforcement, the court said. In San Diego, the assessment is "a residential rental component of the business tax," is unrelated to inspections and pays for general governmental purposes. The Cases: Edward M. Teyssier v. City of San Diego, No. D033171 and City of San Diego v. Robert McCarty, No. D033622, 00 C.D.O.S. 4833, 2000 Daily Journal 6409, filed June 15, 2000. The Lawyers: For Teyssier and McCarty: Norman Blumenthal, Blumenthal, Ostroff & Markham, (619) 239-1111. For San Diego: Anita Noone, assistant city attorney, (619) 533-5800.